Question 1

By the 2000s,investment banks had become significant participants in the secondary market for mortgages.

Accepted Answer

A) True 
 B)False

Question 2

Expansionary monetary policy refers to the ________ to increase real GDP.

Accepted Answer

A) government's increasing spending and lowering taxes 
B) government's decreasing spending and raising taxes 
C) Federal Reserve's increasing the money supply and decreasing interest rates 
D) Federal Reserve's decreasing the money supply and increasing interest rates 
A) government's increasing spending and lowering taxes 
B) government's decreasing spending and raising taxes 
C) Federal Reserve's increasing the money supply and decreasing interest rates 
D) Federal Reserve's decreasing the money supply and increasing interest rates

Question 3

The Fed seeks to promote stability of financial markets because

Accepted Answer

A) they want to lift the self-esteem of workers. 
B) Congress directed them to do so by the Employment Act of 1946. 
C) resources are lost when there is not an efficient matching of savers and borrowers. 
D) unstable markets result in increased efficiency. 
A) they want to lift the self-esteem of workers. 
B) Congress directed them to do so by the Employment Act of 1946. 
C) resources are lost when there is not an efficient matching of savers and borrowers. 
D) unstable markets result in increased efficiency.

Question 4

Which of the following characterizes the Fed's ability to prevent recessions?

Accepted Answer

A) The Fed is able to "fine tune" the economy and entirely eliminate recessions. 
B) The Fed is incapable of changing aggregate demand through its monetary policy tools. 
C) The Fed is able to keep a recession shorter and milder than it would otherwise be. 
D) The Fed is able to eliminate the business cycle and achieve absolute price stability. 
A) The Fed is able to "fine tune" the economy and entirely eliminate recessions. 
B) The Fed is incapable of changing aggregate demand through its monetary policy tools. 
C) The Fed is able to keep a recession shorter and milder than it would otherwise be. 
D) The Fed is able to eliminate the business cycle and achieve absolute price stability.

Question 5

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 6

Figure 15-7  
-Refer to Figure 15-7.Suppose the Fed lowers its target for the federal funds rate.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 A. 
C) C to B. 
D) E to A. 
E) C to D. 
A) A to B. 
B) B to A. 
C) C to B. 
D) E to A. 
E) C to D.

Question 7

Suppose that households became mistrustful of the banking system and decide to decrease their checking accounts and increase their holdings of currency.Using the money demand and money supply model and assuming everything else is held constant,the equilibrium interest rate should

Accepted Answer

A) increase. 
B) decrease. 
C) not change. 
D) increase,then decrease. 
A) increase. 
B) decrease. 
C) not change. 
D) increase,then decrease.

Question 8

Federal Reserve Board Chairmen Paul Volcker,Alan Greenspan,and Ben Bernanke all have focused on which of the following as their main goal of monetary policy?

Accepted Answer

A) high employment 
B) price stability 
C) economic growth 
D) stability of financial markets 
A) high employment 
B) price stability 
C) economic growth 
D) stability of financial markets

Question 9

When the Federal Reserve increases the money supply,people spend more because interest rates fall.

Accepted Answer

A) True 
 B)False

Question 10

Although the Federal Reserve had traditionally made discount loans only to ________,in response to the financial crisis in 2008 the Fed made primary dealers eligible for discount loans as well.

Accepted Answer

A) commercial banks 
B) government agencies 
C) investment banks 
D) mortgage lenders 
A) commercial banks 
B) government agencies 
C) investment banks 
D) mortgage lenders

Question 11

What problems can high inflation rates cause for the economy?

Accepted Answer

The problems that inflation ca

Question 12

Between September 2007 and March 2008 there was a substantial reduction in the demand for housing.What action did the Fed take in response to the reduction in the demand for housing?

