Question 1

Long-term interest rates are higher than short-term rates. This reflects a belief that:

Accepted Answer

A) short-term rates will fall. 
B) short-term rates will rise. 
C) short-term rates will remain the same. 
D) the Federal Reserve is undergoing a change in policy. 
A) short-term rates will fall. 
B) short-term rates will rise. 
C) short-term rates will remain the same. 
D) the Federal Reserve is undergoing a change in policy.

Question 2

A contractionary monetary policy is appropriate during an expansion.

Accepted Answer

A) True 
 B)False

Question 3

Use the following to answer questions :
Figure: Equilibrium in the Money Market  
-(Figure: Equilibrium in the Money Market) Look at the figure Equilibrium in the Money Market. Equilibrium will occur at interest rate _____ and quantity of money _____.

Accepted Answer

A) r2; Q0 
B) r0; Q2 
C) r1; Q1 
D) r1; Q2 
A) r2; Q0 
B) r0; Q2 
C) r1; Q1 
D) r1; Q2

Question 4

If a central bank announces an inflation target, it:

Accepted Answer

A) may have to sacrifice some control over interest rates. 
B) is in effect also announcing an interest rate target. 
C) will achieve this goal only by allowing price levels to vary. 
D) must do so in coordination with fiscal policy makers. 
A) may have to sacrifice some control over interest rates. 
B) is in effect also announcing an interest rate target. 
C) will achieve this goal only by allowing price levels to vary. 
D) must do so in coordination with fiscal policy makers.

Question 5

If the Federal Open Market Committee engages in an open market purchase, it will shift the money _____ curve to the_____,

Accepted Answer

A) supply; right 
B) supply; left 
C) demand; left 
D) demand; right 
A) supply; right 
B) supply; left 
C) demand; left 
D) demand; right

Question 6

If banks were suddenly prohibited from paying interest on checking accounts, the demand for money would likely decrease.

Accepted Answer

A) True 
 B)False

Question 7

To fight inflation, the Federal Reserve should conduct _____ monetary policy to _____ interest rates, which will shift the aggregate demand curve to the _____.

Accepted Answer

A) contractionary; raise; left 
B) contractionary; raise; right 
C) expansionary; lower; right 
D) expansionary; raise; left 
A) contractionary; raise; left 
B) contractionary; raise; right 
C) expansionary; lower; right 
D) expansionary; raise; left

Question 8

The federal funds rate is:

Accepted Answer

A) determined by the supply of and demand for money. 
B) set by Congress. 
C) determined in the real market by the aggregate supply and aggregate demand curves. 
D) the interest rate that banks pay when they borrow directly from the Fed. 
A) determined by the supply of and demand for money. 
B) set by Congress. 
C) determined in the real market by the aggregate supply and aggregate demand curves. 
D) the interest rate that banks pay when they borrow directly from the Fed.

Question 9

A decrease in the supply of money will lead to a(n) _____ in equilibrium real GDP and a _____ equilibrium interest rate.

Accepted Answer

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

Question 10

Use the following to answer questions :
Figure: Output Gap  
-(Figure: Output Gap) Look at the figure Output Gap. If the economy is at Y2 because of contractionary monetary policy and no further policy is implemented, in the long run nominal wages will _____ and shift the short-run aggregate supply curve to the _____, which will _____ real output.

Accepted Answer

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

Question 11

If the economy is at potential output and the Fed decreases the money supply so that actual output is less than potential output, eventually nominal wages will decrease.

Accepted Answer

A) True 
 B)False

Question 12

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 MS2 and the Fed conducts contractionary monetary policy, in the short run the interest rate increases to r1. In the long run: the demand for money will _____, and the interest rate will_____.

Accepted Answer

A) increase; increase to r1 
B) increase; remain at r2. 
C) decrease; decrease to r2. 
D) decrease; remain at r1. 
A) increase; increase to r1 
B) increase; remain at r2. 
C) decrease; decrease to r2. 
D) decrease; remain at r1.

Question 13

Now that fast food places such as McDonald's are accepting credit card payments, the:

Accepted Answer

A) demand for money has increased. 
B) demand for money has decreased. 
C) demand for money has not been affected. 
D) supply of money has increased, as some cash is unused. 
A) demand for money has increased. 
B) demand for money has decreased. 
C) demand for money has not been affected. 
D) supply of money has increased, as some cash is unused.

Question 14

Use the following to answer questions:
Figure: A Money Market  
-(Figure: A Money Market) Look at the figure A Money Market. If the interest rate is r3, the interest rate will _____ because there is a _____ of money in the market.

Accepted Answer

A) fall; surplus 
B) fall; shortage 
C) rise; surplus 
D) rise; shortage 
A) fall; surplus 
B) fall; shortage 
C) rise; surplus 
D) rise; shortage

Question 15

A high demand for money (as in Japan) would result from:

Accepted Answer

A) a decrease in nominal GDP and a high crime rate. 
B) a decrease in real GDP and a preference from businesses to accept only debit cards. 
C) a decrease in the price level. 
D) low crime rates and widespread lack of capacity to accept noncash payments. 
A) a decrease in nominal GDP and a high crime rate. 
B) a decrease in real GDP and a preference from businesses to accept only debit cards. 
C) a decrease in the price level. 
D) low crime rates and widespread lack of capacity to accept noncash payments.

Question 16

The money demand curve shows the relationship between the _____ and the _____ of money demanded.

