Question 1

When the Fed worries about inflation, it ________ the federal funds rate and, in the short run, ________ the real interest rate.

Accepted Answer

A)  lowers; lowers 
B)  lowers; raises 
C)  raises; lowers 
D)  raises; raises 
E)  does not change; the Fed raises 
A)  lowers; lowers 
B)  lowers; raises 
C)  raises; lowers 
D)  raises; raises 
E)  does not change; the Fed raises

Question 2

When the Fed lowers the federal funds rate, which of the following economic variables responds most slowly?

Accepted Answer

A)  consumption expenditure 
B)  the supply of loanable funds 
C)  the long-term real interest rate 
D)  other short-term interest rates 
E)  the inflation rate 
A)  consumption expenditure 
B)  the supply of loanable funds 
C)  the long-term real interest rate 
D)  other short-term interest rates 
E)  the inflation rate

Question 3

The interest rate banks charge each other on overnight loans is called the

Accepted Answer

A)  federal funds rate. 
B)  coupon rate. 
C)  required reserve rate. 
D)  discount rate. 
E)  real interest rate. 
A)  federal funds rate. 
B)  coupon rate. 
C)  required reserve rate. 
D)  discount rate. 
E)  real interest rate.

Question 4

When the Fed raises the federal funds rate, the consumption expenditure ________ and investment ________.

Accepted Answer

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

Question 5

If the Fed sells government securities, in the short run the nominal interest rate ________ and the real interest rate ________.

Accepted Answer

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

Question 6

Consumer confidence in the economy falls, and as a result, aggregate demand decreases.As real GDP falls below potential GDP, if the Fed followed Friedman's k-percent rule, the Fed would

Accepted Answer

A)  increase the quantity of money more than usual. 
B)  increase government expenditures. 
C)  continue allowing the quantity of money to grow at "k" percent. 
D)  lower the federal funds rate. 
E)  raise the federal funds rate. 
A)  increase the quantity of money more than usual. 
B)  increase government expenditures. 
C)  continue allowing the quantity of money to grow at "k" percent. 
D)  lower the federal funds rate. 
E)  raise the federal funds rate.

Question 7

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

Accepted Answer

A)  rise to 8 percent a year 
B)  remain at 6 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 8 percent a year 
B)  remain at 6 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 8

During the late 1960s, real GDP increased, unemployment fell, and the inflation rate started to rise.Which would have been the appropriate federal government policy combination to improve economic performance by lowering the inflation rate?

Accepted Answer

A)  increase government expenditures, decrease taxes, increase the quantity of money 
B)  increase government expenditures, decrease taxes, decrease the quantity of money 
C)  decrease government expenditures, increase taxes, decrease the quantity of money 
D)  do not change government expenditures or taxes , increase the quantity of money 
E)  increase government expenditures, decrease taxes, do not change the quantity of money 
A)  increase government expenditures, decrease taxes, increase the quantity of money 
B)  increase government expenditures, decrease taxes, decrease the quantity of money 
C)  decrease government expenditures, increase taxes, decrease the quantity of money 
D)  do not change government expenditures or taxes , increase the quantity of money 
E)  increase government expenditures, decrease taxes, do not change the quantity of money

Question 9

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, aggregate demand ________, real GDP ________, and the price level ________.

Accepted Answer

A)  increases; decreases; falls 
B)  increases; increases; rises 
C)  decreases; decreases; falls 
D)  increases; does not change; does not change 
E)  None of the above answers are correct. 
A)  increases; decreases; falls 
B)  increases; increases; rises 
C)  decreases; decreases; falls 
D)  increases; does not change; does not change 
E)  None of the above answers are correct.

Question 10

If the Fed lowers the interest rate, then

Accepted Answer

A)  only consumption expenditure decreases. 
B)  only investment decreases. 
C)  both consumption expenditure and investment decrease. 
D)  net exports will increase. 
E)  consumption expenditure decreases and investment increases. 
A)  only consumption expenditure decreases. 
B)  only investment decreases. 
C)  both consumption expenditure and investment decrease. 
D)  net exports will increase. 
E)  consumption expenditure decreases and investment increases.

