Question 1

The top policy goal for Paul Volcker when he became chairman of the Federal Reserve's Board of Governors in 1979 was

Accepted Answer

A)  fighting inflation. 
B)  increasing employment. 
C)  increasing economic growth. 
D)  increasing regulation of commercial banks. 
E)  a low current account deficit. 
A)  fighting inflation. 
B)  increasing employment. 
C)  increasing economic growth. 
D)  increasing regulation of commercial banks. 
E)  a low current account deficit.

Question 2

Ceteris paribus,an increase in the money supply will lower short-term interest rates.

Accepted Answer

A) True 
 B)False

Question 3

Use the money demand and money supply model to show graphically and explain the effect on interest rates of the Federal Reserve's open market sale of Treasury securities.

Accepted Answer

An open market sale of Treasur

Question 4

Does the money demand curve have a positive slope or a negative slope? Why does it have this slope? Explain why an increase in the variable on the vertical axis of the money demand curve causes either an increase or a decrease in the variable on the horizontal axis of the money demand curve.

Accepted Answer

The money demand curve has a negative sl

Question 5

When the Federal Reserve increases the money supply,people spend more because they now have more money.

Accepted Answer

A) True 
 B)False

Question 6

When housing prices fell as they did beginning in 2006 following the housing market bubble,most banks and other lenders ________ the requirement for borrowers,making it ________ for potential home buyers to obtain mortgages.

Accepted Answer

A)  tightened; easier 
B)  tightened; harder 
C)  eased; easier 
D)  eased; harder 
A)  tightened; easier 
B)  tightened; harder 
C)  eased; easier 
D)  eased; harder

Question 7

Which of the following characterizes the Fed's ability to prevent recessions?

Accepted Answer

A)  The Fed is able to "fine tune" the economy and entirely eliminate recessions. 
B)  The Fed is incapable of changing aggregate demand through its monetary policy tools. 
C)  The Fed is able to keep a recession shorter and milder than it would otherwise be. 
D)  The Fed is able to eliminate the business cycle and achieve absolute price stability. 
A)  The Fed is able to "fine tune" the economy and entirely eliminate recessions. 
B)  The Fed is incapable of changing aggregate demand through its monetary policy tools. 
C)  The Fed is able to keep a recession shorter and milder than it would otherwise be. 
D)  The Fed is able to eliminate the business cycle and achieve absolute price stability.

Question 8

When the Federal Reserve System was established in 1913,its main policy goal was

Accepted Answer

A)  encouraging strong economic growth. 
B)  promoting price stability. 
C)  preventing bank panics. 
D)  keeping employment high. 
A)  encouraging strong economic growth. 
B)  promoting price stability. 
C)  preventing bank panics. 
D)  keeping employment high.

Question 9

Using the money demand and money supply model,an increase in money demand would cause the equilibrium interest rate to

Accepted Answer

A)  decrease. 
B)  increase. 
C)  not change. 
D)  increase, then decrease. 
A)  decrease. 
B)  increase. 
C)  not change. 
D)  increase, then decrease.

Question 10

Mortgage lenders often resell mortgages in secondary markets.How might this make lenders act differently than if they intended to hold the mortgages themselves?

Accepted Answer

Lenders would be more likely to grant mo

Question 11

Table 17-2
 $\begin{array}{|c|l|l|l|}
\hline \text { Year } & \text { Potential Real GDP } & {\text { Real GDP }} & \text { Price Level } \
\hline 2018 & \$ 18.0 \text { trillion } & \$ 18.0 \text { trillion } & 150 \
\hline 2019 & 18.5 \text { trillion } & 18.2 \text { trillion } & 152 \
\hline
\end{array}$
-Refer to Table 17-2.Consider the hypothetical information in the table above for potential real GDP,real GDP,and the price level in 2018 and in 2019 if the Federal Reserve does not use monetary policy.If the Fed uses monetary policy successfully to keep real GDP at its potential level in 2019,which of the following will be higher than if the Fed had taken no action?

