Question 1

A monetary growth rule means that

Accepted Answer

A)  the Fed will lower interest rates if it thinks a recession is on the horizon. 
B)  the Fed will raise interest rates if it thinks the economy is growing faster than potential. 
C)  the money supply should grow at a constant rate. 
D)  the money supply should grow in response to economic conditions. 
A)  the Fed will lower interest rates if it thinks a recession is on the horizon. 
B)  the Fed will raise interest rates if it thinks the economy is growing faster than potential. 
C)  the money supply should grow at a constant rate. 
D)  the money supply should grow in response to economic conditions.

Question 2

Figure 26-11  
-Refer to Figure 26-11. In the dynamic model of AD-AS in the figure above, the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve pursues policy. This will result in

Accepted Answer

A)  unemployment rates higher than what would occur if no policy had been pursued. 
B)  inflation higher than what would occur if no policy had been pursued. 
C)  real GDP lower than what would occur if no policy had been pursued. 
D)  short-term interest rates higher than what would occur if no policy had been pursued. 
A)  unemployment rates higher than what would occur if no policy had been pursued. 
B)  inflation higher than what would occur if no policy had been pursued. 
C)  real GDP lower than what would occur if no policy had been pursued. 
D)  short-term interest rates higher than what would occur if no policy had been pursued.

Question 3

If the Fed raises its target for the federal fund rate, this indicates that

Accepted Answer

A)  the Fed is pursuing an expansionary monetary policy. 
B)  the Fed is pursuing a contractionary monetary policy. 
C)  the Fed is attempting to combat deflation. 
D)  The Fed is concerned that the growth in aggregate demand is too slow to keep up with potential GDP. 
A)  the Fed is pursuing an expansionary monetary policy. 
B)  the Fed is pursuing a contractionary monetary policy. 
C)  the Fed is attempting to combat deflation. 
D)  The Fed is concerned that the growth in aggregate demand is too slow to keep up with potential GDP.

Question 4

Figure 26-12  
-Refer to Figure 26-12. 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 5

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 6

The Federal Reserve responded to the 2008 financial crisis in several ways. Which of the following is not one of the ways the Fed responded?

Accepted Answer

A)  The Fed made investment banks eligible for discount loans. 
B)  The Fed lent investment banks Treasury securities in exchange for mortgage-backed securities. 
C)  The Fed lowered the required reserve ratio on demand deposit accounts in order to increase the amount of bank reserves. 
D)  The Fed helped JP Morgan to acquire Bear Stearns, a nearly bankrupt investment bank. 
A)  The Fed made investment banks eligible for discount loans. 
B)  The Fed lent investment banks Treasury securities in exchange for mortgage-backed securities. 
C)  The Fed lowered the required reserve ratio on demand deposit accounts in order to increase the amount of bank reserves. 
D)  The Fed helped JP Morgan to acquire Bear Stearns, a nearly bankrupt investment bank.

Question 7

In response to already low interest rates doing little to stimulate the economy, the Fed announced a new program in September 2011 under which it would purchase long-term Treasury securities while selling an equal amount of shorter-term Treasury securities. This policy was known as

Accepted Answer

A)  inflation targeting. 
B)  Operation Twist. 
C)  securities-bubble deflating. 
D)  quantitative easing. 
A)  inflation targeting. 
B)  Operation Twist. 
C)  securities-bubble deflating. 
D)  quantitative easing.

Question 8

Buying a house during a recession may be a good idea if your job is secure because the Federal Reserve often

Accepted Answer

A)  raises interest rates during recessions. 
B)  lowers interest rates during recessions. 
C)  lowers income taxes during recessions. 
D)  sells Treasury bills to help the housing market. 
A)  raises interest rates during recessions. 
B)  lowers interest rates during recessions. 
C)  lowers income taxes during recessions. 
D)  sells Treasury bills to help the housing market.

Question 9

Figure 26-15  
-Refer to Figure 26-15. In the figure above, suppose the economy in Year 1 is at point A and expected in Year 2 to be at point B. Which of the following policies could the Federal Reserve use to move the economy to point C?

Accepted Answer

A)  decrease income taxes 
B)  increase the required-reserve ratio 
C)  buy Treasury bills 
D)  sell Treasury bills 
A)  decrease income taxes 
B)  increase the required-reserve ratio 
C)  buy Treasury bills 
D)  sell Treasury bills

Question 10

The money market model is concerned with ________ and the loanable funds market model is concerned with ________.

Accepted Answer

A)  short-term real interest rates; long-term nominal interest rates 
B)  short-term nominal interest rates; long-term nominal interest rates 
C)  short-term real interest rates; long-term real interest rates 
D)  short-term nominal interest rates; long-term real interest rates 
A)  short-term real interest rates; long-term nominal interest rates 
B)  short-term nominal interest rates; long-term nominal interest rates 
C)  short-term real interest rates; long-term real interest rates 
D)  short-term nominal interest rates; long-term real interest rates

Question 11

The money supply curve is vertical if

Accepted Answer

A)  banks and the Fed jointly determine the money supply. 
B)  the Fed is able to completely determine the money supply. 
C)  banks and households determine the money supply. 
D)  households and the Fed jointly determine the money supply. 
A)  banks and the Fed jointly determine the money supply. 
B)  the Fed is able to completely determine the money supply. 
C)  banks and households determine the money supply. 
D)  households and the Fed jointly determine the money supply.

