Question 1

-In the above figure, suppose point C is the original equilibrium. If the Fed increases the federal funds rate, the new equilibrium is given by point

Accepted Answer

A)  A. 
B)  B. 
C)  C (that is, the equilibrium does not change). 
D)  D. 
A)  A. 
B)  B. 
C)  C (that is, the equilibrium does not change). 
D)  D. A

Question 2

The Taylor rule

Accepted Answer

A)  focuses on only fluctuations in real GDP. 
B)  ignores price level stability to focus on responding to fluctuations in real GDP. 
C)  is the rule actually followed by the Fed. 
D)  shows how the Fed could set the federal funds rate. 
A)  focuses on only fluctuations in real GDP. 
B)  ignores price level stability to focus on responding to fluctuations in real GDP. 
C)  is the rule actually followed by the Fed. 
D)  shows how the Fed could set the federal funds rate. D

Question 3

Which of the following is one of the Fed's policy goals?

Accepted Answer

A)  zero unemployment 
B)  exchange rate stability 
C)  monetary base maximization 
D)  price level stability 
A)  zero unemployment 
B)  exchange rate stability 
C)  monetary base maximization 
D)  price level stability D

Question 4

In the short run, the Fed's actions to fight an inflationary gap shift the

Accepted Answer

A)  aggregate demand curve rightward. 
B)  aggregate demand curve leftward. 
C)  short-run aggregate supply curve rightward. 
D)  short-run aggregate supply curve leftward. 
A)  aggregate demand curve rightward. 
B)  aggregate demand curve leftward. 
C)  short-run aggregate supply curve rightward. 
D)  short-run aggregate supply curve leftward.

Question 5

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 6

The Fed targets the 30-year bond rate as its monetary policy instrument.

Accepted Answer

A) True 
 B)False

Question 7

"When the Fed is concerned with inflation, it buys government securities." Is the previous statement correct or incorrect? Explain your answer.

Accepted Answer

The statement is incorrect. When the Fed

Question 8

Long-term interest rates fluctuate ________ short-term interest rates

Accepted Answer

A)  less than 
B)  more than 
C)  the same as 
D)  depending on their level sometimes less than, sometimes more than 
A)  less than 
B)  more than 
C)  the same as 
D)  depending on their level sometimes less than, sometimes more than

Question 9

In an effort to address the troubled economy, ..."For the ninth time in just over a year, the Federal Reserve is expected to cut interest rates, quite possibly its last reduction in this downturn." Rates have not been this low "... since 2003, when the economy was growing at a snail's pace."
Www)csmonitor.com, 10/28/2008
The Fed's rates cuts will initially impact ________ and eventually ________.

Accepted Answer

A)  bank reserves; government spending 
B)  the money supply; bank reserves 
C)  bank reserves; real GDP 
D)  investment; the real interest rate 
A)  bank reserves; government spending 
B)  the money supply; bank reserves 
C)  bank reserves; real GDP 
D)  investment; the real interest rate

Question 10

If the federal funds rate is below the Fed target, the Fed will conduct an open market sale to increase the federal funds rate to the desired level.

Accepted Answer

A) True 
 B)False

Question 11

If the Fed lowers the federal funds rate, the Fed's goal is to

Accepted Answer

A)  increase aggregate demand. 
B)  decrease aggregate supply. 
C)  increase aggregate supply. 
D)  decrease the inflation rate as firms produce more goods and services. 
A)  increase aggregate demand. 
B)  decrease aggregate supply. 
C)  increase aggregate supply. 
D)  decrease the inflation rate as firms produce more goods and services.

Question 12

In the short run, a rise in the federal funds rate shifts the

Accepted Answer

A)  AD curve leftward. 
B)  SAS curve leftward. 
C)  LAS curve leftward. 
D)  None of the above because a decrease in the quantity of money does not shift a curve. 
A)  AD curve leftward. 
B)  SAS curve leftward. 
C)  LAS curve leftward. 
D)  None of the above because a decrease in the quantity of money does not shift a curve.

Question 13

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

Accepted Answer

When the Fed is concerned with recession

Question 14

The key goal of monetary policy is to

Accepted Answer

A)  reverse the productivity growth slowdown. 
B)  keep the budget deficit small and/or the budget surplus large. 
C)  lower taxes. 
D)  maintain low inflation. 
A)  reverse the productivity growth slowdown. 
B)  keep the budget deficit small and/or the budget surplus large. 
C)  lower taxes. 
D)  maintain low inflation.

Question 15

In the above figure, suppose that the economy is at point D. If the Fed aims to fight the recession, the economy will move to

Accepted Answer

A)  point A. 
B)  point B. 
C)  point C. 
D)  Either point A or point C, depending on precisely how the Fed acted. 
A)  point A. 
B)  point B. 
C)  point C. 
D)  Either point A or point C, depending on precisely how the Fed acted.