Accepted Answer

A) money supply; quantity 
B) aggregate price level; nominal quantity 
C) interest rate; nominal quantity 
D) real GDP; nominal quantity 
A) money supply; quantity 
B) aggregate price level; nominal quantity 
C) interest rate; nominal quantity 
D) real GDP; nominal quantity

Question 17

In 2014, Ben Bernanke was succeeded as chair of the Board of Governors of the Federal Reserve by:

Accepted Answer

A) Janet Yellen. 
B) Paul Ryan. 
C) Joe Biden. 
D) Nancy Pelosi. 
A) Janet Yellen. 
B) Paul Ryan. 
C) Joe Biden. 
D) Nancy Pelosi.

Question 18

Which one of the following statements is FALSE?

Accepted Answer

A) The Taylor rule sets the federal funds rate on the basis of both inflation rate and output gap, whereas inflation targeting is based on a desired inflation rate. 
B) The Taylor rule sets the federal funds rate on the basis of past inflation rates, whereas inflation targeting is based on a forecast of the inflation rate. 
C) The Taylor rule can be more flexible, whereas inflation targeting provides more transparency and accountability. 
D) The Taylor rule sets the federal funds rate on the basis of only past inflation rates, whereas inflation targeting is based on a target interest rate and business cycles. 
A) The Taylor rule sets the federal funds rate on the basis of both inflation rate and output gap, whereas inflation targeting is based on a desired inflation rate. 
B) The Taylor rule sets the federal funds rate on the basis of past inflation rates, whereas inflation targeting is based on a forecast of the inflation rate. 
C) The Taylor rule can be more flexible, whereas inflation targeting provides more transparency and accountability. 
D) The Taylor rule sets the federal funds rate on the basis of only past inflation rates, whereas inflation targeting is based on a target interest rate and business cycles.

Question 19

A contractionary monetary policy is appropriate during a recession.

Accepted Answer

A) True 
 B)False

Long-term interest rates are higher than short-term rates. This reflects a belief that:

A contractionary monetary policy is appropriate during an expansion.

Use the following to answer questions : Figure: Equilibrium in the Money Market -(Figure: Equilibrium in the Money Market) Look at the figure Equilibrium in the Money Market. Equilibrium will occur at interest rate _ and quantity of money _.

If a central bank announces an inflation target, it:

If the Federal Open Market Committee engages in an open market purchase, it will shift the money _ curve to the_,

If banks were suddenly prohibited from paying interest on checking accounts, the demand for money would likely decrease.

To fight inflation, the Federal Reserve should conduct ___ monetary policy to _ interest rates, which will shift the aggregate demand curve to the ___.

The federal funds rate is:

A decrease in the supply of money will lead to a(n) _ in equilibrium real GDP and a _ equilibrium interest rate.

If the economy is at potential output and the Fed decreases the money supply so that actual output is less than potential output, eventually nominal wages will decrease.

Now that fast food places such as McDonald's are accepting credit card payments, the:

Use the following to answer questions: Figure: A Money Market -(Figure: A Money Market) Look at the figure A Money Market. If the interest rate is r₃, the interest rate will _ because there is a _ of money in the market.

A high demand for money (as in Japan) would result from:

The money demand curve shows the relationship between the _ and the _ of money demanded.

In 2014, Ben Bernanke was succeeded as chair of the Board of Governors of the Federal Reserve by:

Which one of the following statements is FALSE?

A contractionary monetary policy is appropriate during a recession.

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

Long-term interest rates are higher than short-term rates. This reflects a belief that:

A contractionary monetary policy is appropriate during an expansion.

Use the following to answer questions : Figure: Equilibrium in the Money Market -(Figure: Equilibrium in the Money Market) Look at the figure Equilibrium in the Money Market. Equilibrium will occur at interest rate _____ and quantity of money _____.

If a central bank announces an inflation target, it:

If the Federal Open Market Committee engages in an open market purchase, it will shift the money _____ curve to the_____,

If banks were suddenly prohibited from paying interest on checking accounts, the demand for money would likely decrease.

To fight inflation, the Federal Reserve should conduct _____ monetary policy to _____ interest rates, which will shift the aggregate demand curve to the _____.

The federal funds rate is:

A decrease in the supply of money will lead to a(n) _____ in equilibrium real GDP and a _____ equilibrium interest rate.

If the economy is at potential output and the Fed decreases the money supply so that actual output is less than potential output, eventually nominal wages will decrease.

Now that fast food places such as McDonald's are accepting credit card payments, the:

Use the following to answer questions: Figure: A Money Market -(Figure: A Money Market) Look at the figure A Money Market. If the interest rate is r3, the interest rate will _____ because there is a _____ of money in the market.

A high demand for money (as in Japan) would result from:

The money demand curve shows the relationship between the _____ and the _____ of money demanded.

In 2014, Ben Bernanke was succeeded as chair of the Board of Governors of the Federal Reserve by:

Which one of the following statements is FALSE?

A contractionary monetary policy is appropriate during a recession.

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: Equilibrium in the Money Market -(Figure: Equilibrium in the Money Market) Look at the figure Equilibrium in the Money Market. Equilibrium will occur at interest rate _ and quantity of money _.

If the Federal Open Market Committee engages in an open market purchase, it will shift the money _ curve to the_,

To fight inflation, the Federal Reserve should conduct ___ monetary policy to _ interest rates, which will shift the aggregate demand curve to the ___.

A decrease in the supply of money will lead to a(n) _ in equilibrium real GDP and a _ equilibrium interest rate.

Use the following to answer questions: Figure: A Money Market -(Figure: A Money Market) Look at the figure A Money Market. If the interest rate is r₃, the interest rate will _ because there is a _ of money in the market.

The money demand curve shows the relationship between the _ and the _ of money demanded.