Question 1

During the financial crisis of 2008-2009,the Fed's actions to supply reserves to the banking system was an attempt to

Accepted Answer

A)  limit the troubling rise in asset prices. 
B)  increase the public's belief that their deposits were insured. 
C)  help the U.S. Treasury finance the TARP. 
D)  make certain that banks had enough liquidity to avoid collapse. 
A)  limit the troubling rise in asset prices. 
B)  increase the public's belief that their deposits were insured. 
C)  help the U.S. Treasury finance the TARP. 
D)  make certain that banks had enough liquidity to avoid collapse.

Question 2

When the Fed lowers the federal funds rate,aggregate demand

Accepted Answer

A)  increases. 
B)  decreases. 
C)  stays the same. 
D)  could increase, decrease or stay the same. 
A)  increases. 
B)  decreases. 
C)  stays the same. 
D)  could increase, decrease or stay the same.

Question 3

Suppose the equilibrium real interest rate is 2 percent per year,inflation is 2.5 percent and the output gap is 1 percent. Using the Taylor rule,what is the federal funds rate?

Accepted Answer

A)  3 percent 
B)  3.5 percent 
C)  5.25 percent 
D)  5.5 percent 
A)  3 percent 
B)  3.5 percent 
C)  5.25 percent 
D)  5.5 percent

Question 4

List and briefly explain the steps in how monetary policy affects real GDP in the AS/AD model.Tell what is the impact when the Fed eases monetary policy to fight a recession.

Accepted Answer

There are several steps.Step one is a ch

Question 5

In the short run,________ in the federal funds rate ________ the price level and ________ real GDP.

Accepted Answer

A)  lowering; increases; decreases 
B)  lowering; increases; does not change 
C)  lowering; increases; increases 
D)  raising; decreases; does not change 
A)  lowering; increases; decreases 
B)  lowering; increases; does not change 
C)  lowering; increases; increases 
D)  raising; decreases; does not change

Question 6

Long-term interest rates are ________ than short-term because long-term loans are ________ than short-term loans.

Accepted Answer

A)  higher; riskier 
B)  higher; safer 
C)  lower; safer 
D)  lower; riskier 
A)  higher; riskier 
B)  higher; safer 
C)  lower; safer 
D)  lower; riskier

Question 7

Suppose the economy is in recession.Write a letter to the brand-new chairman of the Federal Reserve suggesting how the Fed might help end the recession.Be sure to explain how a change in monetary policy will affect economic activity.

Accepted Answer

The Fed needs to lower the federal funds

Question 8

If the Fed wants to increase the quantity of money,it can

Accepted Answer

A)  lower income tax rates. 
B)  purchase U.S. government securities. 
C)  increase the government budget deficit. 
D)  raise the exchange rate. 
A)  lower income tax rates. 
B)  purchase U.S. government securities. 
C)  increase the government budget deficit. 
D)  raise the exchange rate.

Question 9

In the short run,the Federal Reserve faces a tradeoff between

Accepted Answer

A)  economic growth and employment. 
B)  inflation and price stability. 
C)  inflation and real GDP. 
D)  interest rates and unemployment. 
A)  economic growth and employment. 
B)  inflation and price stability. 
C)  inflation and real GDP. 
D)  interest rates and unemployment.

Question 10

When the Federal Reserve lowers the federal funds rate,in the short run

Accepted Answer

A)  the long-run aggregate supply curve shifts leftward. 
B)  the aggregate demand curve shifts rightward. 
C)  the economy moves along a given aggregate demand curve. 
D)  banks decrease the quantity of loans they make. 
A)  the long-run aggregate supply curve shifts leftward. 
B)  the aggregate demand curve shifts rightward. 
C)  the economy moves along a given aggregate demand curve. 
D)  banks decrease the quantity of loans they make.

Question 11

Explain how the Fed's response to a recession works its through the economy to ultimately affecting real GDP and the price level.

Accepted Answer

When the Fed is concerned with recession

Question 12

A decrease in the federal funds rate leads to

Accepted Answer

A)  an increase in the quantity of money. 
B)  a fall in the exchange rate. 
C)  an increase in exports. 
D)  All of the above answers are correct. 
A)  an increase in the quantity of money. 
B)  a fall in the exchange rate. 
C)  an increase in exports. 
D)  All of the above answers are correct.