Question 16

If the Fed wants to lower the federal funds rate, it can

Accepted Answer

A)  decrease the budget deficit. 
B)  sell government securities in the open market. 
C)  instruct banks to print more money. 
D)  buy government securities on the open market. 
A)  decrease the budget deficit. 
B)  sell government securities in the open market. 
C)  instruct banks to print more money. 
D)  buy government securities on the open market.

Question 17

In 2012, U.S. core inflation was 2.1 percent. This inflation rate

Accepted Answer

A)  is lower than the inflation rate that the Fed accepts as creating stable prices. 
B)  is about equal to the inflation rate that the Fed accepts as creating stable prices. 
C)  is more than 2 percentage points higher than the inflation rate that the Fed accepts as creating stable prices. 
D)  None of the above answers are correct because the Fed has never associated an inflation rate with stable prices. 
A)  is lower than the inflation rate that the Fed accepts as creating stable prices. 
B)  is about equal to the inflation rate that the Fed accepts as creating stable prices. 
C)  is more than 2 percentage points higher than the inflation rate that the Fed accepts as creating stable prices. 
D)  None of the above answers are correct because the Fed has never associated an inflation rate with stable prices.

Question 18

To fight a recession the Fed will

Accepted Answer

A)  raise the federal funds rate. 
B)  lower the federal funds rate. 
C)  increase the budget deficit. 
D)  decrease taxes. 
A)  raise the federal funds rate. 
B)  lower the federal funds rate. 
C)  increase the budget deficit. 
D)  decrease taxes.

Question 19

When the Fed cuts the Federal funds rate, real GDP growth ________ and the inflation rate ________.

Accepted Answer

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

Question 20

If the Fed is concerned about inflation, in the short run what is the proper monetary policy to restore price stability? What actions can the Fed undertake to restore price stability?

Accepted Answer

In order to avoid the inflation, the Fed

-In the above figure, suppose point C is the original equilibrium. If the Fed increases the federal funds rate, the new equilibrium is given by point

The Taylor rule

Which of the following is one of the Fed's policy goals?

In the short run, the Fed's actions to fight an inflationary gap shift the

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

The Fed targets the 30-year bond rate as its monetary policy instrument.

"When the Fed is concerned with inflation, it buys government securities." Is the previous statement correct or incorrect? Explain your answer.

Long-term interest rates fluctuate ________ short-term interest rates

If the federal funds rate is below the Fed target, the Fed will conduct an open market sale to increase the federal funds rate to the desired level.

If the Fed lowers the federal funds rate, the Fed's goal is to

In the short run, a rise in the federal funds rate shifts the

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

The key goal of monetary policy is to

In the above figure, suppose that the economy is at point D. If the Fed aims to fight the recession, the economy will move to

If the Fed wants to lower the federal funds rate, it can

In 2012, U.S. core inflation was 2.1 percent. This inflation rate

To fight a recession the Fed will

When the Fed cuts the Federal funds rate, real GDP growth and the inflation rate .

If the Fed is concerned about inflation, in the short run what is the proper monetary policy to restore price stability? What actions can the Fed undertake to restore price stability?

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

The Business Cycle, Inflation, and Deflation

Fiscal Policy

International Trade Policy

Filters

Exam 14: Monetary Policy

-In the above figure, suppose point C is the original equilibrium. If the Fed increases the federal funds rate, the new equilibrium is given by point

The Taylor rule

Which of the following is one of the Fed's policy goals?

In the short run, the Fed's actions to fight an inflationary gap shift the

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

The Fed targets the 30-year bond rate as its monetary policy instrument.

"When the Fed is concerned with inflation, it buys government securities." Is the previous statement correct or incorrect? Explain your answer.

Long-term interest rates fluctuate ________ short-term interest rates

If the federal funds rate is below the Fed target, the Fed will conduct an open market sale to increase the federal funds rate to the desired level.

If the Fed lowers the federal funds rate, the Fed's goal is to

In the short run, a rise in the federal funds rate shifts the

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

The key goal of monetary policy is to

In the above figure, suppose that the economy is at point D. If the Fed aims to fight the recession, the economy will move to

If the Fed wants to lower the federal funds rate, it can

In 2012, U.S. core inflation was 2.1 percent. This inflation rate

To fight a recession the Fed will

When the Fed cuts the Federal funds rate, real GDP growth ________ and the inflation rate ________.

If the Fed is concerned about inflation, in the short run what is the proper monetary policy to restore price stability? What actions can the Fed undertake to restore price stability?

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

The Business Cycle, Inflation, and Deflation

Fiscal Policy

International Trade Policy

Filters

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

When the Fed cuts the Federal funds rate, real GDP growth and the inflation rate .