Question 11

Monetary policy decisions are made by the

Accepted Answer

A)  Federal Reserve Economic Committee. 
B)  Federal Open Market Committee. 
C)  Council of Economic Advisors. 
D)  Congress of the United States. 
E)  U.S.Mint. 
A)  Federal Reserve Economic Committee. 
B)  Federal Open Market Committee. 
C)  Council of Economic Advisors. 
D)  Congress of the United States. 
E)  U.S.Mint.

Question 12

If the AS and the AD curve intersect at a level of real GDP that exceeds potential GDP, then the appropriate monetary policy is one that ________ the federal funds rate and ________ aggregate demand.

Accepted Answer

A)  raises; increases 
B)  raises; decreases 
C)  lowers; increases 
D)  lowers; decreases 
E)  raises; has no effect on 
A)  raises; increases 
B)  raises; decreases 
C)  lowers; increases 
D)  lowers; decreases 
E)  raises; has no effect on

Question 13

What is the Taylor rule and how does it work?

Accepted Answer

The Taylor rule is an instrument rule.Th

Question 14

If the Fed increases the quantity of reserves, a new equilibrium is reached by a

Accepted Answer

A)  rightward shift of the demand for reserves curve. 
B)  movement down the demand for reserves curve. 
C)  leftward shift of the demand for reserves curve. 
D)  movement up the demand for reserves curve. 
E)  None of the above answers is correct. 
A)  rightward shift of the demand for reserves curve. 
B)  movement down the demand for reserves curve. 
C)  leftward shift of the demand for reserves curve. 
D)  movement up the demand for reserves curve. 
E)  None of the above answers is correct.

Question 15

In the short run, when the Fed increases the nominal interest rate, the real interest rate

Accepted Answer

A)  temporarily rises. 
B)  permanently rises. 
C)  temporarily falls. 
D)  permanently falls. 
E)  does not change. 
A)  temporarily rises. 
B)  permanently rises. 
C)  temporarily falls. 
D)  permanently falls. 
E)  does not change.

Question 16

Maintaining the growth of the money supply at a constant rate is an example of a

Accepted Answer

A)  discretionary policy. 
B)  a money targeting rule. 
C)  a money demand rule. 
D)  an inflation targeting rule. 
E)  the gold standard. 
A)  discretionary policy. 
B)  a money targeting rule. 
C)  a money demand rule. 
D)  an inflation targeting rule. 
E)  the gold standard.

Question 17

How does a rise in the federal funds rate affect aggregate demand, real GDP, and the price level?

Accepted Answer

A rise in the federal funds leads to inv

Question 18

The monetary policy instrument the Federal Reserve chooses to use is the

Accepted Answer

A)  discount rate. 
B)  federal funds rate. 
C)  monetary base 
D)  flexible exchange rate. 
E)  fixed exchange rate. 
A)  discount rate. 
B)  federal funds rate. 
C)  monetary base 
D)  flexible exchange rate. 
E)  fixed exchange rate.

Question 19

If real GDP exceeds potential GDP, to move the economy to potential GDP the Fed

Accepted Answer

A)  raises the federal funds rate to increase potential GDP but not real GDP. 
B)  lowers the federal funds rate to decrease real GDP but not potential GDP. 
C)  raises the federal funds rate to decrease real GDP but not potential GDP. 
D)  lowers the federal funds rate to increase potential GDP but not real GDP. 
E)  raises the federal funds rate to decrease both real GDP and potential GDP. 
A)  raises the federal funds rate to increase potential GDP but not real GDP. 
B)  lowers the federal funds rate to decrease real GDP but not potential GDP. 
C)  raises the federal funds rate to decrease real GDP but not potential GDP. 
D)  lowers the federal funds rate to increase potential GDP but not real GDP. 
E)  raises the federal funds rate to decrease both real GDP and potential GDP.

Question 20

During the Great Depression, real GDP decreased, unemployment soared, and the inflation rate was negative.Which would have been the appropriate federal government policy combination to improve economic performance?