Accepted Answer

A)  real GDP and the unemployment rate 
B)  real GDP and the inflation rate 
C)  real GDP and potential GDP 
D)  potential GDP and the inflation rate 
A)  real GDP and the unemployment rate 
B)  real GDP and the inflation rate 
C)  real GDP and potential GDP 
D)  potential GDP and the inflation rate

Question 12

Despite saving Lehman Brothers from failing,the Fed and the Treasury decided to allow Bear Stearns to go bankrupt,which it did in September,2008.

Accepted Answer

A) True 
 B)False

Question 13

The ability of the Federal Reserve to use monetary policy to affect economic variables such as real GDP ultimately depends upon its ability to affect

Accepted Answer

A)  tax rates. 
B)  real interest rates. 
C)  nominal interest rates. 
D)  foreign exchange rates. 
A)  tax rates. 
B)  real interest rates. 
C)  nominal interest rates. 
D)  foreign exchange rates.

Question 14

Suppose that the economy is producing below potential GDP and the Fed implements the correct change in monetary policy,but not until after the economy has passed the trough of the recession.Then

Accepted Answer

A)  the Fed's contractionary policy may result in too large of a decrease in GDP. 
B)  the Fed's contractionary policy may result in too small of a decrease in GDP. 
C)  the Fed's expansionary policy may result in too small of a decrease in GDP. 
D)  the Fed's expansionary policy may result in too large of an increase in GDP. 
A)  the Fed's contractionary policy may result in too large of a decrease in GDP. 
B)  the Fed's contractionary policy may result in too small of a decrease in GDP. 
C)  the Fed's expansionary policy may result in too small of a decrease in GDP. 
D)  the Fed's expansionary policy may result in too large of an increase in GDP.

Question 15

A monetary policy target is a variable that the Fed can affect directly,which then affects one or more of the Fed's policy goals.

Accepted Answer

A) True 
 B)False

Question 16

Use a graph to show the effects of an expansionary monetary policy moving an economy out of recession and to potential real GDP.Explain what happens to aggregate demand,real GDP,and the price level.

Accepted Answer

If the economy is in recession,it is cur

Question 17

Changes in the federal funds rate usually result in

Accepted Answer

A)  changes in both short-term and long-term interest rates with more of an effect on short-term interest rates. 
B)  changes in both short-term and long-term interest rates with more of an effect on long-term interest rates. 
C)  changes in both short-term and long-term interest rates with equal effect on both. 
D)  no change in either short-term or long-term interest rates. 
A)  changes in both short-term and long-term interest rates with more of an effect on short-term interest rates. 
B)  changes in both short-term and long-term interest rates with more of an effect on long-term interest rates. 
C)  changes in both short-term and long-term interest rates with equal effect on both. 
D)  no change in either short-term or long-term interest rates.

Question 18

Lowering the interest rate will

Accepted Answer

A)  decrease spending on consumer durables. 
B)  increase investment projects by firms. 
C)  decrease spending on new homes. 
D)  decrease the value of the dollar and lower net exports. 
A)  decrease spending on consumer durables. 
B)  increase investment projects by firms. 
C)  decrease spending on new homes. 
D)  decrease the value of the dollar and lower net exports.

Question 19

The Fed

Accepted Answer

A)  always engages in countercyclical policy. 
B)  always intends to engage in procyclical policy. 
C)  can engage in procyclical policy if it mistimes its policy response. 
D)  never intends to engage in countercyclical policy. 
A)  always engages in countercyclical policy. 
B)  always intends to engage in procyclical policy. 
C)  can engage in procyclical policy if it mistimes its policy response. 
D)  never intends to engage in countercyclical policy.

Question 20

If the amount you owe on your house is less than the price of the house,you have

Accepted Answer

A)  positive equity in your house. 
B)  an adjustable-rate mortgage on your house. 
C)  negative equity in your house. 
D)  a reverse mortgage on your house. 
A)  positive equity in your house. 
B)  an adjustable-rate mortgage on your house. 
C)  negative equity in your house. 
D)  a reverse mortgage on your house.

