Question 1

When the Federal Reserve decreases the money supply,at the previous equilibrium interest rate households and firms will now want to

Accepted Answer

A) buy Treasury bills. 
B) sell Treasury bills. 
C) neither buy nor sell Treasury bills. 
D) hold less money. 
A) buy Treasury bills. 
B) sell Treasury bills. 
C) neither buy nor sell Treasury bills. 
D) hold less money.

Question 2

Figure 15-6  
-Refer to Figure 15-6.In the figure above,if the economy is at point A,the appropriate monetary policy by the Federal Reserve would be to

Accepted Answer

A) lower interest rates. 
B) raise interest rates. 
C) lower income taxes. 
D) raise income taxes. 
A) lower interest rates. 
B) raise interest rates. 
C) lower income taxes. 
D) raise income taxes.

Question 3

If the Fed orders a contractionary monetary policy,describe what will happen to the following variables relative to what would have happened without the policy:
a.The money supply
b.Interest rates
c.Investment
d.Consumption
e.Net Exports
f.The aggregate demand curve
g.Real GDP
h.The price level

Accepted Answer

a.The money supply decreases b.Interest

Question 4

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 5

A financial asset is considered a security if

Accepted Answer

A) the owner of the security receives dividends and realizes a capital gain when the asset is sold. 
B) it can be sold in a secondary market. 
C) its value increases after it is sold in a primary market. 
D) its value is secure; that is,the owner will not suffer a financial loss when the asset is sold. 
A) the owner of the security receives dividends and realizes a capital gain when the asset is sold. 
B) it can be sold in a secondary market. 
C) its value increases after it is sold in a primary market. 
D) its value is secure; that is,the owner will not suffer a financial loss when the asset is sold.

Question 6

Suppose you buy a house for $250,000.One year later,the market price for the house has fallen to $200,000.What is the return on your investment in the house if you made a down payment of 10 percent and took out a mortgage loan for the other 90 percent?

Accepted Answer

The market price has fallen by $50,000,s

Question 7

The Fed's two main monetary policy targets are

Accepted Answer

A) the money supply and the inflation rate. 
B) the money supply and the interest rate. 
C) the interest rate and real GDP. 
D) the inflation rate and real GDP. 
A) the money supply and the inflation rate. 
B) the money supply and the interest rate. 
C) the interest rate and real GDP. 
D) the inflation rate and real GDP.

Question 8

If the Fed raises the interest rate,this will ________ inflation and ________ real GDP in the short run.

Accepted Answer

A) reduce; raise 
B) increase; lower 
C) increase; raise 
D) reduce; lower 
A) reduce; raise 
B) increase; lower 
C) increase; raise 
D) reduce; lower

Question 9

Figure 15-12  
-Refer to Figure 15-12.In the dynamic AD-AS model,if the economy is at point A in year 1 and is expected to go to point B in year 2,the Federal Reserve would most likely

Accepted Answer

A) increase interest rates. 
B) decrease interest rates. 
C) not change interest rates. 
D) increase the inflation rate. 
A) increase interest rates. 
B) decrease interest rates. 
C) not change interest rates. 
D) increase the inflation rate.

Question 10

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 11

An increase in the interest rate

Accepted Answer

A) decreases the opportunity cost of holding money. 
B) increases the opportunity cost of holding money. 
C) decreases the percentage yield of holding money. 
D) increases the percentage yield of holding money. 
A) decreases the opportunity cost of holding money. 
B) increases the opportunity cost of holding money. 
C) decreases the percentage yield of holding money. 
D) increases the percentage yield of holding money.

Question 12

Falling interest rates can

Accepted Answer

A) increase a firm's stock price,which causes firms to issue more stock shares,and thus increases funds for investment. 
B) raise the cost of borrowing for firms and decrease investment. 
C) raise the cost of buying new homes and fewer new homes will be purchased. 
D) lower the cost of buying new homes and fewer new homes will be purchased. 
A) increase a firm's stock price,which causes firms to issue more stock shares,and thus increases funds for investment. 
B) raise the cost of borrowing for firms and decrease investment. 
C) raise the cost of buying new homes and fewer new homes will be purchased. 
D) lower the cost of buying new homes and fewer new homes will be purchased.

Question 13

The argument advanced by Milton Friedman for adopting a monetary growth rule is that

Accepted Answer

A) active monetary policy potentially destabilizes the economy. 
B) the Fed can control the money supply,but not the level of interest rates. 
C) a constant rate of growth in the money supply would eliminate the booms and recessions that make up the business cycle. 
D) the growth rate of M1 has been unstable. 
A) active monetary policy potentially destabilizes the economy. 
B) the Fed can control the money supply,but not the level of interest rates. 
C) a constant rate of growth in the money supply would eliminate the booms and recessions that make up the business cycle. 
D) the growth rate of M1 has been unstable.

Question 14

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 15

When the Fed uses contractionary policy,

Accepted Answer

A) the price level rises higher than it would if the Fed did not pursue policy. 
B) the price level rises less than it would if the Fed did not pursue policy. 
C) it does not change the price level. 
D) it causes inflation. 
A) the price level rises higher than it would if the Fed did not pursue policy. 
B) the price level rises less than it would if the Fed did not pursue policy. 
C) it does not change the price level. 
D) it causes inflation.

