Question 1

A decrease in the supply of loanable funds decreases the real interest rate.

Accepted Answer

A) True 
 B)False

Question 2

Discuss how the Fed raising the federal funds rate ripples through the different sectors of the economy.

Accepted Answer

To raise the federal funds rate, the Fed

Question 3

If the Fed lowers the federal funds rate, then

Accepted Answer

A)  investment and consumption expenditure decrease. 
B)  the price of the dollar rises on the foreign exchange market and so net exports decrease. 
C)  a multiplier process that affects aggregate demand occurs. 
D)  All of the above answers are correct. 
A)  investment and consumption expenditure decrease. 
B)  the price of the dollar rises on the foreign exchange market and so net exports decrease. 
C)  a multiplier process that affects aggregate demand occurs. 
D)  All of the above answers are correct.

Question 4

A decrease in the federal funds rate

Accepted Answer

A)  increases other short-term interest rates, decreases investment, and decreases aggregate demand. 
B)  lowers the exchange rate, increases the supply of loanable funds, and increases aggregate demand. 
C)  lowers other sort-term interest rate, raises the real interest rate, and increases aggregate demand. 
D)  decreases the demand for loanable funds, lowers the real interest rate, and decreases aggregate demand. 
A)  increases other short-term interest rates, decreases investment, and decreases aggregate demand. 
B)  lowers the exchange rate, increases the supply of loanable funds, and increases aggregate demand. 
C)  lowers other sort-term interest rate, raises the real interest rate, and increases aggregate demand. 
D)  decreases the demand for loanable funds, lowers the real interest rate, and decreases aggregate demand.

Question 5

If the Fed wants to fight inflation, it will ________ the federal funds rate, which in the short run shifts the ________.

Accepted Answer

A)  lower; AD curve rightward 
B)  lower; AD curve leftward 
C)  raise; AD curve rightward 
D)  raise; AD curve leftward 
A)  lower; AD curve rightward 
B)  lower; AD curve leftward 
C)  raise; AD curve rightward 
D)  raise; AD curve leftward

Question 6

-In the above figure, suppose that the economy is at point B. Which of the following policy options for the Fed will move the economy toward its LAS?

Accepted Answer

A)  lower the federal funds rate 
B)  raise the federal funds rate 
C)  decrease the government's budget deficit 
D)  decrease taxes 
A)  lower the federal funds rate 
B)  raise the federal funds rate 
C)  decrease the government's budget deficit 
D)  decrease taxes

Question 7

-The figure above shows the demand for money in Kiteland.
a)If the Kiteland Central Bank has set the quantity of money so that the equilibrium interest rate is 4 percent, draw the supply of money curve.
b)Suppose that Kiteland's Central Bank wants to raise the interest rate by 1 percentage point. By how much must it change the quantity of real money?
c)In order to change the quantity of money to raise the interest rate by one percentage point, if the Central Bank uses an open market operation, does it make an open market purchase or an open market sale? Explain your answer.

Accepted Answer

@#IMG-DLM& 
a)See the figure above. When the suppl

Question 8

Consumer confidence in the economy rises, and as a result, real GDP increases above potential GDP. To move U.S. GDP back to potential GDP, the Fed should

Accepted Answer

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

Question 9

Long-term interest rates are ________ than short-term interest rates 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 10

Suppose in the money market the equilibrium interest rate is 5 percent and quantity of money demanded and supplied are both equal to $2 trillion dollars. If the Fed increases the quantity of money, what is the effect on the interest rate?

Accepted Answer

If the Fed increases the quant

Question 11

What is the effect of lowering the interest rate on net exports? Explain your answer.

Accepted Answer

A decrease in the interest rate increase

Question 12

If the demand for reserves is unchanged, an increase in the quantity of reserves will

Accepted Answer

A)  increase the federal funds rate. 
B)  lower the federal funds rate. 
C)  not affect the federal funds rate. 
D)  None of the above answers is correct. 
A)  increase the federal funds rate. 
B)  lower the federal funds rate. 
C)  not affect the federal funds rate. 
D)  None of the above answers is correct.

Question 13

Uncertainty about monetary policy

Accepted Answer

A)  was the factor that started the financial crisis in 2008. 
B)  can keep investment low. 
C)  is why the Fed does not use inflation rate targeting. 
D)  makes deposits in banks more desirable because they become safer. 
A)  was the factor that started the financial crisis in 2008. 
B)  can keep investment low. 
C)  is why the Fed does not use inflation rate targeting. 
D)  makes deposits in banks more desirable because they become safer.

Question 14

If the Federal Reserve lowers the federal funds rate

Accepted Answer

A)  other short-term interest rates fall. 
B)  other short-term interest rates rise. 
C)  the exchange rate falls. 
D)  Both answers A and C are correct. 
A)  other short-term interest rates fall. 
B)  other short-term interest rates rise. 
C)  the exchange rate falls. 
D)  Both answers A and C are correct.

Question 15

If the Fed wished to eliminate an inflationary gap, which of the following would be an appropriate policy?

Accepted Answer

A)  raise the federal funds rate 
B)  lower the federal funds rate 
C)  buy government securities 
D)  decease the government budget deficit 
A)  raise the federal funds rate 
B)  lower the federal funds rate 
C)  buy government securities 
D)  decease the government budget deficit

Question 16

When the economy is in recession, does the Fed want to raise the interest rate so as to increase aggregate demand and increase real GDP? Explain your answer.

Accepted Answer

When the economy is in a recession, the

Question 17

-In the above figure, suppose that the economy was initially in an equilibrium at point D. Where would the economy move if the Fed makes an open market purchase of government securities?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D, that is, the economy would not change its equilibrium. 
A)  A 
B)  B 
C)  C 
D)  D, that is, the economy would not change its equilibrium.

Question 18

During the financial crisis of 2008-2009, the Fed was concerned about

Accepted Answer

A)  the bubble that was forcing asset prices higher. 
B)  the public's rush to deposit its currency into banks. 
C)  keeping the federal funds rate from falling too far. 
D)  providing the banking system with enough liquidity. 
A)  the bubble that was forcing asset prices higher. 
B)  the public's rush to deposit its currency into banks. 
C)  keeping the federal funds rate from falling too far. 
D)  providing the banking system with enough liquidity.

Question 19

A widespread fall in asset prices means that banks might become

Accepted Answer

A)  insolvent. 
B)  solvent. 
C)  illiquid. 
D)  too liquid. 
A)  insolvent. 
B)  solvent. 
C)  illiquid. 
D)  too liquid.

Question 20

If the Fed carries out an open market operation and sells U.S. government securities, the federal funds rises and the quantity of money decreases.

Accepted Answer

A) True 
 B)False

A decrease in the supply of loanable funds decreases the real interest rate.

Discuss how the Fed raising the federal funds rate ripples through the different sectors of the economy.

If the Fed lowers the federal funds rate, then

A decrease in the federal funds rate

If the Fed wants to fight inflation, it will the federal funds rate, which in the short run shifts the .

-In the above figure, suppose that the economy is at point B. Which of the following policy options for the Fed will move the economy toward its LAS?

Consumer confidence in the economy rises, and as a result, real GDP increases above potential GDP. To move U.S. GDP back to potential GDP, the Fed should

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

Suppose in the money market the equilibrium interest rate is 5 percent and quantity of money demanded and supplied are both equal to $2 trillion dollars. If the Fed increases the quantity of money, what is the effect on the interest rate?

What is the effect of lowering the interest rate on net exports? Explain your answer.

If the demand for reserves is unchanged, an increase in the quantity of reserves will

Uncertainty about monetary policy

If the Federal Reserve lowers the federal funds rate

If the Fed wished to eliminate an inflationary gap, which of the following would be an appropriate policy?

When the economy is in recession, does the Fed want to raise the interest rate so as to increase aggregate demand and increase real GDP? Explain your answer.

-In the above figure, suppose that the economy was initially in an equilibrium at point D. Where would the economy move if the Fed makes an open market purchase of government securities?

During the financial crisis of 2008-2009, the Fed was concerned about

A widespread fall in asset prices means that banks might become

If the Fed carries out an open market operation and sells U.S. government securities, the federal funds rises and the quantity of money decreases.

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

A decrease in the supply of loanable funds decreases the real interest rate.

Discuss how the Fed raising the federal funds rate ripples through the different sectors of the economy.

If the Fed lowers the federal funds rate, then

A decrease in the federal funds rate

If the Fed wants to fight inflation, it will ________ the federal funds rate, which in the short run shifts the ________.

-In the above figure, suppose that the economy is at point B. Which of the following policy options for the Fed will move the economy toward its LAS?

Consumer confidence in the economy rises, and as a result, real GDP increases above potential GDP. To move U.S. GDP back to potential GDP, the Fed should

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

Suppose in the money market the equilibrium interest rate is 5 percent and quantity of money demanded and supplied are both equal to $2 trillion dollars. If the Fed increases the quantity of money, what is the effect on the interest rate?

What is the effect of lowering the interest rate on net exports? Explain your answer.

If the demand for reserves is unchanged, an increase in the quantity of reserves will

Uncertainty about monetary policy

If the Federal Reserve lowers the federal funds rate

If the Fed wished to eliminate an inflationary gap, which of the following would be an appropriate policy?

When the economy is in recession, does the Fed want to raise the interest rate so as to increase aggregate demand and increase real GDP? Explain your answer.

-In the above figure, suppose that the economy was initially in an equilibrium at point D. Where would the economy move if the Fed makes an open market purchase of government securities?

During the financial crisis of 2008-2009, the Fed was concerned about

A widespread fall in asset prices means that banks might become

If the Fed carries out an open market operation and sells U.S. government securities, the federal funds rises and the quantity of money decreases.

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

If the Fed wants to fight inflation, it will the federal funds rate, which in the short run shifts the .

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