Question 1

When the Fed purchases U.S. government securities in the open market, the federal funds falls.

Accepted Answer

A) True 
 B)False

Question 2

In order to combat a recession, the Fed will ________ the federal funds rate and thereby ________ the quantity of money.

Accepted Answer

A)  raise; increasing 
B)  lower; increasing 
C)  raise; decreasing 
D)  lower; decreasing 
A)  raise; increasing 
B)  lower; increasing 
C)  raise; decreasing 
D)  lower; decreasing

Question 3

The Fed engages in open market operations and sells government securities. The result is

Accepted Answer

A)  a lower federal funds rate. 
B)  a higher federal funds rate. 
C)  an unchanged federal funds rate because other interest rates did not change. 
D)  More information is needed to determine what happens to the federal funds rate. 
A)  a lower federal funds rate. 
B)  a higher federal funds rate. 
C)  an unchanged federal funds rate because other interest rates did not change. 
D)  More information is needed to determine what happens to the federal funds rate.

Question 4

When the Fed raises the federal funds rate, in the foreign exchange market people ________ dollars and the price of the dollar ________ on the foreign exchange market.

Accepted Answer

A)  sell; rises 
B)  sell; falls 
C)  buy; rises 
D)  buy; falls 
A)  sell; rises 
B)  sell; falls 
C)  buy; rises 
D)  buy; falls

Question 5

One problem with the ripple effect from the Fed's monetary policy is

Accepted Answer

A)  the fact that the monetary policy transmission process is long and drawn out. 
B)  that changing the Federal funds target rate seldom has an effect on the markets for reserves and loanable funds. 
C)  the tight relationship between that the Federal funds rate has to aggregate spending. 
D)  the frequent misalignment of the spread between the Federal funds rate and the Federal funds rate target. 
A)  the fact that the monetary policy transmission process is long and drawn out. 
B)  that changing the Federal funds target rate seldom has an effect on the markets for reserves and loanable funds. 
C)  the tight relationship between that the Federal funds rate has to aggregate spending. 
D)  the frequent misalignment of the spread between the Federal funds rate and the Federal funds rate target.

Question 6

In response to an inflationary gap, the Fed

Accepted Answer

A)  waits until the price level falls before acting. 
B)  lowers the federal funds rate by buying U.S. government securities. 
C)  raises the federal funds rate by selling U.S. government securities. 
D)  raises the federal funds rate by buying U.S. government securities. 
A)  waits until the price level falls before acting. 
B)  lowers the federal funds rate by buying U.S. government securities. 
C)  raises the federal funds rate by selling U.S. government securities. 
D)  raises the federal funds rate by buying U.S. government securities.

Question 7

The Fed's actions to fight an inflation shift the

Accepted Answer

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

Question 8

If the Fed raises the federal funds rate so that the exchange rate rises, then imports ________ and exports ________.

Accepted Answer

A)  increase; increase 
B)  increase; decrease 
C)  decrease; increase 
D)  decrease; decrease 
A)  increase; increase 
B)  increase; decrease 
C)  decrease; increase 
D)  decrease; decrease

Question 9

Equilibrium in the market for bank reserves determines the

Accepted Answer

A)  federal funds rate. 
B)  inflation rate. 
C)  30-year Treasury bond rate. 
D)  exchange rate. 
A)  federal funds rate. 
B)  inflation rate. 
C)  30-year Treasury bond rate. 
D)  exchange rate.

Question 10

If the Federal Reserve decreases the Federal funds rate, other short-term interest rates ________ and the exchange rate ________.

Accepted Answer

A)  fall; falls 
B)  fall; does not change 
C)  fall; rises 
D)  do not change; falls 
A)  fall; falls 
B)  fall; does not change 
C)  fall; rises 
D)  do not change; falls

Question 11

-The figure above shows the market for bank reserves in Futureland. If the Bank of Futureland undertakes an open market sale of government securities that changes the quantity of reserves by $100 billion, then the federal funds rate will ________.

