Question 1

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 2

Suppose the equilibrium real federal funds rate is 2 percent,the target rate of inflation is 2 percent,the current inflation rate is 4 percent,and real GDP is 2 percent above potential real GDP.If the weights for the inflation gap and the output gap are both 1/2,then according to the Taylor rule the federal funds target rate equals

Accepted Answer

A)  4 percent. 
B)  6 percent. 
C)  8 percent. 
D)  10 percent. 
A)  4 percent. 
B)  6 percent. 
C)  8 percent. 
D)  10 percent.

Question 3

The goals of monetary policy tend to be interrelated.For example,when the Fed pursues the goal of ________,it also can achieve the goal of ________ simultaneously.

Accepted Answer

A)  high employment; economic growth 
B)  high employment; lowering government spending 
C)  economic growth; a low current account deficit 
D)  stability of financial markets; a low current account deficit 
A)  high employment; economic growth 
B)  high employment; lowering government spending 
C)  economic growth; a low current account deficit 
D)  stability of financial markets; a low current account deficit

Question 4

With the Troubled Asset Relief Program (TARP),the Treasury provided funds to banks in exchange for stock.

Accepted Answer

A) True 
 B)False

Question 5

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 6

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

Accepted Answer

A)  the Treasury Department 
B)  mortgage brokers 
C)  savings banks 
D)  primary dealers 
A)  the Treasury Department 
B)  mortgage brokers 
C)  savings banks 
D)  primary dealers

Question 7

The top policy goal for Paul Volcker when he became chairman of the Federal Reserve's Board of Governors in 1979 was

Accepted Answer

A)  fighting inflation. 
B)  increasing employment. 
C)  increasing economic growth. 
D)  increasing regulation of commercial banks. 
E)  a low current account deficit. 
A)  fighting inflation. 
B)  increasing employment. 
C)  increasing economic growth. 
D)  increasing regulation of commercial banks. 
E)  a low current account deficit.

Question 8

When calculating GDP,the Bureau of Economic Analysis revises its quarterly data

Accepted Answer

A)  a total of one time. 
B)  a total of two times. 
C)  a total of three times. 
D)  many times over the next several years. 
A)  a total of one time. 
B)  a total of two times. 
C)  a total of three times. 
D)  many times over the next several years.

Question 9

Expansionary monetary policy refers to the Fed's increasing the money supply and increasing interest rates to increase real GDP.

Accepted Answer

A) True 
 B)False

Question 10

Figure 26-7  
-Refer to Figure 26-7.In the dynamic AD-AS model,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 rates higher than what would occur if no policy had been pursued. 
C)  potential real GDP levels lower than what would occur if no policy had been pursued. 
D)  real GDP levels 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 rates higher than what would occur if no policy had been pursued. 
C)  potential real GDP levels lower than what would occur if no policy had been pursued. 
D)  real GDP levels higher than what would occur if no policy had been pursued.

Question 11

Use a graph to show the effects of an expansionary monetary policy moving an economy out of recession and to potential real GDP.Explain what happens to aggregate demand,real GDP,and the price level.

Accepted Answer

If the economy is in recession,it is cur

Question 12

The money demand curve has a

Accepted Answer

A)  negative slope because an increase in the interest rate decreases the quantity of money demanded. 
B)  positive slope because an increase in the interest rate increases the quantity of money demanded. 
C)  negative slope because an increase in the price level decreases the quantity of money demanded. 
D)  positive slope because an increase in the price level increases the quantity of money demanded. 
A)  negative slope because an increase in the interest rate decreases the quantity of money demanded. 
B)  positive slope because an increase in the interest rate increases the quantity of money demanded. 
C)  negative slope because an increase in the price level decreases the quantity of money demanded. 
D)  positive slope because an increase in the price level increases the quantity of money demanded.

Question 13

The Federal Reserve System's four monetary policy goals are

Accepted Answer

A)  low government budget deficits, low current account deficits, high employment, and a high foreign exchange value of the dollar. 
B)  low rate of bank failures, high reserve ratios, price stability, and economic growth. 
C)  price stability, high employment, economic growth, and stability of financial markets and institutions. 
D)  price stability, low government budget deficits, low current account deficits, and low rate of bank failures. 
A)  low government budget deficits, low current account deficits, high employment, and a high foreign exchange value of the dollar. 
B)  low rate of bank failures, high reserve ratios, price stability, and economic growth. 
C)  price stability, high employment, economic growth, and stability of financial markets and institutions. 
D)  price stability, low government budget deficits, low current account deficits, and low rate of bank failures.