The top policy goal for Paul Volcker when he became chairman of the Federal Reserve's Board of Governors in 1979 was

Ceteris paribus,an increase in the money supply will lower short-term interest rates.

Use the money demand and money supply model to show graphically and explain the effect on interest rates of the Federal Reserve's open market sale of Treasury securities.

Does the money demand curve have a positive slope or a negative slope? Why does it have this slope? Explain why an increase in the variable on the vertical axis of the money demand curve causes either an increase or a decrease in the variable on the horizontal axis of the money demand curve.

When the Federal Reserve increases the money supply,people spend more because they now have more money.

When housing prices fell as they did beginning in 2006 following the housing market bubble,most banks and other lenders the requirement for borrowers,making it for potential home buyers to obtain mortgages.

Which of the following characterizes the Fed's ability to prevent recessions?

When the Federal Reserve System was established in 1913,its main policy goal was

Using the money demand and money supply model,an increase in money demand would cause the equilibrium interest rate to

Mortgage lenders often resell mortgages in secondary markets.How might this make lenders act differently than if they intended to hold the mortgages themselves?

Despite saving Lehman Brothers from failing,the Fed and the Treasury decided to allow Bear Stearns to go bankrupt,which it did in September,2008.

The ability of the Federal Reserve to use monetary policy to affect economic variables such as real GDP ultimately depends upon its ability to affect

Suppose that the economy is producing below potential GDP and the Fed implements the correct change in monetary policy,but not until after the economy has passed the trough of the recession.Then

A monetary policy target is a variable that the Fed can affect directly,which then affects one or more of the Fed's policy goals.

Use a graph to show the effects of an expansionary monetary policy moving an economy out of recession and to potential real GDP.Explain what happens to aggregate demand,real GDP,and the price level.

Changes in the federal funds rate usually result in

Lowering the interest rate will

The Fed

If the amount you owe on your house is less than the price of the house,you have

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 top policy goal for Paul Volcker when he became chairman of the Federal Reserve's Board of Governors in 1979 was

Ceteris paribus,an increase in the money supply will lower short-term interest rates.

Use the money demand and money supply model to show graphically and explain the effect on interest rates of the Federal Reserve's open market sale of Treasury securities.

Does the money demand curve have a positive slope or a negative slope? Why does it have this slope? Explain why an increase in the variable on the vertical axis of the money demand curve causes either an increase or a decrease in the variable on the horizontal axis of the money demand curve.

When the Federal Reserve increases the money supply,people spend more because they now have more money.

When housing prices fell as they did beginning in 2006 following the housing market bubble,most banks and other lenders ________ the requirement for borrowers,making it ________ for potential home buyers to obtain mortgages.

Which of the following characterizes the Fed's ability to prevent recessions?

When the Federal Reserve System was established in 1913,its main policy goal was

Using the money demand and money supply model,an increase in money demand would cause the equilibrium interest rate to

Mortgage lenders often resell mortgages in secondary markets.How might this make lenders act differently than if they intended to hold the mortgages themselves?

Despite saving Lehman Brothers from failing,the Fed and the Treasury decided to allow Bear Stearns to go bankrupt,which it did in September,2008.

The ability of the Federal Reserve to use monetary policy to affect economic variables such as real GDP ultimately depends upon its ability to affect

Suppose that the economy is producing below potential GDP and the Fed implements the correct change in monetary policy,but not until after the economy has passed the trough of the recession.Then

A monetary policy target is a variable that the Fed can affect directly,which then affects one or more of the Fed's policy goals.

Use a graph to show the effects of an expansionary monetary policy moving an economy out of recession and to potential real GDP.Explain what happens to aggregate demand,real GDP,and the price level.

Changes in the federal funds rate usually result in

Lowering the interest rate will

The Fed

If the amount you owe on your house is less than the price of the house,you have

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

When housing prices fell as they did beginning in 2006 following the housing market bubble,most banks and other lenders the requirement for borrowers,making it for potential home buyers to obtain mortgages.