Question 1

Since World War II,the Federal Reserve has not been involved in carrying out monetary policy.

Accepted Answer

A) True 
 B)False

Question 2

The Fed can use contractionary monetary policy in an attempt to keep inflation from increasing.

Accepted Answer

A) True 
 B)False

Question 3

What problems can high inflation rates cause for the economy?

Accepted Answer

The problems that inflation ca

Question 4

If money demand is extremely sensitive to changes in the interest rate,the money demand curve becomes almost horizontal.If the Fed expands the money supply under these circumstances,then the interest rate will

Accepted Answer

A)  fall substantially and investment and consumer spending will fall substantially. 
B)  rise substantially and investment and consumer spending will rise substantially. 
C)  fall substantially and investment and consumer spending will change very little. 
D)  change very little and investment and consumer spending will change very little. 
A)  fall substantially and investment and consumer spending will fall substantially. 
B)  rise substantially and investment and consumer spending will rise substantially. 
C)  fall substantially and investment and consumer spending will change very little. 
D)  change very little and investment and consumer spending will change very little.

Question 5

In 2017,some banks in Europe had to make interest payments to borrowers rather than receive interest payments from borrowers.Which of the following statements describes this situation?

Accepted Answer

A)  For these banks, the loans increased required reserves. 
B)  These banks were receiving negative nominal interest rates on these loans. 
C)  For these banks, the loans were liabilities instead of assets. 
D)  All of the above are correct. 
A)  For these banks, the loans increased required reserves. 
B)  These banks were receiving negative nominal interest rates on these loans. 
C)  For these banks, the loans were liabilities instead of assets. 
D)  All of the above are correct.

Question 6

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

Accepted Answer

A)  no value to your house. 
B)  a mortgage rate that is too high. 
C)  negative equity in your house. 
D)  a reverse mortgage on your house. 
A)  no value to your house. 
B)  a mortgage rate that is too high. 
C)  negative equity in your house. 
D)  a reverse mortgage on your house.

Question 7

The Taylor rule helps explain the relationship between the Fed's ________ and ________.

Accepted Answer

A)  money supply target; economic conditions 
B)  money supply target; the federal funds target 
C)  federal funds target; the monetary growth rule 
D)  federal funds target; economic conditions 
A)  money supply target; economic conditions 
B)  money supply target; the federal funds target 
C)  federal funds target; the monetary growth rule 
D)  federal funds target; economic conditions

Question 8

Figure 17-14
  
-Refer to Figure 17-14.In the figure above,suppose the economy in Year 1 is at point A and is expected in Year 2 to be at point B.Which of the following policies could the Federal Reserve use to move the economy to point C?

Accepted Answer

A)  decrease income taxes 
B)  increase the required-reserve ratio 
C)  buy Treasury bills 
D)  sell Treasury bills 
A)  decrease income taxes 
B)  increase the required-reserve ratio 
C)  buy Treasury bills 
D)  sell Treasury bills

Question 9

The Fed uses a "core" price index,one that excludes food and energy prices to measure inflation.It does so because

Accepted Answer

A)  food and energy have inelastic demand curves and consumers will buy them regardless of their price. 
B)  it wants to avoid the blame for high gasoline prices causing inflation. 
C)  food and energy prices have wide swings that are not related to the causes of general inflation. 
D)  food and energy prices do not change all that much during the short run, so are irrelevant to the calculation of inflation. 
A)  food and energy have inelastic demand curves and consumers will buy them regardless of their price. 
B)  it wants to avoid the blame for high gasoline prices causing inflation. 
C)  food and energy prices have wide swings that are not related to the causes of general inflation. 
D)  food and energy prices do not change all that much during the short run, so are irrelevant to the calculation of inflation.

Question 10

Table 17-3
 $\begin{array}{|c|l|l|c|}
\hline \text { Year } & \text { Potential Real GDP } & \text { Real GDP } & \text { Price Level } \
\hline 2018 & \$ 18.0 \text { trillion } & \$ 18.0 \text { trillion } & 150 \
\hline 2019 & 18.5 \text { trillion } & 18.8 \text { trillion } & 154 \
\hline
\end{array}$
-Refer to Table 17-3.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 wants to keep real GDP at its potential level in 2019,it should

Accepted Answer

A)  buy Treasury securities. 
B)  sell Treasury securities. 
C)  decrease the required reserve ratio. 
D)  decrease income taxes. 
A)  buy Treasury securities. 
B)  sell Treasury securities. 
C)  decrease the required reserve ratio. 
D)  decrease income taxes.