Question 16

While many analysts defended the actions taken by the Fed and the Treasury to respond to the financial crisis in 2008,others were critical of these actions.The critics were concerned that by not allowing large firms to fail,

Accepted Answer

A) smaller firms will resent not receiving similar assistance. 
B) stockholders and bondholders of these firms were not allowed to receive the proceeds from the sale of assets that would have occurred if the firms had declared bankruptcy. 
C) there is an increased likelihood that other firms will engage in risky behavior in the future with the expectation that they will also not be allowed to fail. 
D) there will be less competition in the U.S.economy,which could led to higher prices for consumers. 
A) smaller firms will resent not receiving similar assistance. 
B) stockholders and bondholders of these firms were not allowed to receive the proceeds from the sale of assets that would have occurred if the firms had declared bankruptcy. 
C) there is an increased likelihood that other firms will engage in risky behavior in the future with the expectation that they will also not be allowed to fail. 
D) there will be less competition in the U.S.economy,which could led to higher prices for consumers.

Question 17

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 18

Figure 15-7  
-Refer to Figure 15-7.Suppose the Fed sells Treasury Bills in pursuit of contractionary monetary policy.Using the static AD-AS model in the figure above,this situation would be depicted as a movement from

Accepted Answer

A) A to B. 
B) B to D. 
C) C to B. 
D) B to C. 
E) C to D. 
A) A to B. 
B) B to D. 
C) C to B. 
D) B to C. 
E) C to D.

Question 19

Give an example of a monetary policy target.Explain why the Fed uses policy targets.

Accepted Answer

One possible monetary target is the mone

Question 20

The Fed can simultaneously reduce the inflation rate and stimulate growth through lowering interest rates.

Accepted Answer

A) True 
 B)False

When the Federal Reserve decreases the money supply,at the previous equilibrium interest rate households and firms will now want to

Figure 15-6 -Refer to Figure 15-6.In the figure above,if the economy is at point A,the appropriate monetary policy by the Federal Reserve would be to

If the Fed orders a contractionary monetary policy,describe what will happen to the following variables relative to what would have happened without the policy: a.The money supply b.Interest rates c.Investment d.Consumption e.Net Exports f.The aggregate demand curve g.Real GDP h.The price level

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

A financial asset is considered a security if

Suppose you buy a house for $250,000.One year later,the market price for the house has fallen to $200,000.What is the return on your investment in the house if you made a down payment of 10 percent and took out a mortgage loan for the other 90 percent?

The Fed's two main monetary policy targets are

If the Fed raises the interest rate,this will inflation and real GDP in the short run.

Figure 15-12 -Refer to Figure 15-12.In the dynamic AD-AS model,if the economy is at point A in year 1 and is expected to go to point B in year 2,the Federal Reserve would most likely

An increase in real GDP

An increase in the interest rate

Falling interest rates can

The argument advanced by Milton Friedman for adopting a monetary growth rule is that

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

When the Fed uses contractionary policy,

While many analysts defended the actions taken by the Fed and the Treasury to respond to the financial crisis in 2008,others were critical of these actions.The critics were concerned that by not allowing large firms to fail,

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.

Figure 15-7 -Refer to Figure 15-7.Suppose the Fed sells Treasury Bills in pursuit of contractionary monetary policy.Using the static AD-AS model in the figure above,this situation would be depicted as a movement from

Give an example of a monetary policy target.Explain why the Fed uses policy targets.

The Fed can simultaneously reduce the inflation rate and stimulate growth through lowering interest rates.

Economics: Foundations and Models

Trade-Offs,comparative Advantage,and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, government Price Setting, and Taxes

The Economics of Health Care

Firms,the Stock Market,and Corporate Governance

Comparative Advantage and the Gains From International Trade

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Fiscal Policy

Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

Exam 15: Monetary Policy

When the Federal Reserve decreases the money supply,at the previous equilibrium interest rate households and firms will now want to

Figure 15-6 -Refer to Figure 15-6.In the figure above,if the economy is at point A,the appropriate monetary policy by the Federal Reserve would be to

If the Fed orders a contractionary monetary policy,describe what will happen to the following variables relative to what would have happened without the policy: a.The money supply b.Interest rates c.Investment d.Consumption e.Net Exports f.The aggregate demand curve g.Real GDP h.The price level

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

A financial asset is considered a security if

Suppose you buy a house for $250,000.One year later,the market price for the house has fallen to $200,000.What is the return on your investment in the house if you made a down payment of 10 percent and took out a mortgage loan for the other 90 percent?

The Fed's two main monetary policy targets are

If the Fed raises the interest rate,this will ________ inflation and ________ real GDP in the short run.

Figure 15-12 -Refer to Figure 15-12.In the dynamic AD-AS model,if the economy is at point A in year 1 and is expected to go to point B in year 2,the Federal Reserve would most likely

An increase in real GDP

An increase in the interest rate

Falling interest rates can

The argument advanced by Milton Friedman for adopting a monetary growth rule is that

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

When the Fed uses contractionary policy,

While many analysts defended the actions taken by the Fed and the Treasury to respond to the financial crisis in 2008,others were critical of these actions.The critics were concerned that by not allowing large firms to fail,

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.

Figure 15-7 -Refer to Figure 15-7.Suppose the Fed sells Treasury Bills in pursuit of contractionary monetary policy.Using the static AD-AS model in the figure above,this situation would be depicted as a movement from

Give an example of a monetary policy target.Explain why the Fed uses policy targets.

The Fed can simultaneously reduce the inflation rate and stimulate growth through lowering interest rates.

Economics: Foundations and Models

Trade-Offs,comparative Advantage,and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, government Price Setting, and Taxes

The Economics of Health Care

Firms,the Stock Market,and Corporate Governance

Comparative Advantage and the Gains From International Trade

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Fiscal Policy

Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

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

If the Fed raises the interest rate,this will inflation and real GDP in the short run.