Question 1

If the Fed raises the federal funds rate, which of the following happens?

Accepted Answer

A)  net exports increases 
B)  the real interest rate falls 
C)  aggregate demand decreases 
D)  real GDP increases 
E)  the price level rises 
A)  net exports increases 
B)  the real interest rate falls 
C)  aggregate demand decreases 
D)  real GDP increases 
E)  the price level rises

Question 2

Discretionary monetary policy is defined as policy for which

Accepted Answer

A)  the markets make all decisions. 
B)  policy is based on the judgments of policymakers. 
C)  the policy is pursued regardless of the current state of the economy. 
D)  the policy responds to a changing economy with predetermined rules. 
E)  the policy maker always publicizes the policy as extensively as possible because its effectiveness depends on the public's knowledge of the policy. 
A)  the markets make all decisions. 
B)  policy is based on the judgments of policymakers. 
C)  the policy is pursued regardless of the current state of the economy. 
D)  the policy responds to a changing economy with predetermined rules. 
E)  the policy maker always publicizes the policy as extensively as possible because its effectiveness depends on the public's knowledge of the policy.

Question 3

Describe inflation targeting rule as a monetary policy.What are its benefits?

Accepted Answer

Inflation targeting requires that the na

Question 4

Which of the following is the Fed's monetary policy instrument?

Accepted Answer

A)  the output gap 
B)  the core inflation rate 
C)  the federal funds rate 
D)  the supply of reserves 
E)  the demand for reserves 
A)  the output gap 
B)  the core inflation rate 
C)  the federal funds rate 
D)  the supply of reserves 
E)  the demand for reserves

Question 5

Discretionary monetary policy has the drawback that it

Accepted Answer

A)  must lead to very high inflation. 
B)  is currently illegal in the United States. 
C)  cannot be implemented using changes in the federal funds rate. 
D)  makes inflation expectations harder to manage. 
E)  None of the above answers are correct. 
A)  must lead to very high inflation. 
B)  is currently illegal in the United States. 
C)  cannot be implemented using changes in the federal funds rate. 
D)  makes inflation expectations harder to manage. 
E)  None of the above answers are correct.

Question 6

If the Fed lowers the federal funds rate, eventually the

Accepted Answer

A)  AD curve shifts leftward, decreasing real GDP and raising the price level. 
B)  AS curve shifts leftward, decreasing real GDP and raising the price level. 
C)  AD curve shifts rightward, increasing real GDP and raising the price level. 
D)  AD curve shifts leftward, decreasing real GDP and lowering the price level. 
E)  AS curve shifts rightward, decreasing real GDP and raising the price level. 
A)  AD curve shifts leftward, decreasing real GDP and raising the price level. 
B)  AS curve shifts leftward, decreasing real GDP and raising the price level. 
C)  AD curve shifts rightward, increasing real GDP and raising the price level. 
D)  AD curve shifts leftward, decreasing real GDP and lowering the price level. 
E)  AS curve shifts rightward, decreasing real GDP and raising the price level.

Question 7

The rightward shift of the RS curve will lead to a ________ in the U.S.exchange rate, ________ in real GDP, and a ________ in the price level.

Accepted Answer

A)  rise; an increase; rise 
B)  rise; an increase; fall 
C)  rise; a decrease; fall 
D)  fall; an increase; rise 
E)  fall; an increase; fall 
A)  rise; an increase; rise 
B)  rise; an increase; fall 
C)  rise; a decrease; fall 
D)  fall; an increase; rise 
E)  fall; an increase; fall

Question 8

If the Fed sells U.S.government securities,

Accepted Answer

A)  the federal funds rate rises. 
B)  the U.S.Treasury gains some revenue. 
C)  the U.S.Treasury loses some revenue. 
D)  banks' reserves increase. 
E)  None of the above answers is correct. 
A)  the federal funds rate rises. 
B)  the U.S.Treasury gains some revenue. 
C)  the U.S.Treasury loses some revenue. 
D)  banks' reserves increase. 
E)  None of the above answers is correct.

Question 9

Describe why monetary policy rules are superior to discretionary monetary policy.

Accepted Answer

Rules are superior to discretion because

Question 10

The Fed is concerned that inflation might occur.To help eliminate this possibility, the Fed could ________ government securities to ________ the federal funds rate in the short run.

Accepted Answer

A)  buy; lower 
B)  buy; raise 
C)  sell; lower 
D)  sell; raise 
E)  sell; not change 
A)  buy; lower 
B)  buy; raise 
C)  sell; lower 
D)  sell; raise 
E)  sell; not change

Question 11

The figure above shows the market for loanable funds.The supply of loanable funds curve shifts rightward.
-The change illustrated in the figure above is part of the transmission process of the Fed's monetary policy.As a result of the increase in the supply of loanable funds, in the short run aggregate demand ________, aggregate supply ________, and potential GDP ________.