Question 11

The Fed has adopted an interest rate target for most of the time since World War II.

Accepted Answer

A) True 
 B)False

Question 12

Table 17-1
 $\begin{array}{|c|c|c|c|}
\hline \text { Year } & \text { Potential Real GDP } & \text { Real GDP } & \text { Price Level } \
\hline 2018 & \$ 18.2 \text { trillion } & \$ 18.2 \text { trillion } & 145 \
\hline 2019 & 18.6 \text { trillion } & 18.5 \text { trillion } & 147 \
\hline
\end{array}$
-Refer to Table 17-1.The hypothetical information in the table shows what the values for real GDP and the price level will be in 2019 if the Fed does not use monetary policy.Which of the following policies makes sense if the Fed wants to keep real GDP at its potential level in 2019?

Accepted Answer

A)  The trading desk should sell Treasury securities. 
B)  The Fed should lower the target for the federal funds rate. 
C)  The Fed should pursue contractionary policy. 
D)  The Fed should lower capital gains taxes. 
A)  The trading desk should sell Treasury securities. 
B)  The Fed should lower the target for the federal funds rate. 
C)  The Fed should pursue contractionary policy. 
D)  The Fed should lower capital gains taxes.

Question 13

A decrease in interest rates can ________ the demand for stocks as stocks become relatively ________ attractive investments as compared to bonds.

Accepted Answer

A)  increase; more 
B)  decrease; less 
C)  decrease; more 
D)  increase; less 
E)  increase; similar 
A)  increase; more 
B)  decrease; less 
C)  decrease; more 
D)  increase; less 
E)  increase; similar

Question 14

The supporters of a monetary growth rule believe that active monetary policy

Accepted Answer

A)  stabilizes the economy, decreasing the number of recessions and their severity. 
B)  destabilizes the economy, increasing the number of recessions and their severity. 
C)  cannot change the inflation rate. 
D)  cannot change real GDP. 
A)  stabilizes the economy, decreasing the number of recessions and their severity. 
B)  destabilizes the economy, increasing the number of recessions and their severity. 
C)  cannot change the inflation rate. 
D)  cannot change real GDP.

Question 15

An increase in real GDP

Accepted Answer

A)  increases the buying and selling of goods and increases the demand for money as a medium of exchange. 
B)  increases the buying and selling of goods and decreases the demand for money as a medium of exchange. 
C)  decreases the buying and selling of goods and increases the demand for money as a medium of exchange. 
D)  decreases the buying and selling of goods and decreases the demand for money as a medium of exchange. 
A)  increases the buying and selling of goods and increases the demand for money as a medium of exchange. 
B)  increases the buying and selling of goods and decreases the demand for money as a medium of exchange. 
C)  decreases the buying and selling of goods and increases the demand for money as a medium of exchange. 
D)  decreases the buying and selling of goods and decreases the demand for money as a medium of exchange.

Question 16

The Federal Reserve responded to the 2008 financial crisis in several ways.Which of the following is one of the ways the Fed responded?

Accepted Answer

A)  The Fed banned investment banks from obtaining discount loans. 
B)  The Fed lent investment banks Treasury securities in exchange for mortgage-backed securities. 
C)  The Fed lowered the required reserve ratio on demand deposit accounts in order to increase the amount of bank reserves. 
D)  The Fed helped Citibank to acquire General Motors and Chrysler. 
A)  The Fed banned investment banks from obtaining discount loans. 
B)  The Fed lent investment banks Treasury securities in exchange for mortgage-backed securities. 
C)  The Fed lowered the required reserve ratio on demand deposit accounts in order to increase the amount of bank reserves. 
D)  The Fed helped Citibank to acquire General Motors and Chrysler.

Question 17

Expansionary monetary policy enacted during a recession will cause the inflation rate to increase.

Accepted Answer

A) True 
 B)False

Question 18

Figure 17-10
  
-Refer to Figure 17-10.In the figure above,suppose the economy is initially at point A.The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by the Federal Reserve?