Accepted Answer

A) The Federal Reserve decreased the required reserve rate. 
B) The Fed conducted open market sales of Treasury securities. 
C) The Federal Reserve cut the federal funds rate seven times. 
D) The Federal Reserve raised the discount rate by 3 percentage points. 
A) The Federal Reserve decreased the required reserve rate. 
B) The Fed conducted open market sales of Treasury securities. 
C) The Federal Reserve cut the federal funds rate seven times. 
D) The Federal Reserve raised the discount rate by 3 percentage points.

Question 13

Monetary policy is conducted by the U.S.Treasury Department.

Accepted Answer

A) True 
 B)False

Question 14

An increase in the domestic interest rate relative to other interest rates should

Accepted Answer

A) increase investment spending. 
B) decrease consumption spending. 
C) increase government spending. 
D) increase net exports. 
A) increase investment spending. 
B) decrease consumption spending. 
C) increase government spending. 
D) increase net exports.

Question 15

In 2008,the Treasury and Federal Reserve took action to save large financial firms such as Bear Stearns and AIG from failing.Which of the following is one reason why these measures were taken?

Accepted Answer

A) The Emergency Economic Stabilization Act required the Fed and the Treasury to provide financial assistance to firms that participated in regular open market actions with the Fed. 
B) The bankruptcy of a large financial firm would force the firm to sell its holdings of securities,which could cause other firms that hold these securities to also fail. 
C) The Fed and the Treasury wanted to allow Freddie Mac and Fannie Mae more time to buy the firms before they went bankrupt. 
D) The failure of these firms would have forced the Fed to increase interest rates,which could have led to a severe recession. 
A) The Emergency Economic Stabilization Act required the Fed and the Treasury to provide financial assistance to firms that participated in regular open market actions with the Fed. 
B) The bankruptcy of a large financial firm would force the firm to sell its holdings of securities,which could cause other firms that hold these securities to also fail. 
C) The Fed and the Treasury wanted to allow Freddie Mac and Fannie Mae more time to buy the firms before they went bankrupt. 
D) The failure of these firms would have forced the Fed to increase interest rates,which could have led to a severe recession.

Question 16

Expansionary monetary policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be relatively ________ and real GDP to be relatively ________.

Accepted Answer

A) higher; higher 
B) higher; lower 
C) lower; higher 
D) lower; lower 
A) higher; higher 
B) higher; lower 
C) lower; higher 
D) lower; lower

Question 17

The Fed

Accepted Answer

A) can easily distinguish the minor ups and downs of the economy from a recession. 
B) can have difficulty distinguishing the minor ups and downs of the economy from a recession. 
C) always times its policy responses correctly. 
D) can easily determine if a drop in production means a recession is inevitable. 
A) can easily distinguish the minor ups and downs of the economy from a recession. 
B) can have difficulty distinguishing the minor ups and downs of the economy from a recession. 
C) always times its policy responses correctly. 
D) can easily determine if a drop in production means a recession is inevitable.

Question 18

Does the money demand curve have a positive slope or a negative slope? Why does it have this slope? Explain why an increase in the variable on the vertical axis of the money demand curve causes either an increase or a decrease in the variable on the horizontal axis of the money demand curve.

Accepted Answer

The money demand curve has a negative sl

Question 19

Inflation rates during the years 1979-1981 were the highest the United States has ever experienced during peacetime.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following correctly describes what the Fed used as monetary targets in the past?

Accepted Answer

A) The Fed used M1 and M2 as targets after 1993. 
B) The Fed focused on M1 as a target after deregulation of the financial markets. 
C) The Fed increased its reliance on interest rate targets since the mid-1990s. 
D) After 1980 and before the 1990s,the Fed focused on interest rate targets. 
A) The Fed used M1 and M2 as targets after 1993. 
B) The Fed focused on M1 as a target after deregulation of the financial markets. 
C) The Fed increased its reliance on interest rate targets since the mid-1990s. 
D) After 1980 and before the 1990s,the Fed focused on interest rate targets.

By the 2000s,investment banks had become significant participants in the secondary market for mortgages.