Question 13

The People's Bank of China announced that it was lowering by 1.08 percentage points the one-year lending rate in response to the slowdown in the Chinese economy.This rate is the Chinese equivalent of the federal funds rate in the United States. www.nytimes.com,11/26/2008
Other things remaining the same,there will be ________ in the exchange rate,________ in imports and ________ in exports.

Accepted Answer

A)  a decrease; a decrease; an increase 
B)  a decrease; an increase; a decrease 
C)  an increase; a decrease; a increase 
D)  an increase; an increase; a decrease 
A)  a decrease; a decrease; an increase 
B)  a decrease; an increase; a decrease 
C)  an increase; a decrease; a increase 
D)  an increase; an increase; a decrease

Question 14

In the short run,an increase in the federal funds rate ________ the real interest rate and ________ investment.

Accepted Answer

A)  lowers; increases 
B)  raises; increases 
C)  lowers; decreases 
D)  raises; decreases 
A)  lowers; increases 
B)  raises; increases 
C)  lowers; decreases 
D)  raises; decreases

Question 15

The higher the federal funds rate,the ________ the opportunity cost of holding reserves,which ________ the incentive to economize on reserves.

Accepted Answer

A)  higher; increases 
B)  higher; decreases 
C)  lower; increases 
D)  lower; decreases 
A)  higher; increases 
B)  higher; decreases 
C)  lower; increases 
D)  lower; decreases

Question 16

If the Fed is concerned with recession it will ________ the federal funds rate in order to ________ aggregate demand.

Accepted Answer

A)  raise; increase 
B)  lower; increase 
C)  raise; decrease 
D)  lower; decrease 
A)  raise; increase 
B)  lower; increase 
C)  raise; decrease 
D)  lower; decrease

Question 17

To increase the quantity of money in the economy,the Federal Reserve is likely to

Accepted Answer

A)  print more money and give it to the banks. 
B)  lower tax rates 
C)  sell government securities in an open market operation. 
D)  buy government securities in an open market operation. 
A)  print more money and give it to the banks. 
B)  lower tax rates 
C)  sell government securities in an open market operation. 
D)  buy government securities in an open market operation.

Question 18

In the short run,a cut in the federal funds rate

Accepted Answer

A)  raises other interest rates as people increase their saving. 
B)  increases potential GDP. 
C)  increases aggregate demand. 
D)  decreases aggregate demand. 
A)  raises other interest rates as people increase their saving. 
B)  increases potential GDP. 
C)  increases aggregate demand. 
D)  decreases aggregate demand.

Question 19

In September 2012 the Fed announced that because of weak labor market conditions,it would ________ $40 billion of mortgage backed securities per month.Critics of the action said that banks have ________ excessive reserves so the action would be futile.

Accepted Answer

A)  sell; huge amounts of 
B)  buy; huge amounts of 
C)  buy; very little 
D)  sell; very little 
A)  sell; huge amounts of 
B)  buy; huge amounts of 
C)  buy; very little 
D)  sell; very little

Question 20

-Which aggregate supply-aggregate demand diagram above shows the effect on real GDP and the price level of monetary policy when it is used to fight a recession?

Accepted Answer

A)  Only Figure A 
B)  Only Figure B 
C)  Both Figure A and Figure B 
D)  Neither Figure A nor Figure B 
A)  Only Figure A 
B)  Only Figure B 
C)  Both Figure A and Figure B 
D)  Neither Figure A nor Figure B

During the financial crisis of 2008-2009,the Fed's actions to supply reserves to the banking system was an attempt to

When the Fed lowers the federal funds rate,aggregate demand

Suppose the equilibrium real interest rate is 2 percent per year,inflation is 2.5 percent and the output gap is 1 percent. Using the Taylor rule,what is the federal funds rate?

List and briefly explain the steps in how monetary policy affects real GDP in the AS/AD model.Tell what is the impact when the Fed eases monetary policy to fight a recession.

In the short run, in the federal funds rate the price level and real GDP.

Long-term interest rates are than short-term because long-term loans are than short-term loans.