Accepted Answer

A)  increase government expenditure, decrease taxes, increase the quantity of money 
B)  increase government expenditure, decrease taxes, decrease the quantity of money 
C)  decrease government expenditure, increase taxes, decrease the quantity of money 
D)  do not change government expenditures or taxes , increase the quantity of money 
E)  decrease government expenditures, increase taxes, do not change the quantity of money 
A)  increase government expenditure, decrease taxes, increase the quantity of money 
B)  increase government expenditure, decrease taxes, decrease the quantity of money 
C)  decrease government expenditure, increase taxes, decrease the quantity of money 
D)  do not change government expenditures or taxes , increase the quantity of money 
E)  decrease government expenditures, increase taxes, do not change the quantity of money

When the Fed worries about inflation, it the federal funds rate and, in the short run, the real interest rate.

When the Fed lowers the federal funds rate, which of the following economic variables responds most slowly?

The interest rate banks charge each other on overnight loans is called the

When the Fed raises the federal funds rate, the consumption expenditure and investment .

If the Fed sells government securities, in the short run the nominal interest rate and the real interest rate .

Consumer confidence in the economy falls, and as a result, aggregate demand decreases.As real GDP falls below potential GDP, if the Fed followed Friedman's k-percent rule, the Fed would

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

During the late 1960s, real GDP increased, unemployment fell, and the inflation rate started to rise.Which would have been the appropriate federal government policy combination to improve economic performance by lowering the inflation rate?

If the Fed lowers the interest rate, then

Monetary policy decisions are made by the

If the AS and the AD curve intersect at a level of real GDP that exceeds potential GDP, then the appropriate monetary policy is one that the federal funds rate and aggregate demand.

What is the Taylor rule and how does it work?

If the Fed increases the quantity of reserves, a new equilibrium is reached by a

In the short run, when the Fed increases the nominal interest rate, the real interest rate

Maintaining the growth of the money supply at a constant rate is an example of a

How does a rise in the federal funds rate affect aggregate demand, real GDP, and the price level?

The monetary policy instrument the Federal Reserve chooses to use is the

If real GDP exceeds potential GDP, to move the economy to potential GDP the Fed

During the Great Depression, real GDP decreased, unemployment soared, and the inflation rate was negative.Which would have been the appropriate federal government policy combination to improve economic performance?

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

When the Fed worries about inflation, it ________ the federal funds rate and, in the short run, ________ the real interest rate.

When the Fed lowers the federal funds rate, which of the following economic variables responds most slowly?

The interest rate banks charge each other on overnight loans is called the

When the Fed raises the federal funds rate, the consumption expenditure ________ and investment ________.

If the Fed sells government securities, in the short run the nominal interest rate ________ and the real interest rate ________.

Consumer confidence in the economy falls, and as a result, aggregate demand decreases.As real GDP falls below potential GDP, if the Fed followed Friedman's k-percent rule, the Fed would

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

During the late 1960s, real GDP increased, unemployment fell, and the inflation rate started to rise.Which would have been the appropriate federal government policy combination to improve economic performance by lowering the inflation rate?

If the Fed lowers the interest rate, then

Monetary policy decisions are made by the

If the AS and the AD curve intersect at a level of real GDP that exceeds potential GDP, then the appropriate monetary policy is one that ________ the federal funds rate and ________ aggregate demand.

What is the Taylor rule and how does it work?

If the Fed increases the quantity of reserves, a new equilibrium is reached by a

In the short run, when the Fed increases the nominal interest rate, the real interest rate

Maintaining the growth of the money supply at a constant rate is an example of a

How does a rise in the federal funds rate affect aggregate demand, real GDP, and the price level?

The monetary policy instrument the Federal Reserve chooses to use is the

If real GDP exceeds potential GDP, to move the economy to potential GDP the Fed

During the Great Depression, real GDP decreased, unemployment soared, and the inflation rate was negative.Which would have been the appropriate federal government policy combination to improve economic performance?

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

When the Fed worries about inflation, it the federal funds rate and, in the short run, the real interest rate.

When the Fed raises the federal funds rate, the consumption expenditure and investment .

If the Fed sells government securities, in the short run the nominal interest rate and the real interest rate .

If the AS and the AD curve intersect at a level of real GDP that exceeds potential GDP, then the appropriate monetary policy is one that the federal funds rate and aggregate demand.