Accepted Answer

A)  increases; decreases; decreases 
B)  increases; increases; increases 
C)  decreases; decreases; decreases 
D)  increases; does not change; does not change 
E)  decreases; increases; increases 
A)  increases; decreases; decreases 
B)  increases; increases; increases 
C)  decreases; decreases; decreases 
D)  increases; does not change; does not change 
E)  decreases; increases; increases

Question 12

Of the following, which is NOT a monetary policy rule the Fed could follow?

Accepted Answer

A)  a gold price targeting rule 
B)  an unemployment rate targeting rule 
C)  an inflation targeting rule 
D)  a k-percent rule 
E)  a money targeting rule 
A)  a gold price targeting rule 
B)  an unemployment rate targeting rule 
C)  an inflation targeting rule 
D)  a k-percent rule 
E)  a money targeting rule

Question 13

The k-percent rule, an example of a money targeting rule, relies on a relatively stable

Accepted Answer

A)  demand for money. 
B)  price of gold. 
C)  supply of money. 
D)  federal funds rate. 
E)  real interest rate. 
A)  demand for money. 
B)  price of gold. 
C)  supply of money. 
D)  federal funds rate. 
E)  real interest rate.

Question 14

If the Fed carries out an open market operation and sells U.S.government securities, the federal funds rate ________ and the quantity of reserves ________.

Accepted Answer

A)  falls; increases 
B)  rises; increases 
C)  rises; does not change 
D)  falls; decreases 
E)  rises; decreases 
A)  falls; increases 
B)  rises; increases 
C)  rises; does not change 
D)  falls; decreases 
E)  rises; decreases

Question 15

If the Fed raises the federal funds rate, eventually the

Accepted Answer

A)  AD curve shifts rightward and real GDP increases. 
B)  AD curve shifts leftward and real GDP decreases. 
C)  AS curve shifts rightward and real GDP increases. 
D)  AS curve shifts leftward and real GDP decreases. 
E)  AD curve shifts rightward and real GDP decreases. 
A)  AD curve shifts rightward and real GDP increases. 
B)  AD curve shifts leftward and real GDP decreases. 
C)  AS curve shifts rightward and real GDP increases. 
D)  AS curve shifts leftward and real GDP decreases. 
E)  AD curve shifts rightward and real GDP decreases.

Question 16

$$\begin{array} { c c c } 
\begin{array} { c } 
\text { Price level } \
\text { (GDP deflator, } \
\mathbf { 2 0 0 5 = 1 0 0 } \text { ) }
\end{array} & \begin{array} { c } 
\text { Aggregate supply } \
\text { (billions of } \
\text { 2005 dollars) }
\end{array} & \begin{array} { c } 
\text { Aggregate demand } \
\text { (billions of } \
\text { 2005 dollars) }
\end{array} \
\hline 30 & 28 & 16 \
25 & 25 & 19 \
20 & 22 & 22 \
15 & 19 & 25 \
10 & 16 & 28 \
\hline
\end{array}$$
-Using the data in the above table, if potential GDP for this economy is $25 billion, then at the present moment real GDP is

Accepted Answer

A)  less than potential GDP. 
B)  equal to potential GDP. 
C)  greater than potential GDP. 
D)  at the full-employment level of output. 
E)  not comparable to potential GDP. 
A)  less than potential GDP. 
B)  equal to potential GDP. 
C)  greater than potential GDP. 
D)  at the full-employment level of output. 
E)  not comparable to potential GDP.

Question 17

-The figure above shows the market for bank reserves in Futureland.If the Bank of Futureland undertakes an open market sale of government securities that changes the quantity of reserves by $25 billion, then the federal funds rate will ________.

Accepted Answer

A)  rise to 6 percent a year 
B)  remain at 4 percent a year 
C)  fall to 4 percent a year 
D)  change but more information is needed to determine by how much 
E)  None of the above answers is correct. 
A)  rise to 6 percent a year 
B)  remain at 4 percent a year 
C)  fall to 4 percent a year 
D)  change but more information is needed to determine by how much 
E)  None of the above answers is correct.

Question 18

Which of the following is NOT an effect from a change in the federal funds rate?

Accepted Answer

A)  change in the real interest rate 
B)  change in investment 
C)  change in government expenditures 
D)  change in aggregate demand 
E)  change in the quantity of money 
A)  change in the real interest rate 
B)  change in investment 
C)  change in government expenditures 
D)  change in aggregate demand 
E)  change in the quantity of money

Question 19

Which of the following statements are correct?
i. Congress does not play a role in making monetary policy decisions
ii. The FOMC meets eight times a year to make monetary policy decisions
iii. The President of the United States appoints members and the Chairman of the Board of governors but has little other formal authority over monetary policy

Accepted Answer

A)  i, ii, and iii 
B)  i and ii 
C)  ii only 
D)  i and iii 
E)  ii and iii 
A)  i, ii, and iii 
B)  i and ii 
C)  ii only 
D)  i and iii 
E)  ii and iii

Question 20

Discretionary monetary policy is monetary policy that is based on

Accepted Answer

A)  the judgment of Congress about the current needs of the economy. 
B)  a rule that allows no discretion in how policymakers respond to the state of the economy. 
C)  the ups and downs of the stock market. 
D)  the judgment of the monetary policymakers about the current needs of the economy. 
E)  rules that depend upon the state of the economy. 
A)  the judgment of Congress about the current needs of the economy. 
B)  a rule that allows no discretion in how policymakers respond to the state of the economy. 
C)  the ups and downs of the stock market. 
D)  the judgment of the monetary policymakers about the current needs of the economy. 
E)  rules that depend upon the state of the economy.

