Question 1

The larger the fraction of an investment financed by borrowing

Accepted Answer

A)  the greater the potential return and potential loss on that investment. 
B)  the smaller the potential return and potential loss on that investment. 
C)  the greater the potential return and the smaller the potential loss on that investment. 
D)  the smaller the potential return and the greater the potential loss on that investment. 
A)  the greater the potential return and potential loss on that investment. 
B)  the smaller the potential return and potential loss on that investment. 
C)  the greater the potential return and the smaller the potential loss on that investment. 
D)  the smaller the potential return and the greater the potential loss on that investment.

Question 2

When the Federal Reserve decreases the money supply,at the previous equilibrium interest rate households and firms will now want to

Accepted Answer

A)  buy Treasury bills. 
B)  sell Treasury bills. 
C)  neither buy nor sell Treasury bills. 
D)  hold less money. 
A)  buy Treasury bills. 
B)  sell Treasury bills. 
C)  neither buy nor sell Treasury bills. 
D)  hold less money.

Question 3

Falling interest rates can

Accepted Answer

A)  increase a firm's stock price, which causes firms to issue more stock shares, and thus increases funds for investment. 
B)  raise the cost of borrowing for firms and decrease investment. 
C)  raise the cost of buying new homes and fewer new homes will be purchased. 
D)  lower the cost of buying new homes and fewer new homes will be purchased. 
A)  increase a firm's stock price, which causes firms to issue more stock shares, and thus increases funds for investment. 
B)  raise the cost of borrowing for firms and decrease investment. 
C)  raise the cost of buying new homes and fewer new homes will be purchased. 
D)  lower the cost of buying new homes and fewer new homes will be purchased.

Question 4

With the federal funds rate near zero and the economy still struggling,in response to already low interest rates doing little to stimulate the economy,the Fed began buying 10-year Treasury notes and certain mortgage-backed securities to keep interest rates low.This policy is known as

Accepted Answer

A)  inflation targeting. 
B)  contractionary monetary policy. 
C)  securities-bubble deflating. 
D)  quantitative easing. 
A)  inflation targeting. 
B)  contractionary monetary policy. 
C)  securities-bubble deflating. 
D)  quantitative easing.

Question 5

Present two arguments as to why the Fed should adopt inflation targeting as a framework for monetary policy.

Accepted Answer

Any two of the following three reasons a

Question 6

Which of the following is not an argument against inflation targeting?

Accepted Answer

A)  Inflation targeting reduces the flexibility of the Fed to pursue other policy goals. 
B)  Inflation targeting assumes that the Fed can accurately forecast future inflation rates. 
C)  Inflation targeting makes monetary policy ineffective because the targets are publicly announced. 
D)  Inflation targeting holds the Fed accountable for an inflation goal, but may make it less likely the Fed will achieve other goals. 
A)  Inflation targeting reduces the flexibility of the Fed to pursue other policy goals. 
B)  Inflation targeting assumes that the Fed can accurately forecast future inflation rates. 
C)  Inflation targeting makes monetary policy ineffective because the targets are publicly announced. 
D)  Inflation targeting holds the Fed accountable for an inflation goal, but may make it less likely the Fed will achieve other goals.

Question 7

Monetary policy refers to the actions the Federal Reserve takes to manage

Accepted Answer

A)  the money supply and income tax rates to pursue its economic objectives. 
B)  the money supply and interest rates to pursue its economic objectives. 
C)  income tax rates and interest rates to pursue its economic objectives. 
D)  government spending and income tax rates to pursue its economic objectives. 
A)  the money supply and income tax rates to pursue its economic objectives. 
B)  the money supply and interest rates to pursue its economic objectives. 
C)  income tax rates and interest rates to pursue its economic objectives. 
D)  government spending and income tax rates to pursue its economic objectives.

Question 8

The Taylor rule predicted a federal funds rate which was ________ that set when Paul Volcker was chairman of the Fed,and a rate which was ________ that set when Arthur Burns chaired the Fed.

Accepted Answer

A)  greater than; equal to 
B)  greater than; less than 
C)  less than; equal to 
D)  less than; greater than 
A)  greater than; equal to 
B)  greater than; less than 
C)  less than; equal to 
D)  less than; greater than

Question 9

Which of the following are goals of monetary policy?