Suppose the economy is in recession.Write a letter to the brand-new chairman of the Federal Reserve suggesting how the Fed might help end the recession.Be sure to explain how a change in monetary policy will affect economic activity.

If the Fed wants to increase the quantity of money,it can

In the short run,the Federal Reserve faces a tradeoff between

When the Federal Reserve lowers the federal funds rate,in the short run

Explain how the Fed's response to a recession works its through the economy to ultimately affecting real GDP and the price level.

A decrease in the federal funds rate leads to

In the short run,an increase in the federal funds rate the real interest rate and investment.

The higher the federal funds rate,the the opportunity cost of holding reserves,which the incentive to economize on reserves.

If the Fed is concerned with recession it will the federal funds rate in order to aggregate demand.

To increase the quantity of money in the economy,the Federal Reserve is likely to

In the short run,a cut in the federal funds rate

In September 2012 the Fed announced that because of weak labor market conditions,it would $40 billion of mortgage backed securities per month.Critics of the action said that banks have excessive reserves so the action would be futile.

-Which aggregate supply-aggregate demand diagram above shows the effect on real GDP and the price level of monetary policy when it is used to fight a recession?

What Is Economics

The Economic Problem

Demand and Supply

Measuring GDP and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, The Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers

Inflation, Jobs, and the Business Cycle

Fiscal Policy

International Trade Policy

Introduction

Monitoring Macroeconomic Performance

Macroeconomic Trends

Macroeconomic Fluctuations

Macroeconomic Policy

Filters

Exam 14: Monetary Policy

During the financial crisis of 2008-2009,the Fed's actions to supply reserves to the banking system was an attempt to

When the Fed lowers the federal funds rate,aggregate demand

Suppose the equilibrium real interest rate is 2 percent per year,inflation is 2.5 percent and the output gap is 1 percent. Using the Taylor rule,what is the federal funds rate?

List and briefly explain the steps in how monetary policy affects real GDP in the AS/AD model.Tell what is the impact when the Fed eases monetary policy to fight a recession.

In the short run,________ in the federal funds rate ________ the price level and ________ real GDP.

Long-term interest rates are ________ than short-term because long-term loans are ________ than short-term loans.

Suppose the economy is in recession.Write a letter to the brand-new chairman of the Federal Reserve suggesting how the Fed might help end the recession.Be sure to explain how a change in monetary policy will affect economic activity.

If the Fed wants to increase the quantity of money,it can

In the short run,the Federal Reserve faces a tradeoff between

When the Federal Reserve lowers the federal funds rate,in the short run

Explain how the Fed's response to a recession works its through the economy to ultimately affecting real GDP and the price level.

A decrease in the federal funds rate leads to

In the short run,an increase in the federal funds rate ________ the real interest rate and ________ investment.

The higher the federal funds rate,the ________ the opportunity cost of holding reserves,which ________ the incentive to economize on reserves.

If the Fed is concerned with recession it will ________ the federal funds rate in order to ________ aggregate demand.

To increase the quantity of money in the economy,the Federal Reserve is likely to

In the short run,a cut in the federal funds rate

In September 2012 the Fed announced that because of weak labor market conditions,it would ________ $40 billion of mortgage backed securities per month.Critics of the action said that banks have ________ excessive reserves so the action would be futile.

-Which aggregate supply-aggregate demand diagram above shows the effect on real GDP and the price level of monetary policy when it is used to fight a recession?

What Is Economics

The Economic Problem

Demand and Supply

Measuring GDP and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, The Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers

Inflation, Jobs, and the Business Cycle

Fiscal Policy

International Trade Policy

Introduction

Monitoring Macroeconomic Performance

Macroeconomic Trends

Macroeconomic Fluctuations

Macroeconomic Policy

Filters

In the short run, in the federal funds rate the price level and real GDP.

Long-term interest rates are than short-term because long-term loans are than short-term loans.

In the short run,an increase in the federal funds rate the real interest rate and investment.

The higher the federal funds rate,the the opportunity cost of holding reserves,which the incentive to economize on reserves.

If the Fed is concerned with recession it will the federal funds rate in order to aggregate demand.

In September 2012 the Fed announced that because of weak labor market conditions,it would $40 billion of mortgage backed securities per month.Critics of the action said that banks have excessive reserves so the action would be futile.