Accepted Answer

A)  rise to 8 percent a year 
B)  remain at 6 percent a year 
C)  fall to 4 percent a year 
D)  None of the above answers is correct. 
A)  rise to 8 percent a year 
B)  remain at 6 percent a year 
C)  fall to 4 percent a year 
D)  None of the above answers is correct.

Question 12

The output gap can be used to estimate the extent to which the Fed misses its goal of

Accepted Answer

A)  maximum employment. 
B)  stable prices. 
C)  moderate long-term interest rates. 
D)  monetary policy. 
A)  maximum employment. 
B)  stable prices. 
C)  moderate long-term interest rates. 
D)  monetary policy.

Question 13

When the Federal Reserve increases the Federal funds rate

Accepted Answer

A)  both the supply of bank loans and the supply of loanable funds decrease, thereby increasing the real interest rate. 
B)  the supply of bank loans decreases, while the supply of loanable funds and the real interest rate both increase. 
C)  both the supply of bank loans and the supply of loanable funds increase, while the real interest rate increases. 
D)  both the supply of bank loans and the supply of loanable funds increase, thereby decreasing the real interest rate. 
A)  both the supply of bank loans and the supply of loanable funds decrease, thereby increasing the real interest rate. 
B)  the supply of bank loans decreases, while the supply of loanable funds and the real interest rate both increase. 
C)  both the supply of bank loans and the supply of loanable funds increase, while the real interest rate increases. 
D)  both the supply of bank loans and the supply of loanable funds increase, thereby decreasing the real interest rate.

Question 14

When the Federal Reserve increases the Federal funds rate

Accepted Answer

A)  the quantity of reserves, the quantity of deposits, and bank loans all decrease. 
B)  the quantity of reserves decreases, while the quantity of deposits and bank loans both increase. 
C)  both the quantity of reserves and the quantity of deposits decrease, while bank loans increase. 
D)  the quantity of reserves, the quantity of deposits, and bank loans all increase. 
A)  the quantity of reserves, the quantity of deposits, and bank loans all decrease. 
B)  the quantity of reserves decreases, while the quantity of deposits and bank loans both increase. 
C)  both the quantity of reserves and the quantity of deposits decrease, while bank loans increase. 
D)  the quantity of reserves, the quantity of deposits, and bank loans all increase.

Question 15

In March 2013 the Fed announced that it might decrease its open market purchases of securities by the end of the year. This announcement suggests that the Fed is concerned that

Accepted Answer

A)  the unemployment rate will increase. 
B)  the inflation rate will rise. 
C)  the federal funds interest rate will fall too low for the Fed to control it. 
D)  the federal funds interest rate will rise too high for the Fed to control it. 
A)  the unemployment rate will increase. 
B)  the inflation rate will rise. 
C)  the federal funds interest rate will fall too low for the Fed to control it. 
D)  the federal funds interest rate will rise too high for the Fed to control it.

Question 16

"The Bank of Israel lowered its benchmark lending rate by half a percentage point, the fourth cut in seven weeks, as the global financial turmoil slows economic growth and inflation expectations ease."
Www)bloomberg.com 11/24/2008
The Bank of Israel's actions ________ bank reserves and have the goal of ________ consumption.

Accepted Answer

A)  decrease; decreasing 
B)  increase; decreasing 
C)  increase; increasing 
D)  decrease; increasing 
A)  decrease; decreasing 
B)  increase; decreasing 
C)  increase; increasing 
D)  decrease; increasing

Question 17

Why does the Fed pursue price stability as its ultimate goal?

Accepted Answer

The economy works best when the price le

Question 18

-Which aggregate supply-aggregate demand diagram above shows the effect on real GDP and the price level of monetary policy when it is used to fight a recession?

Accepted Answer

A)  only Figure A 
B)  only Figure B 
C)  both Figure A and Figure B 
D)  neither Figure A nor Figure B 
A)  only Figure A 
B)  only Figure B 
C)  both Figure A and Figure B 
D)  neither Figure A nor Figure B

Question 19

According to the AS/AD model, in the short run an increase in the federal funds rate will

Accepted Answer

A)  decrease the price level and decrease real GDP. 
B)  increase the price level and decrease real GDP. 
C)  decrease the price level but leave real GDP unchanged. 
D)  decrease real GDP but leave the price level unchanged. 
A)  decrease the price level and decrease real GDP. 
B)  increase the price level and decrease real GDP. 
C)  decrease the price level but leave real GDP unchanged. 
D)  decrease real GDP but leave the price level unchanged.