Accepted Answer

A)  maximizing the value of the dollar relative to other currencies, economic growth, and high employment 
B)  price stability, maximizing the value of the dollar relative to other currencies, and high employment 
C)  price stability, economic growth, and high employment 
D)  price stability, economic growth, and maximizing the value of the dollar relative to other currencies 
A)  maximizing the value of the dollar relative to other currencies, economic growth, and high employment 
B)  price stability, maximizing the value of the dollar relative to other currencies, and high employment 
C)  price stability, economic growth, and high employment 
D)  price stability, economic growth, and maximizing the value of the dollar relative to other currencies

Question 10

According to the Taylor rule,does the target for the federal funds rate respond differently for an increase in inflation caused by an increase in aggregate demand and for an increase in inflation caused by a decrease in short-run aggregate supply? Explain whether there is or is not a difference in how the target for the federal funds rate changes.

Accepted Answer

The target for the federal funds rate re

Question 11

Which of the following would most likely induce the Federal Reserve to conduct expansionary monetary policy? A significant decrease in

Accepted Answer

A)  oil prices. 
B)  business taxes. 
C)  income tax rates. 
D)  investment spending. 
A)  oil prices. 
B)  business taxes. 
C)  income tax rates. 
D)  investment spending.

Question 12

An increase in the interest rate

Accepted Answer

A)  decreases the opportunity cost of holding money. 
B)  increases the opportunity cost of holding money. 
C)  decreases the percentage yield of holding money. 
D)  increases the percentage yield of holding money. 
A)  decreases the opportunity cost of holding money. 
B)  increases the opportunity cost of holding money. 
C)  decreases the percentage yield of holding money. 
D)  increases the percentage yield of holding money.

Question 13

Consider the Taylor rule for the target of the federal funds rate.Suppose the equilibrium real federal funds rate is 2 percent,the target rate of inflation is 3 percent,the current inflation rate is 3 percent,real GDP equals potential real GDP,and the weights are 1/2 for the inflation gap and the output gap.Using the Taylor rule,what does the target for the federal funds rate equal? Next,if the Federal Reserve lowered the target for the inflation rate to 1 percent,how much would the target for the federal funds rate change?

Accepted Answer

The federal funds target rate would equa

Question 14

If the Fed orders a contractionary monetary policy,describe what will happen to the following variables relative to what would have happened without the policy:
a.The money supply
b.Interest rates
c.Investment
d.Consumption
e.Net Exports
f.The aggregate demand curve
g.Real GDP
h.The price level

Accepted Answer

a∙The money supply decreases
b∙Interest

Question 15

The money market model is concerned with ________ and the loanable funds market model is concerned with ________.

Accepted Answer

A)  short-term real interest rates; long-term nominal interest rates 
B)  short-term nominal interest rates; long-term nominal interest rates 
C)  short-term real interest rates; long-term real interest rates 
D)  short-term nominal interest rates; long-term real interest rates 
A)  short-term real interest rates; long-term nominal interest rates 
B)  short-term nominal interest rates; long-term nominal interest rates 
C)  short-term real interest rates; long-term real interest rates 
D)  short-term nominal interest rates; long-term real interest rates

Question 16

In reality,the Fed is unable to use monetary policy to keep real GDP exactly at its potential level.

Accepted Answer

A) True 
 B)False

Question 17

From an initial long-run macroeconomic equilibrium,if the Federal Reserve anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply,then the Federal Reserve would most likely

Accepted Answer

A)  decrease interest rates. 
B)  increase interest rates. 
C)  decrease income tax rates. 
D)  increase income tax rates. 
A)  decrease interest rates. 
B)  increase interest rates. 
C)  decrease income tax rates. 
D)  increase income tax rates.

Question 18

Which of the following would cause the money demand curve to shift to the left?

Accepted Answer

A)  an open market purchase of Treasury securities by the Federal Reserve 
B)  an increase in the interest rate 
C)  an increase in the price level 
D)  a decrease in real GDP 
A)  an open market purchase of Treasury securities by the Federal Reserve 
B)  an increase in the interest rate 
C)  an increase in the price level 
D)  a decrease in real GDP

Question 19

In the countries that have adopted inflation targeting,the inflation rate has typically

Accepted Answer

A)  increased. 
B)  decreased. 
C)  decreased to zero. 
D)  not changed. 
A)  increased. 
B)  decreased. 
C)  decreased to zero. 
D)  not changed.