Question 14

Figure 26-4  
-Refer to Figure 26-4.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 15

Figure 26-7  
-Refer to Figure 26-7.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,and the Federal Reserve pursues no policy,then at point B

Accepted Answer

A)  firms are producing above capacity. 
B)  there is pressure on wages and prices to fall. 
C)  the unemployment rate is greater than the natural rate of unemployment. 
D)  incomes and profits are falling. 
A)  firms are producing above capacity. 
B)  there is pressure on wages and prices to fall. 
C)  the unemployment rate is greater than the natural rate of unemployment. 
D)  incomes and profits are falling.

Question 16

Firms that participate in regular open market transactions with the Federal Reserve are called

Accepted Answer

A)  secondary market banks. 
B)  Treasury banks. 
C)  primary dealers. 
D)  Federal Reserve partners. 
A)  secondary market banks. 
B)  Treasury banks. 
C)  primary dealers. 
D)  Federal Reserve partners.

Question 17

The Federal Reserve's two main ________ are the money supply and the interest rate.

Accepted Answer

A)  monetary policy targets 
B)  policy tools 
C)  fiscal policy targets 
D)  fiscal tools 
A)  monetary policy targets 
B)  policy tools 
C)  fiscal policy targets 
D)  fiscal tools

Question 18

If the Federal Reserve targets the money supply,and the money demand curve shifts to the left,then the Fed

Accepted Answer

A)  cannot maintain the money supply target. 
B)  can maintain the money supply target, but at a lower interest rate. 
C)  can maintain the money supply target, but at a higher interest rate. 
D)  can maintain the money supply target with no change in the interest rate. 
A)  cannot maintain the money supply target. 
B)  can maintain the money supply target, but at a lower interest rate. 
C)  can maintain the money supply target, but at a higher interest rate. 
D)  can maintain the money supply target with no change in the interest rate.

Question 19

The Federal Reserve does not target both the money supply and an interest rate because

Accepted Answer

A)  it would be too confusing to Wall Street and would disrupt the financial markets. 
B)  it would be too easy for Wall Street to determine what policy the Fed is following and this would destabilize the economy. 
C)  it would be illegal according to the Federal Reserve Act. 
D)  the Fed cannot achieve a target for both the money supply and an interest rate at the same time. 
A)  it would be too confusing to Wall Street and would disrupt the financial markets. 
B)  it would be too easy for Wall Street to determine what policy the Fed is following and this would destabilize the economy. 
C)  it would be illegal according to the Federal Reserve Act. 
D)  the Fed cannot achieve a target for both the money supply and an interest rate at the same time.

Question 20

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

Exam 26: Monetary Policy

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?

The goals of monetary policy tend to be interrelated.For example,when the Fed pursues the goal of ________,it also can achieve the goal of ________ simultaneously.

With the Troubled Asset Relief Program (TARP),the Treasury provided funds to banks in exchange for stock.

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 ________.

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

The top policy goal for Paul Volcker when he became chairman of the Federal Reserve's Board of Governors in 1979 was

When calculating GDP,the Bureau of Economic Analysis revises its quarterly data

Expansionary monetary policy refers to the Fed's increasing the money supply and increasing interest rates to increase real GDP.

Figure 26-7 -Refer to Figure 26-7.In the dynamic AD-AS model,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

Use a graph to show the effects of an expansionary monetary policy moving an economy out of recession and to potential real GDP.Explain what happens to aggregate demand,real GDP,and the price level.

The money demand curve has a

The Federal Reserve System's four monetary policy goals are

Figure 26-4 -Refer to Figure 26-4.In the figure above,if the economy is at point A,the appropriate monetary policy by the Federal Reserve would be to

Figure 26-7 -Refer to Figure 26-7.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,and the Federal Reserve pursues no policy,then at point B

Firms that participate in regular open market transactions with the Federal Reserve are called

The Federal Reserve's two main ________ are the money supply and the interest rate.

If the Federal Reserve targets the money supply,and the money demand curve shifts to the left,then the Fed

The Federal Reserve does not target both the money supply and an interest rate because

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.

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 goals of monetary policy tend to be interrelated.For example,when the Fed pursues the goal of ,it also can achieve the goal of simultaneously.

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 .

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.