Question 1

If the AD curve shifts to the right, in the short run there will be a(n) _____ in aggregate output and a(n) _____ in the price level.

Accepted Answer

A) increase; increase 
B) increase; decrease 
C) decrease; decrease 
D) decrease; increase 
A) increase; increase 
B) increase; decrease 
C) decrease; decrease 
D) decrease; increase

Question 2

If the actual interest rate is below the target rate, the Fed should sell Treasury bills.

Accepted Answer

A) True 
 B)False

Question 3

If the economy is at potential output and the Fed increases the money supply, in the short run real GDP will likely remain the same.

Accepted Answer

A) True 
 B)False

Question 4

The federal funds rate is the interest rate on _____, and it is controlled by the _____.

Accepted Answer

A) loans from the Federal Reserve to banks; Federal Open Market Committee 
B) reserves that banks lend to each other; Federal Open Market Committee 
C) loans from the Federal Reserve to banks; president and Congress 
D) reserves that banks lend to each other; president and Congress 
A) loans from the Federal Reserve to banks; Federal Open Market Committee 
B) reserves that banks lend to each other; Federal Open Market Committee 
C) loans from the Federal Reserve to banks; president and Congress 
D) reserves that banks lend to each other; president and Congress

Question 5

Expansionary monetary policy increases all of the following EXCEPT:

Accepted Answer

A) aggregate demand. 
B) GDP and the price level. 
C) consumption spending. 
D) interest rates. 
A) aggregate demand. 
B) GDP and the price level. 
C) consumption spending. 
D) interest rates.

Question 6

An increase in the money supply causes _____ in output in the short run and _____ in output in the long run.

Accepted Answer

A) an increase; no change 
B) an increase; an increase 
C) no change; an increase 
D) no change; no change 
A) an increase; no change 
B) an increase; an increase 
C) no change; an increase 
D) no change; no change

Question 7

If the inflation rate is 3% this year, the demand for money will increase by 6% this year.

Accepted Answer

A) True 
 B)False

Question 8

If the Federal Reserve wants to close an inflationary gap, it will _____ the money supply and _____ the interest rate, thus _____ investment spending and GDP. The AD curve will shift to the _____.

Accepted Answer

A) increase; raise; increasing; right 
B) increase; lower; lowering; left 
C) decrease; raise; lowering; left 
D) decrease; lower; lowering; right 
A) increase; raise; increasing; right 
B) increase; lower; lowering; left 
C) decrease; raise; lowering; left 
D) decrease; lower; lowering; right

Question 9

According to the liquidity preference model, a _____ in the money supply shifts the money supply curve to the _____ and increases the equilibrium interest rate.

Accepted Answer

A) decrease; right 
B) increase; left 
C) decrease; left 
D) increase; right 
A) decrease; right 
B) increase; left 
C) decrease; left 
D) increase; right

Question 10

The zero lower bound for interest rates is the target that the Taylor rule sets.

Accepted Answer

A) True 
 B)False

Question 11

The theory of monetary neutrality implies that monetary policy is effective in the short run but not in the long run.

Accepted Answer

A) True 
 B)False

Question 12

The main objective of contractionary monetary policy is to:

Accepted Answer

A) decrease aggregate demand. 
B) close a recessionary gap. 
C) increase investment. 
D) raise the level of potential output. 
A) decrease aggregate demand. 
B) close a recessionary gap. 
C) increase investment. 
D) raise the level of potential output.

Question 13

Suppose the annual inflation rate is at 7% and 3% of the labor force is unemployed. If you were on the Federal Open Market Committee, what action would you prescribe? How would this affect the economy, the inflation rate, and the unemployment rate?

Accepted Answer

Inflation is high and unemployment is lo

Question 14

Use the following to answer questions:
Figure: A Money Market  
-(Figure: A Money Market) Look at the figure A Money Market. The equilibrium interest rate is:

Accepted Answer

A) r1. 
B) r2. 
C) r3. 
D) M0. 
A) r1. 
B) r2. 
C) r3. 
D) M0.

Question 15

Economists argue that money is neutral:

Accepted Answer

A) in both the short and the long run. 
B) in the short run only. 
C) in the long run, but money does affect the price level. 
D) in the long run, but money does not affect the price level. 
A) in both the short and the long run. 
B) in the short run only. 
C) in the long run, but money does affect the price level. 
D) in the long run, but money does not affect the price level.

Question 16

If the economy is at potential output and the Fed increases the money supply, in the SHORT run real GDP will likely:

Accepted Answer

A) fluctuate randomly. 
B) remain the same. 
C) decrease. 
D) increase. 
A) fluctuate randomly. 
B) remain the same. 
C) decrease. 
D) increase.

Question 17

Long-term interest rates apply to financial assets that mature a number of years in the future.

Accepted Answer

A) True 
 B)False

Question 18

If the Federal Open Market Committee conducts an open market purchase:

Accepted Answer

A) interest rates will fall. 
B) interest rates will remain unchanged. 
C) interest rates will rise. 
D) the money supply will decrease. 
A) interest rates will fall. 
B) interest rates will remain unchanged. 
C) interest rates will rise. 
D) the money supply will decrease.

Question 19

According to the Taylor rule, the target federal funds rate should be positively related to the inflation rate and inversely related to the unemployment rate.