Expansionary monetary policy refers to the ________ to increase real GDP.

The Fed seeks to promote stability of financial markets because

Which of the following characterizes the Fed's ability to prevent recessions?

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

Figure 15-7 -Refer to Figure 15-7.Suppose the Fed lowers its target for the federal funds rate.Using the static AD-AS model in the figure above,this situation would be depicted as a movement from

Suppose that households became mistrustful of the banking system and decide to decrease their checking accounts and increase their holdings of currency.Using the money demand and money supply model and assuming everything else is held constant,the equilibrium interest rate should

Federal Reserve Board Chairmen Paul Volcker,Alan Greenspan,and Ben Bernanke all have focused on which of the following as their main goal of monetary policy?

When the Federal Reserve increases the money supply,people spend more because interest rates fall.

Although the Federal Reserve had traditionally made discount loans only to ________,in response to the financial crisis in 2008 the Fed made primary dealers eligible for discount loans as well.

What problems can high inflation rates cause for the economy?

Between September 2007 and March 2008 there was a substantial reduction in the demand for housing.What action did the Fed take in response to the reduction in the demand for housing?

Monetary policy is conducted by the U.S.Treasury Department.

An increase in the domestic interest rate relative to other interest rates should

In 2008,the Treasury and Federal Reserve took action to save large financial firms such as Bear Stearns and AIG from failing.Which of the following is one reason why these measures were taken?

Expansionary monetary policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be relatively and real GDP to be relatively .

The Fed

Does the money demand curve have a positive slope or a negative slope? Why does it have this slope? Explain why an increase in the variable on the vertical axis of the money demand curve causes either an increase or a decrease in the variable on the horizontal axis of the money demand curve.

Inflation rates during the years 1979-1981 were the highest the United States has ever experienced during peacetime.

Which of the following correctly describes what the Fed used as monetary targets in the past?

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

By the 2000s,investment banks had become significant participants in the secondary market for mortgages.

Expansionary monetary policy refers to the ________ to increase real GDP.

The Fed seeks to promote stability of financial markets because

Which of the following characterizes the Fed's ability to prevent recessions?

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

Figure 15-7 -Refer to Figure 15-7.Suppose the Fed lowers its target for the federal funds rate.Using the static AD-AS model in the figure above,this situation would be depicted as a movement from

Suppose that households became mistrustful of the banking system and decide to decrease their checking accounts and increase their holdings of currency.Using the money demand and money supply model and assuming everything else is held constant,the equilibrium interest rate should

Federal Reserve Board Chairmen Paul Volcker,Alan Greenspan,and Ben Bernanke all have focused on which of the following as their main goal of monetary policy?

When the Federal Reserve increases the money supply,people spend more because interest rates fall.

Although the Federal Reserve had traditionally made discount loans only to ________,in response to the financial crisis in 2008 the Fed made primary dealers eligible for discount loans as well.

What problems can high inflation rates cause for the economy?

Between September 2007 and March 2008 there was a substantial reduction in the demand for housing.What action did the Fed take in response to the reduction in the demand for housing?

Monetary policy is conducted by the U.S.Treasury Department.

An increase in the domestic interest rate relative to other interest rates should

In 2008,the Treasury and Federal Reserve took action to save large financial firms such as Bear Stearns and AIG from failing.Which of the following is one reason why these measures were taken?

Expansionary monetary policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be relatively ________ and real GDP to be relatively ________.

The Fed

Does the money demand curve have a positive slope or a negative slope? Why does it have this slope? Explain why an increase in the variable on the vertical axis of the money demand curve causes either an increase or a decrease in the variable on the horizontal axis of the money demand curve.

Inflation rates during the years 1979-1981 were the highest the United States has ever experienced during peacetime.

Which of the following correctly describes what the Fed used as monetary targets in the past?

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

Expansionary monetary policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be relatively and real GDP to be relatively .