Question 1

Table 26-8
  
-With a monetary growth rule as proposed by the monetarists, during a recession the rate of growth of the money supply would

Accepted Answer

A)  decrease. 
B)  increase. 
C)  not change. 
D)  decrease or increase depending on economic conditions. 
A)  decrease. 
B)  increase. 
C)  not change. 
D)  decrease or increase depending on economic conditions.

Question 2

An advantage of the personal consumption expenditures price index (PCE) over the Consumer Price Index (CPI) as a measure of inflation is that the PCE

Accepted Answer

A)  is a more narrow, focused measure of inflation. 
B)  is a chain-type price index that allows the mix of products to change each year. 
C)  includes the prices of industrial equipment. 
D)  includes the prices of goods, but not services. 
A)  is a more narrow, focused measure of inflation. 
B)  is a chain-type price index that allows the mix of products to change each year. 
C)  includes the prices of industrial equipment. 
D)  includes the prices of goods, but not services.

Question 3

From an initial long-run macroeconomic equilibrium, if the Federal Reserve anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply, then the Federal Reserve would most likely

Accepted Answer

A)  increase income tax rates. 
B)  decrease income tax rates. 
C)  increase interest rates. 
D)  decrease interest rates. 
A)  increase income tax rates. 
B)  decrease income tax rates. 
C)  increase interest rates. 
D)  decrease interest rates.

Question 4

Beginning in 2008, The Federal Reserve and the U.S. Treasury Department responded to the financial crisis by intervening in financial markets in unprecedented ways. Briefly summarize the actions of the Fed and Treasury.

Accepted Answer

Among the actions taken by the Fed and T

Question 5

Figure 26-8  
-Refer to Figure 26-8. 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 6

The Fed

Accepted Answer

A)  always engages in countercyclical policy. 
B)  always intends to engage in procyclical policy. 
C)  can engage in procyclical policy if it mistimes its policy response. 
D)  never intends to engage in countercyclical policy. 
A)  always engages in countercyclical policy. 
B)  always intends to engage in procyclical policy. 
C)  can engage in procyclical policy if it mistimes its policy response. 
D)  never intends to engage in countercyclical policy.

Question 7

In 2008, the Treasury and Federal Reserve took several actions in response to the deepening financial crisis. One action was the Treasury's move to have the federal government take control of

Accepted Answer

A)  the Federal Deposit Insurance Corporation (FDI
C) . 
B)  Fannie Mae and Freddie Mac. 
C)  JPMorgan Chase. 
D)  Lehman Brothers. 
A)  the Federal Deposit Insurance Corporation (FDI
C) . 
B)  Fannie Mae and Freddie Mac. 
C)  JPMorgan Chase. 
D)  Lehman Brothers.

Question 8

The core personal consumption expenditures price index excludes

Accepted Answer

A)  food and energy prices. 
B)  food and housing prices. 
C)  energy and housing prices. 
D)  housing and health care prices. 
A)  food and energy prices. 
B)  food and housing prices. 
C)  energy and housing prices. 
D)  housing and health care prices.

Question 9

If the Fed orders an expansionary 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 increases
b. Interes

Question 10

A borrower defaults on a loan when he stops making payments on the loan.

Accepted Answer

A) True 
 B)False

Question 11

The Fed can use contractionary monetary policy in an attempt to keep inflation from increasing.

Accepted Answer

A) True 
 B)False

Question 12

Expansionary monetary policy enacted during a recession will cause the inflation rate to increase.

Accepted Answer

A) True 
 B)False

Question 13

Changes in interest rates affect all four components of aggregate demand.

Accepted Answer

A) True 
 B)False

Question 14

The money demand curve, against possible levels of interest rates, has a

Accepted Answer

A)  positive slope. 
B)  negative slope. 
C)  zero slope. 
D)  positive slope for low levels of money demand, a negative slope for high levels of money demand. 
A)  positive slope. 
B)  negative slope. 
C)  zero slope. 
D)  positive slope for low levels of money demand, a negative slope for high levels of money demand.

Question 15

A financial asset is considered ________ if it can be sold in a secondary market.

Accepted Answer

A)  a commodity 
B)  a security 
C)  a liability 
D)  durable 
A)  a commodity 
B)  a security 
C)  a liability 
D)  durable

Question 16

If the amount you owe on your house is less than the price of the house, you have

Accepted Answer

A)  positive equity in your house. 
B)  an adjustable-rate mortgage on your house. 
C)  negative equity in your house. 
D)  a reverse mortgage on your house. 
A)  positive equity in your house. 
B)  an adjustable-rate mortgage on your house. 
C)  negative equity in your house. 
D)  a reverse mortgage on your house.

