Question 1

The appropriate monetary policy to stabilize the economy during a recession is an expansionary policy.

Accepted Answer

A) True 
 B)False

Question 2

Use the following to answer questions :
Figure: Monetary Policy I  
-(Figure: Monetary Policy I) Look at the figure Monetary Policy I. If the economy is initially in equilibrium at E2 and the central bank chooses to sell Treasury bills_____ shift to _____ a(n) _____ gap.

Accepted Answer

A) AD2 will; right, causing; inflationary 
B) AD2 may; AD1, causing; recessionary 
C) AD1 may; AD2, closing; recessionary 
D) AD1 will; left, increasing; recessionary 
A) AD2 will; right, causing; inflationary 
B) AD2 may; AD1, causing; recessionary 
C) AD1 may; AD2, closing; recessionary 
D) AD1 will; left, increasing; recessionary

Question 3

Use the following to answer questions :
Figure: Monetary Policy and the AD-SRAS Model  
-(Figure: Monetary Policy and the AD-SRAS Model) Look at the figure Monetary Policy and the AD-SRAS Model. If the economy is at point f because of an open market sale by the Federal Reserve and no further monetary policy is implemented, in the LONG run nominal wages will _____ and _____ will shift to _____, real GDP will _____, and the price level will _____.

Accepted Answer

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

Question 4

If the economy is at potential output and the Fed increases the money supply so that actual output exceeds potential output, eventually nominal wages will:

Accepted Answer

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

Question 5

If the economy is at potential output and the Fed increases the money supply, in the long run the price level will likely increase.

Accepted Answer

A) True 
 B)False

Question 6

Janet Yellen is:

Accepted Answer

A) chair of the Board of Governors of the Federal Reserve System. 
B) an AIG executive who received large bonuses. 
C) a Supreme Court justice who ruled that budget deficits are unconstitutional. 
D) a financial adviser on CNBC. 
A) chair of the Board of Governors of the Federal Reserve System. 
B) an AIG executive who received large bonuses. 
C) a Supreme Court justice who ruled that budget deficits are unconstitutional. 
D) a financial adviser on CNBC.

Question 7

Among the factors that could cause money demand to shift are all of the following EXCEPT:

Accepted Answer

A) real aggregate spending. 
B) institutional constraints in the banking system. 
C) technology of transactions. 
D) interest rates. 
A) real aggregate spending. 
B) institutional constraints in the banking system. 
C) technology of transactions. 
D) interest rates.

Question 8

If the economy is in an inflationary gap, the Federal Reserve should conduct _____ monetary policy to _____ aggregate demand.

Accepted Answer

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

Question 9

All of the following factors will shift the money demand curve EXCEPT:

Accepted Answer

A) changes in inflation. 
B) changes in the real GDP. 
C) changes in the aggregate price level. 
D) changes in the interest rate. 
A) changes in inflation. 
B) changes in the real GDP. 
C) changes in the aggregate price level. 
D) changes in the interest rate.

Question 10

If long-term interest rates are 8% and short-term rates are 3%, the market expects:

Accepted Answer

A) short-term rates to fall. 
B) short-term rates to rise. 
C) short-term rates to remain the same. 
D) there is no relationship between long-term and short-term rates. 
A) short-term rates to fall. 
B) short-term rates to rise. 
C) short-term rates to remain the same. 
D) there is no relationship between long-term and short-term rates.

Question 11

The interest rate is determined in the money market in the short run.

Accepted Answer

A) True 
 B)False

Question 12

If the Federal Reserve wants to lower interest rates, it can _____ the money supply by _____ Treasury bills.

Accepted Answer

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

Question 13

How would a significant fall in the interest rate on short-term certificates of deposit (CDs) affect the money demand curve?

Accepted Answer

This would not shift the demand for mone

Question 14

Expansionary monetary policy will _____ interest rates and _____ savings in the short run.

Accepted Answer

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

Question 15

The opportunity cost of holding money is:

Accepted Answer

A) zero. 
B) the interest rate when someone uses a credit card. 
C) the difference between interest rates on monetary assets and on nonmonetary assets. 
D) the discount rate. 
A) zero. 
B) the interest rate when someone uses a credit card. 
C) the difference between interest rates on monetary assets and on nonmonetary assets. 
D) the discount rate.

Question 16

If the Federal Reserve conducts an open market purchase, holding everything else constant, in the long run there will be:

Accepted Answer

A) an increase in the aggregate price level. 
B) an increase in the aggregate output level. 
C) a decrease in unemployment. 
D) no effects on output, unemployment, or the price level. 
A) an increase in the aggregate price level. 
B) an increase in the aggregate output level. 
C) a decrease in unemployment. 
D) no effects on output, unemployment, or the price level.

Question 17

If aggregate output decreases in an economy whose central bank is not changing its monetary policy, one would expect the:

Accepted Answer

A) demand for money to fall. 
B) interest rate to rise. 
C) demand for money to rise. 
D) demand for money to be unchanged. 
A) demand for money to fall. 
B) interest rate to rise. 
C) demand for money to rise. 
D) demand for money to be unchanged.

Question 18

Suppose that the economy enters a recession and real GDP falls. All else equal, we would expect:

Accepted Answer

A) the money demand curve to shift inward. 
B) the money demand curve to shift outward. 
C) a downward movement along a fixed money demand curve. 
D) an upward movement along a fixed money demand curve. 
A) the money demand curve to shift inward. 
B) the money demand curve to shift outward. 
C) a downward movement along a fixed money demand curve. 
D) an upward movement along a fixed money demand curve.