Question 20

The federal funds rate

Accepted Answer

A)  is determined administratively by the Fed. 
B)  is determined by the supply of and demand for bank reserves. 
C)  is determined directly by household demand for funds. 
D)  is determined directly by firm demand for funds. 
A)  is determined administratively by the Fed. 
B)  is determined by the supply of and demand for bank reserves. 
C)  is determined directly by household demand for funds. 
D)  is determined directly by firm demand for funds.

The larger the fraction of an investment financed by borrowing

When the Federal Reserve decreases the money supply,at the previous equilibrium interest rate households and firms will now want to

Falling interest rates can

With the federal funds rate near zero and the economy still struggling,in response to already low interest rates doing little to stimulate the economy,the Fed began buying 10-year Treasury notes and certain mortgage-backed securities to keep interest rates low.This policy is known as

Present two arguments as to why the Fed should adopt inflation targeting as a framework for monetary policy.

Which of the following is not an argument against inflation targeting?

Monetary policy refers to the actions the Federal Reserve takes to manage

The Taylor rule predicted a federal funds rate which was that set when Paul Volcker was chairman of the Fed,and a rate which was that set when Arthur Burns chaired the Fed.

Which of the following are goals of monetary policy?

Which of the following would most likely induce the Federal Reserve to conduct expansionary monetary policy? A significant decrease in

An increase in the interest rate

If the Fed orders a contractionary monetary policy,describe what will happen to the following variables relative to what would have happened without the policy: a.The money supply b.Interest rates c.Investment d.Consumption e.Net Exports f.The aggregate demand curve g.Real GDP h.The price level

The money market model is concerned with and the loanable funds market model is concerned with .

In reality,the Fed is unable to use monetary policy to keep real GDP exactly at its potential level.

From an initial long-run macroeconomic equilibrium,if the Federal Reserve anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply,then the Federal Reserve would most likely

Which of the following would cause the money demand curve to shift to the left?

In the countries that have adopted inflation targeting,the inflation rate has typically

The federal funds rate

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, The Stock Market, and Corporate Governance

Consumer Choice and Elasticity

Technology,Production,and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, The Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money,Banks,and the Federal Reserve System

Fiscal Policy

Comparative Advantage, International Trade, and Exchange Rates

Filters

Exam 17: Monetary Policy

The larger the fraction of an investment financed by borrowing

When the Federal Reserve decreases the money supply,at the previous equilibrium interest rate households and firms will now want to

Falling interest rates can

With the federal funds rate near zero and the economy still struggling,in response to already low interest rates doing little to stimulate the economy,the Fed began buying 10-year Treasury notes and certain mortgage-backed securities to keep interest rates low.This policy is known as

Present two arguments as to why the Fed should adopt inflation targeting as a framework for monetary policy.

Which of the following is not an argument against inflation targeting?

Monetary policy refers to the actions the Federal Reserve takes to manage

The Taylor rule predicted a federal funds rate which was ________ that set when Paul Volcker was chairman of the Fed,and a rate which was ________ that set when Arthur Burns chaired the Fed.

Which of the following are goals of monetary policy?

Which of the following would most likely induce the Federal Reserve to conduct expansionary monetary policy? A significant decrease in

An increase in the interest rate

If the Fed orders a contractionary monetary policy,describe what will happen to the following variables relative to what would have happened without the policy: a.The money supply b.Interest rates c.Investment d.Consumption e.Net Exports f.The aggregate demand curve g.Real GDP h.The price level

The money market model is concerned with ________ and the loanable funds market model is concerned with ________.

In reality,the Fed is unable to use monetary policy to keep real GDP exactly at its potential level.

From an initial long-run macroeconomic equilibrium,if the Federal Reserve anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply,then the Federal Reserve would most likely

Which of the following would cause the money demand curve to shift to the left?

In the countries that have adopted inflation targeting,the inflation rate has typically

The federal funds rate

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, The Stock Market, and Corporate Governance

Consumer Choice and Elasticity

Technology,Production,and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, The Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money,Banks,and the Federal Reserve System

Fiscal Policy

Comparative Advantage, International Trade, and Exchange Rates

Filters

The Taylor rule predicted a federal funds rate which was that set when Paul Volcker was chairman of the Fed,and a rate which was that set when Arthur Burns chaired the Fed.

The money market model is concerned with and the loanable funds market model is concerned with .