Question 17

Using the Taylor rule, if the current inflation rate exceeds the target inflation rate and real GDP exceeds potential GDP, then the federal funds target rate ________ the sum of the current inflation rate plus the real equilibrium federal funds rate.

Accepted Answer

A)  will be greater than 
B)  will be less than 
C)  will be the same as 
D)  may be greater than or less than 
A)  will be greater than 
B)  will be less than 
C)  will be the same as 
D)  may be greater than or less than

Question 18

To reassure investors who were unwilling to buy mortgages in the secondary market, the U.S. Congress used two government sponsored enterprises, Fannie Mae and Freddie Mac, to stand between investors and banks that grant mortgages. Fannie Mae and Freddie Mac

Accepted Answer

A)  sell mortgages to investors and use the funds to purchase bonds from banks. 
B)  sell bonds to investors and use the funds to purchase mortgages from banks. 
C)  sell bonds to banks and use the funds to purchase mortgages from investors. 
D)  sell mortgages to banks and use the funds to purchase bonds from investors. 
A)  sell mortgages to investors and use the funds to purchase bonds from banks. 
B)  sell bonds to investors and use the funds to purchase mortgages from banks. 
C)  sell bonds to banks and use the funds to purchase mortgages from investors. 
D)  sell mortgages to banks and use the funds to purchase bonds from investors.

Question 19

The Taylor rule links the Federal Reserve's target for the

Accepted Answer

A)  money supply to shifts in money demand. 
B)  money supply to changes in interest rates. 
C)  federal funds rate to economic variables. 
D)  federal funds rate to the money supply. 
A)  money supply to shifts in money demand. 
B)  money supply to changes in interest rates. 
C)  federal funds rate to economic variables. 
D)  federal funds rate to the money supply.

Question 20

Suppose that the economy is producing below potential GDP and the Fed implements the correct change in monetary policy, but not until after the economy has passed the trough of the recession. Then

Accepted Answer

A)  the Fed's contractionary policy will result in too large of a decrease in GDP. 
B)  the Fed's contractionary policy will result in too small of a decrease in GDP. 
C)  the Fed's expansionary policy will result in too small of a decrease in GDP. 
D)  the Fed's expansionary policy will result in too large of an increase in GDP. 
A)  the Fed's contractionary policy will result in too large of a decrease in GDP. 
B)  the Fed's contractionary policy will result in too small of a decrease in GDP. 
C)  the Fed's expansionary policy will result in too small of a decrease in GDP. 
D)  the Fed's expansionary policy will result in too large of an increase in GDP.

Exam 26: Monetary Policy

Table 26-8 -With a monetary growth rule as proposed by the monetarists, during a recession the rate of growth of the money supply would

An advantage of the personal consumption expenditures price index (PCE) over the Consumer Price Index (CPI) as a measure of inflation is that the PCE

From an initial long-run macroeconomic equilibrium, if the Federal Reserve anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply, then the Federal Reserve would most likely

Beginning in 2008, The Federal Reserve and the U.S. Treasury Department responded to the financial crisis by intervening in financial markets in unprecedented ways. Briefly summarize the actions of the Fed and Treasury.

Figure 26-8 -Refer to Figure 26-8. In the figure above, if the economy is at point A, the appropriate monetary policy by the Federal Reserve would be to

The Fed

In 2008, the Treasury and Federal Reserve took several actions in response to the deepening financial crisis. One action was the Treasury's move to have the federal government take control of

The core personal consumption expenditures price index excludes

A borrower defaults on a loan when he stops making payments on the loan.

The Fed can use contractionary monetary policy in an attempt to keep inflation from increasing.

Expansionary monetary policy enacted during a recession will cause the inflation rate to increase.

Changes in interest rates affect all four components of aggregate demand.

The money demand curve, against possible levels of interest rates, has a

A financial asset is considered ________ if it can be sold in a secondary market.

If the amount you owe on your house is less than the price of the house, you have

Using the Taylor rule, if the current inflation rate exceeds the target inflation rate and real GDP exceeds potential GDP, then the federal funds target rate ________ the sum of the current inflation rate plus the real equilibrium federal funds rate.

To reassure investors who were unwilling to buy mortgages in the secondary market, the U.S. Congress used two government sponsored enterprises, Fannie Mae and Freddie Mac, to stand between investors and banks that grant mortgages. Fannie Mae and Freddie Mac

The Taylor rule links the Federal Reserve's target for the

Suppose that the economy is producing below potential GDP and the Fed implements the correct change in monetary policy, but not until after the economy has passed the trough of the recession. Then

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

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