If the Fed raises the federal funds rate, which of the following happens?

Discretionary monetary policy is defined as policy for which

Describe inflation targeting rule as a monetary policy.What are its benefits?

Which of the following is the Fed's monetary policy instrument?

Discretionary monetary policy has the drawback that it

If the Fed lowers the federal funds rate, eventually the

The rightward shift of the RS curve will lead to a in the U.S.exchange rate, in real GDP, and a in the price level.

If the Fed sells U.S.government securities,

Describe why monetary policy rules are superior to discretionary monetary policy.

The Fed is concerned that inflation might occur.To help eliminate this possibility, the Fed could government securities to the federal funds rate in the short run.

Of the following, which is NOT a monetary policy rule the Fed could follow?

The k-percent rule, an example of a money targeting rule, relies on a relatively stable

If the Fed carries out an open market operation and sells U.S.government securities, the federal funds rate and the quantity of reserves .

If the Fed raises the federal funds rate, eventually the

Price level (GDP deflator, ) Aggregate supply (billions of 2005 dollars) Aggregate demand (billions of 2005 dollars) 30 28 16 25 25 19 20 22 22 15 19 25 10 16 28 -Using the data in the above table, if potential GDP for this economy is $25 billion, then at the present moment real GDP is

-The figure above shows the market for bank reserves in Futureland.If the Bank of Futureland undertakes an open market sale of government securities that changes the quantity of reserves by $25 billion, then the federal funds rate will ________.

Which of the following is NOT an effect from a change in the federal funds rate?

Discretionary monetary policy is monetary policy that is based on

Getting Started

The Usand Global Economies

The Economic Problem

Demand and Supply

Gdp: a Measure of Total Production and Income

Jobs and Unemployment

The Cpi and the Cost of Living

Potential Gdp and the Natural Unemployment Rate

Economic Growth

Finance, Saving, and Investment

The Monetary System

Money, Interest, and Inflation

Aggregate Supply and Aggregate Demand

Aggregate Expenditure Multiplier

The Short-Run Policy Tradeoff

Fiscal Policy

International Trade Policy

International Finance

Filters

Exam 17: Monetary Policy

If the Fed raises the federal funds rate, which of the following happens?

Discretionary monetary policy is defined as policy for which

Describe inflation targeting rule as a monetary policy.What are its benefits?

Which of the following is the Fed's monetary policy instrument?

Discretionary monetary policy has the drawback that it

If the Fed lowers the federal funds rate, eventually the

The rightward shift of the RS curve will lead to a ________ in the U.S.exchange rate, ________ in real GDP, and a ________ in the price level.

If the Fed sells U.S.government securities,

Describe why monetary policy rules are superior to discretionary monetary policy.

The Fed is concerned that inflation might occur.To help eliminate this possibility, the Fed could ________ government securities to ________ the federal funds rate in the short run.

Of the following, which is NOT a monetary policy rule the Fed could follow?

The k-percent rule, an example of a money targeting rule, relies on a relatively stable

If the Fed carries out an open market operation and sells U.S.government securities, the federal funds rate ________ and the quantity of reserves ________.

If the Fed raises the federal funds rate, eventually the

Price level (GDP deflator, ) Aggregate supply (billions of 2005 dollars) Aggregate demand (billions of 2005 dollars) 30 28 16 25 25 19 20 22 22 15 19 25 10 16 28 -Using the data in the above table, if potential GDP for this economy is $25 billion, then at the present moment real GDP is

-The figure above shows the market for bank reserves in Futureland.If the Bank of Futureland undertakes an open market sale of government securities that changes the quantity of reserves by $25 billion, then the federal funds rate will ________.

Which of the following is NOT an effect from a change in the federal funds rate?

Discretionary monetary policy is monetary policy that is based on

Getting Started

The Usand Global Economies

The Economic Problem

Demand and Supply

Gdp: a Measure of Total Production and Income

Jobs and Unemployment

The Cpi and the Cost of Living

Potential Gdp and the Natural Unemployment Rate

Economic Growth

Finance, Saving, and Investment

The Monetary System

Money, Interest, and Inflation

Aggregate Supply and Aggregate Demand

Aggregate Expenditure Multiplier

The Short-Run Policy Tradeoff

Fiscal Policy

International Trade Policy

International Finance

Filters

The rightward shift of the RS curve will lead to a in the U.S.exchange rate, in real GDP, and a in the price level.

The Fed is concerned that inflation might occur.To help eliminate this possibility, the Fed could government securities to the federal funds rate in the short run.

If the Fed carries out an open market operation and sells U.S.government securities, the federal funds rate and the quantity of reserves .