Accepted Answer

A)  an increase in income taxes 
B)  a decrease in the required reserve ratio 
C)  an open market purchase of Treasury bills 
D)  an open market sale of Treasury bills 
A)  an increase in income taxes 
B)  a decrease in the required reserve ratio 
C)  an open market purchase of Treasury bills 
D)  an open market sale of Treasury bills

Question 19

With a monetary growth rule as proposed by the monetarists,during a recession the rate of growth of the money supply would

Accepted Answer

A)  decrease. 
B)  increase. 
C)  not change. 
D)  decrease or increase depending on economic conditions. 
A)  decrease. 
B)  increase. 
C)  not change. 
D)  decrease or increase depending on economic conditions.

Question 20

Contractionary monetary policy refers to the Fed's decreasing the money supply and decreasing interest rates to decrease real GDP.

Accepted Answer

A) True 
 B)False

Since World War II,the Federal Reserve has not been involved in carrying out monetary policy.

The Fed can use contractionary monetary policy in an attempt to keep inflation from increasing.

What problems can high inflation rates cause for the economy?

If money demand is extremely sensitive to changes in the interest rate,the money demand curve becomes almost horizontal.If the Fed expands the money supply under these circumstances,then the interest rate will

In 2017,some banks in Europe had to make interest payments to borrowers rather than receive interest payments from borrowers.Which of the following statements describes this situation?

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

The Taylor rule helps explain the relationship between the Fed's and .

Figure 17-14 -Refer to Figure 17-14.In the figure above,suppose the economy in Year 1 is at point A and is expected in Year 2 to be at point B.Which of the following policies could the Federal Reserve use to move the economy to point C?

The Fed uses a "core" price index,one that excludes food and energy prices to measure inflation.It does so because

The Fed has adopted an interest rate target for most of the time since World War II.

A decrease in interest rates can the demand for stocks as stocks become relatively attractive investments as compared to bonds.

The supporters of a monetary growth rule believe that active monetary policy

An increase in real GDP

The Federal Reserve responded to the 2008 financial crisis in several ways.Which of the following is one of the ways the Fed responded?

Expansionary monetary policy enacted during a recession will cause the inflation rate to increase.

Figure 17-10 -Refer to Figure 17-10.In the figure above,suppose the economy is initially at point A.The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by the Federal Reserve?

With a monetary growth rule as proposed by the monetarists,during a recession the rate of growth of the money supply would

Contractionary monetary policy refers to the Fed's decreasing the money supply and decreasing interest rates to decrease real GDP.

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

Since World War II,the Federal Reserve has not been involved in carrying out monetary policy.

The Fed can use contractionary monetary policy in an attempt to keep inflation from increasing.

What problems can high inflation rates cause for the economy?

If money demand is extremely sensitive to changes in the interest rate,the money demand curve becomes almost horizontal.If the Fed expands the money supply under these circumstances,then the interest rate will

In 2017,some banks in Europe had to make interest payments to borrowers rather than receive interest payments from borrowers.Which of the following statements describes this situation?

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

The Taylor rule helps explain the relationship between the Fed's ________ and ________.

Figure 17-14 -Refer to Figure 17-14.In the figure above,suppose the economy in Year 1 is at point A and is expected in Year 2 to be at point B.Which of the following policies could the Federal Reserve use to move the economy to point C?

The Fed uses a "core" price index,one that excludes food and energy prices to measure inflation.It does so because

The Fed has adopted an interest rate target for most of the time since World War II.

A decrease in interest rates can ________ the demand for stocks as stocks become relatively ________ attractive investments as compared to bonds.

The supporters of a monetary growth rule believe that active monetary policy

An increase in real GDP

The Federal Reserve responded to the 2008 financial crisis in several ways.Which of the following is one of the ways the Fed responded?

Expansionary monetary policy enacted during a recession will cause the inflation rate to increase.

Figure 17-10 -Refer to Figure 17-10.In the figure above,suppose the economy is initially at point A.The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by the Federal Reserve?

With a monetary growth rule as proposed by the monetarists,during a recession the rate of growth of the money supply would

Contractionary monetary policy refers to the Fed's decreasing the money supply and decreasing interest rates to decrease real GDP.

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 helps explain the relationship between the Fed's and .

A decrease in interest rates can the demand for stocks as stocks become relatively attractive investments as compared to bonds.