Question 20

If the Fed increases the quantity of reserves, the federal funds rate ________ and the quantity of money ________.

Accepted Answer

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

When the Fed purchases U.S. government securities in the open market, the federal funds falls.

In order to combat a recession, the Fed will the federal funds rate and thereby the quantity of money.

The Fed engages in open market operations and sells government securities. The result is

When the Fed raises the federal funds rate, in the foreign exchange market people dollars and the price of the dollar on the foreign exchange market.

One problem with the ripple effect from the Fed's monetary policy is

In response to an inflationary gap, the Fed

The Fed's actions to fight an inflation shift the

If the Fed raises the federal funds rate so that the exchange rate rises, then imports and exports .

Equilibrium in the market for bank reserves determines the

If the Federal Reserve decreases the Federal funds rate, other short-term interest rates and the exchange rate .

-The figure above shows the market for bank reserves in Futureland. If the Bank of Futureland undertakes an open market sale of government securities that changes the quantity of reserves by $100 billion, then the federal funds rate will ________.

The output gap can be used to estimate the extent to which the Fed misses its goal of

When the Federal Reserve increases the Federal funds rate

When the Federal Reserve increases the Federal funds rate

In March 2013 the Fed announced that it might decrease its open market purchases of securities by the end of the year. This announcement suggests that the Fed is concerned that

Why does the Fed pursue price stability as its ultimate goal?

-Which aggregate supply-aggregate demand diagram above shows the effect on real GDP and the price level of monetary policy when it is used to fight a recession?

According to the AS/AD model, in the short run an increase in the federal funds rate will

If the Fed increases the quantity of reserves, the federal funds rate and the quantity of money .

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

When the Fed purchases U.S. government securities in the open market, the federal funds falls.

In order to combat a recession, the Fed will ________ the federal funds rate and thereby ________ the quantity of money.

The Fed engages in open market operations and sells government securities. The result is

When the Fed raises the federal funds rate, in the foreign exchange market people ________ dollars and the price of the dollar ________ on the foreign exchange market.

One problem with the ripple effect from the Fed's monetary policy is

In response to an inflationary gap, the Fed

The Fed's actions to fight an inflation shift the

If the Fed raises the federal funds rate so that the exchange rate rises, then imports ________ and exports ________.

Equilibrium in the market for bank reserves determines the

If the Federal Reserve decreases the Federal funds rate, other short-term interest rates ________ and the exchange rate ________.

-The figure above shows the market for bank reserves in Futureland. If the Bank of Futureland undertakes an open market sale of government securities that changes the quantity of reserves by $100 billion, then the federal funds rate will ________.

The output gap can be used to estimate the extent to which the Fed misses its goal of

When the Federal Reserve increases the Federal funds rate

When the Federal Reserve increases the Federal funds rate

In March 2013 the Fed announced that it might decrease its open market purchases of securities by the end of the year. This announcement suggests that the Fed is concerned that

Why does the Fed pursue price stability as its ultimate goal?

-Which aggregate supply-aggregate demand diagram above shows the effect on real GDP and the price level of monetary policy when it is used to fight a recession?

According to the AS/AD model, in the short run an increase in the federal funds rate will

If the Fed increases the quantity of reserves, the federal funds rate ________ and the quantity of money ________.

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

In order to combat a recession, the Fed will the federal funds rate and thereby the quantity of money.

When the Fed raises the federal funds rate, in the foreign exchange market people dollars and the price of the dollar on the foreign exchange market.

If the Fed raises the federal funds rate so that the exchange rate rises, then imports and exports .

If the Federal Reserve decreases the Federal funds rate, other short-term interest rates and the exchange rate .

If the Fed increases the quantity of reserves, the federal funds rate and the quantity of money .