Accepted Answer

A) True 
 B)False

Question 20

As the opportunity cost of holding money changes from 5% to 3%, the quantity of money demanded increases.

Accepted Answer

A) True 
 B)False

If the AD curve shifts to the right, in the short run there will be a(n) _ in aggregate output and a(n) _ in the price level.

If the actual interest rate is below the target rate, the Fed should sell Treasury bills.

If the economy is at potential output and the Fed increases the money supply, in the short run real GDP will likely remain the same.

The federal funds rate is the interest rate on _, and it is controlled by the _.

Expansionary monetary policy increases all of the following EXCEPT:

An increase in the money supply causes _ in output in the short run and _ in output in the long run.

If the inflation rate is 3% this year, the demand for money will increase by 6% this year.

If the Federal Reserve wants to close an inflationary gap, it will ___ the money supply and _ the interest rate, thus _ investment spending and GDP. The AD curve will shift to the ___.

According to the liquidity preference model, a _ in the money supply shifts the money supply curve to the _ and increases the equilibrium interest rate.

The zero lower bound for interest rates is the target that the Taylor rule sets.

The theory of monetary neutrality implies that monetary policy is effective in the short run but not in the long run.

The main objective of contractionary monetary policy is to:

Suppose the annual inflation rate is at 7% and 3% of the labor force is unemployed. If you were on the Federal Open Market Committee, what action would you prescribe? How would this affect the economy, the inflation rate, and the unemployment rate?

Use the following to answer questions: Figure: A Money Market -(Figure: A Money Market) Look at the figure A Money Market. The equilibrium interest rate is:

Economists argue that money is neutral:

If the economy is at potential output and the Fed increases the money supply, in the SHORT run real GDP will likely:

Long-term interest rates apply to financial assets that mature a number of years in the future.

If the Federal Open Market Committee conducts an open market purchase:

According to the Taylor rule, the target federal funds rate should be positively related to the inflation rate and inversely related to the unemployment rate.

As the opportunity cost of holding money changes from 5% to 3%, the quantity of money demanded increases.

First Principles

Economic Models

Supply and Demand

International Trade 5

Macroeconomics: the Big Picture

Gdp and Cpi: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial System

Fiscal Policy Appendix Taxes and the Multiplier

Money, Banking, and the Federal Reserve System

Inflation, Disinflation, and Deflation

Crises and Consequences

Events and Ideas

Open-Economy Macroeconomics

Graphs in Economics

toward a Fuller Understanding of Present Value

Filters

Exam 15: Monetary Policy

If the AD curve shifts to the right, in the short run there will be a(n) _____ in aggregate output and a(n) _____ in the price level.

If the actual interest rate is below the target rate, the Fed should sell Treasury bills.

If the economy is at potential output and the Fed increases the money supply, in the short run real GDP will likely remain the same.

The federal funds rate is the interest rate on _____, and it is controlled by the _____.

Expansionary monetary policy increases all of the following EXCEPT:

An increase in the money supply causes _____ in output in the short run and _____ in output in the long run.

If the inflation rate is 3% this year, the demand for money will increase by 6% this year.

If the Federal Reserve wants to close an inflationary gap, it will _____ the money supply and _____ the interest rate, thus _____ investment spending and GDP. The AD curve will shift to the _____.

According to the liquidity preference model, a _____ in the money supply shifts the money supply curve to the _____ and increases the equilibrium interest rate.

The zero lower bound for interest rates is the target that the Taylor rule sets.

The theory of monetary neutrality implies that monetary policy is effective in the short run but not in the long run.

The main objective of contractionary monetary policy is to:

Suppose the annual inflation rate is at 7% and 3% of the labor force is unemployed. If you were on the Federal Open Market Committee, what action would you prescribe? How would this affect the economy, the inflation rate, and the unemployment rate?

Use the following to answer questions: Figure: A Money Market -(Figure: A Money Market) Look at the figure A Money Market. The equilibrium interest rate is:

Economists argue that money is neutral:

If the economy is at potential output and the Fed increases the money supply, in the SHORT run real GDP will likely:

Long-term interest rates apply to financial assets that mature a number of years in the future.

If the Federal Open Market Committee conducts an open market purchase:

According to the Taylor rule, the target federal funds rate should be positively related to the inflation rate and inversely related to the unemployment rate.

As the opportunity cost of holding money changes from 5% to 3%, the quantity of money demanded increases.

First Principles

Economic Models

Supply and Demand

International Trade 5

Macroeconomics: the Big Picture

Gdp and Cpi: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial System

Fiscal Policy Appendix Taxes and the Multiplier

Money, Banking, and the Federal Reserve System

Inflation, Disinflation, and Deflation

Crises and Consequences

Events and Ideas

Open-Economy Macroeconomics

Graphs in Economics

toward a Fuller Understanding of Present Value

Filters

If the AD curve shifts to the right, in the short run there will be a(n) _ in aggregate output and a(n) _ in the price level.

The federal funds rate is the interest rate on _, and it is controlled by the _.

An increase in the money supply causes _ in output in the short run and _ in output in the long run.

If the Federal Reserve wants to close an inflationary gap, it will ___ the money supply and _ the interest rate, thus _ investment spending and GDP. The AD curve will shift to the ___.

According to the liquidity preference model, a _ in the money supply shifts the money supply curve to the _ and increases the equilibrium interest rate.