Question 12

Monetary policy refers to the actions the

Accepted Answer

A)  President and Congress take to manage the money supply and interest rates to pursue their economic objectives. 
B)  Federal Reserve takes to manage the money supply and interest rates to pursue its macroeconomic policy objectives. 
C)  President and Congress take to manage government spending and taxes to pursue their economic objectives. 
D)  Federal Reserve takes to manage government spending and taxes to pursue its economic objectives. 
A)  President and Congress take to manage the money supply and interest rates to pursue their economic objectives. 
B)  Federal Reserve takes to manage the money supply and interest rates to pursue its macroeconomic policy objectives. 
C)  President and Congress take to manage government spending and taxes to pursue their economic objectives. 
D)  Federal Reserve takes to manage government spending and taxes to pursue its economic objectives.

Question 13

Table 26-8
  
-Use the dynamic aggregate demand and aggregate supply model and start with Year 1 in long-run macroeconomic equilibrium. For Year 2, graph aggregate demand, long-run aggregate supply, and short-run aggregate supply such that the condition of the economy will induce the Federal Reserve to conduct a contractionary monetary policy. Briefly explain the condition of the economy and what the Federal Reserve is attempting to do.

Accepted Answer

The Federal Reserve conducts a contracti

Question 14

If the Federal Reserve raises or lowers interest rates too late, it could result in a ________ policy that destabilizes the economy.

Accepted Answer

A)  fiscal 
B)  budgetary 
C)  procyclical 
D)  countercyclical 
A)  fiscal 
B)  budgetary 
C)  procyclical 
D)  countercyclical

Question 15

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 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

Which of the following describes what the Fed would do to pursue an expansionary monetary policy?

Accepted Answer

A)  use open market operations to buy Treasury bills 
B)  use open market operations to sell Treasury bills 
C)  use discount policy to raise the discount rate 
D)  raise the reserve requirement 
A)  use open market operations to buy Treasury bills 
B)  use open market operations to sell Treasury bills 
C)  use discount policy to raise the discount rate 
D)  raise the reserve requirement

Question 18

Using the money demand and money supply model, an open market sale of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to

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 19

When housing prices fall, as they did beginning in 2006 following the housing market bubble, consumption spending on furniture, appliances, and home improvements ________ as many households found it ________ to borrow against the value of their homes.

Accepted Answer

A)  declined; easier 
B)  declined; harder 
C)  increased; easier 
D)  increased; harder 
A)  declined; easier 
B)  declined; harder 
C)  increased; easier 
D)  increased; harder

Question 20

When the Fed decided to buy long-term Treasury securities while selling an equal amount of shorter-term treasury securities to keep long-term interest rates low, it was following a strategy known as

Accepted Answer

A)  securitization. 
B)  operation twist. 
C)  quantitative easing. 
D)  indirect finance. 
A)  securitization. 
B)  operation twist. 
C)  quantitative easing. 
D)  indirect finance.

Exam 26: Monetary Policy

A monetary growth rule means that

Figure 26-11 -Refer to Figure 26-11. In the dynamic model of AD-AS in the figure above, the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve pursues policy. This will result in

If the Fed raises its target for the federal fund rate, this indicates that

Figure 26-12 -Refer to Figure 26-12. 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

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

The Federal Reserve responded to the 2008 financial crisis in several ways. Which of the following is not one of the ways the Fed responded?

In response to already low interest rates doing little to stimulate the economy, the Fed announced a new program in September 2011 under which it would purchase long-term Treasury securities while selling an equal amount of shorter-term Treasury securities. This policy was known as

Buying a house during a recession may be a good idea if your job is secure because the Federal Reserve often

Figure 26-15 -Refer to Figure 26-15. In the figure above, suppose the economy in Year 1 is at point A and expected in Year 2 to be at point B. Which of the following policies could the Federal Reserve use to move the economy to point C?

The money market model is concerned with ________ and the loanable funds market model is concerned with ________.

The money supply curve is vertical if

Monetary policy refers to the actions the

If the Federal Reserve raises or lowers interest rates too late, it could result in a ________ policy that destabilizes the economy.

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?

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,

Which of the following describes what the Fed would do to pursue an expansionary monetary policy?

Using the money demand and money supply model, an open market sale of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to

When housing prices fall, as they did beginning in 2006 following the housing market bubble, consumption spending on furniture, appliances, and home improvements ________ as many households found it ________ to borrow against the value of their homes.

When the Fed decided to buy long-term Treasury securities while selling an equal amount of shorter-term treasury securities to keep long-term interest rates low, it was following a strategy known as

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

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

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 money market model is concerned with and the loanable funds market model is concerned with .

When housing prices fall, as they did beginning in 2006 following the housing market bubble, consumption spending on furniture, appliances, and home improvements as many households found it to borrow against the value of their homes.