Question 19

Use the following to answer questions:
Figure: Short-Run Determination of the Interest Rate  
-(Figure: Short-Run Determination of the Interest Rate) Look at the figure Short-Run Determination of the Interest Rate. If the money supply is at MS1 and the central bank buys Treasury bills, then in the short run the interest rate will:

Accepted Answer

A) increase above r1. 
B) remain at r1. 
C) decrease to r2. 
D) fluctuate randomly. 
A) increase above r1. 
B) remain at r1. 
C) decrease to r2. 
D) fluctuate randomly.

Question 20

Use the following to answer questions :
Figure: Monetary Policy I  
-(Figure: Monetary Policy I) Look at the figure Monetary Policy I. If the economy is initially in equilibrium at E2 and the central bank chooses to sell Treasury bills:

Accepted Answer

A) AD2 will shift to the right, causing an inflationary gap. 
B) AD2 may shift to AD1, causing a recessionary gap. 
C) SRAS1 will shift immediately to the left, closing an inflationary gap. 
D) SRAS2 will shift immediately to the right, increasing an inflationary gap. 
A) AD2 will shift to the right, causing an inflationary gap. 
B) AD2 may shift to AD1, causing a recessionary gap. 
C) SRAS1 will shift immediately to the left, closing an inflationary gap. 
D) SRAS2 will shift immediately to the right, increasing an inflationary gap.

The appropriate monetary policy to stabilize the economy during a recession is an expansionary policy.

Use the following to answer questions : Figure: Monetary Policy I -(Figure: Monetary Policy I) Look at the figure Monetary Policy I. If the economy is initially in equilibrium at E₂ and the central bank chooses to sell Treasury bills___ shift to _ a(n) ___ gap.

If the economy is at potential output and the Fed increases the money supply so that actual output exceeds potential output, eventually nominal wages will:

If the economy is at potential output and the Fed increases the money supply, in the long run the price level will likely increase.

Janet Yellen is:

Among the factors that could cause money demand to shift are all of the following EXCEPT:

If the economy is in an inflationary gap, the Federal Reserve should conduct _ monetary policy to _ aggregate demand.

All of the following factors will shift the money demand curve EXCEPT:

If long-term interest rates are 8% and short-term rates are 3%, the market expects:

The interest rate is determined in the money market in the short run.

If the Federal Reserve wants to lower interest rates, it can _ the money supply by _ Treasury bills.

How would a significant fall in the interest rate on short-term certificates of deposit (CDs) affect the money demand curve?

Expansionary monetary policy will _ interest rates and _ savings in the short run.

The opportunity cost of holding money is:

If the Federal Reserve conducts an open market purchase, holding everything else constant, in the long run there will be:

If aggregate output decreases in an economy whose central bank is not changing its monetary policy, one would expect the:

Suppose that the economy enters a recession and real GDP falls. All else equal, we would expect:

Use the following to answer questions : Figure: Monetary Policy I -(Figure: Monetary Policy I) Look at the figure Monetary Policy I. If the economy is initially in equilibrium at E₂ and the central bank chooses to sell Treasury bills:

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

The appropriate monetary policy to stabilize the economy during a recession is an expansionary policy.

Use the following to answer questions : Figure: Monetary Policy I -(Figure: Monetary Policy I) Look at the figure Monetary Policy I. If the economy is initially in equilibrium at E2 and the central bank chooses to sell Treasury bills_____ shift to _____ a(n) _____ gap.

If the economy is at potential output and the Fed increases the money supply so that actual output exceeds potential output, eventually nominal wages will:

If the economy is at potential output and the Fed increases the money supply, in the long run the price level will likely increase.

Janet Yellen is:

Among the factors that could cause money demand to shift are all of the following EXCEPT:

If the economy is in an inflationary gap, the Federal Reserve should conduct _____ monetary policy to _____ aggregate demand.

All of the following factors will shift the money demand curve EXCEPT:

If long-term interest rates are 8% and short-term rates are 3%, the market expects:

The interest rate is determined in the money market in the short run.

If the Federal Reserve wants to lower interest rates, it can _____ the money supply by _____ Treasury bills.

How would a significant fall in the interest rate on short-term certificates of deposit (CDs) affect the money demand curve?

Expansionary monetary policy will _____ interest rates and _____ savings in the short run.

The opportunity cost of holding money is:

If the Federal Reserve conducts an open market purchase, holding everything else constant, in the long run there will be:

If aggregate output decreases in an economy whose central bank is not changing its monetary policy, one would expect the:

Suppose that the economy enters a recession and real GDP falls. All else equal, we would expect:

Use the following to answer questions : Figure: Monetary Policy I -(Figure: Monetary Policy I) Look at the figure Monetary Policy I. If the economy is initially in equilibrium at E2 and the central bank chooses to sell Treasury bills:

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

Use the following to answer questions : Figure: Monetary Policy I -(Figure: Monetary Policy I) Look at the figure Monetary Policy I. If the economy is initially in equilibrium at E₂ and the central bank chooses to sell Treasury bills___ shift to _ a(n) ___ gap.

If the economy is in an inflationary gap, the Federal Reserve should conduct _ monetary policy to _ aggregate demand.

If the Federal Reserve wants to lower interest rates, it can _ the money supply by _ Treasury bills.

Expansionary monetary policy will _ interest rates and _ savings in the short run.

Use the following to answer questions : Figure: Monetary Policy I -(Figure: Monetary Policy I) Look at the figure Monetary Policy I. If the economy is initially in equilibrium at E₂ and the central bank chooses to sell Treasury bills: