Question 1

In the short run:

Accepted Answer

A) only the supply of money determines the interest rate. 
B) only the demand for money determines the interest rate. 
C) the supply and demand for money determine the interest rate, and the loanable funds market follows the lead of the money market. 
D) the supply and demand for money determine the interest rate, and the money market follows the lead of the loanable funds market. 
A) only the supply of money determines the interest rate. 
B) only the demand for money determines the interest rate. 
C) the supply and demand for money determine the interest rate, and the loanable funds market follows the lead of the money market. 
D) the supply and demand for money determine the interest rate, and the money market follows the lead of the loanable funds market.

Question 2

The Federal Open Market Committee does NOT directly control the _____ with monetary policy.

Accepted Answer

A) discount rate 
B) reserve ratio 
C) prime rate 
D) federal funds rate 
A) discount rate 
B) reserve ratio 
C) prime rate 
D) federal funds rate

Question 3

Use the following to answer questions :
Figure: Monetary Policy II  
-(Figure: Monetary Policy II) Look at the figure Monetary Policy II. To eliminate the inflationary gap from the short-run equilibrium at Y2, monetary policy should be:

Accepted Answer

A) expansionary. 
B) contractionary. 
C) neutral. 
D) balanced. 
A) expansionary. 
B) contractionary. 
C) neutral. 
D) balanced.

Question 4

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 Fed conducts expansionary monetary policy, in the short run the interest rate drops to r2. 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 below r2 
D) decrease; remain at r2 
A) increase; increase to r1 
B) increase; remain at r2 
C) decrease; decrease below r2 
D) decrease; remain at r2

Question 5

Contractionary monetary policy causes _____ in the price level in the short run and _____ in the price level in the long run.

Accepted Answer

A) no change; a decrease 
B) a decrease; a decrease 
C) a decrease; no change 
D) no change; no change 
A) no change; a decrease 
B) a decrease; a decrease 
C) a decrease; no change 
D) no change; no change

Question 6

If the economy is at potential output and the Fed decreases the money supply, in the SHORT run the likely result will be a(n) _____ in investment and a(n) _____ in consumption.

Accepted Answer

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

Question 7

The Fed prints money not only when it is conducting monetary policy but also when it is paying bills as the fiscal agent for the federal government.

Accepted Answer

A) True 
 B)False

Question 8

In September 2007, reversing its course, the Federal Reserve began a series of:

Accepted Answer

A) interest rate increases, reversing its previous policy of lowering interest rates to fight the financial crisis. 
B) interest rate increases to combat inflation. 
C) cuts in the reserve requirements, reversing its previous policy of increasing the reserve requirement, to stop bank failures. 
D) cuts in the federal funds target rate to lower the interest rate, reversing its previous policy of raising interest rates, to fight the financial crisis. 
A) interest rate increases, reversing its previous policy of lowering interest rates to fight the financial crisis. 
B) interest rate increases to combat inflation. 
C) cuts in the reserve requirements, reversing its previous policy of increasing the reserve requirement, to stop bank failures. 
D) cuts in the federal funds target rate to lower the interest rate, reversing its previous policy of raising interest rates, to fight the financial crisis.

Question 9

If the equilibrium interest rate in the money market is 5%, then at an interest rate of 2%, money demanded is _____ than money supplied.

Accepted Answer

A) less than 
B) greater than 
C) equal to 
D) It is impossible to predict which is greater, money demanded or money supplied. 
A) less than 
B) greater than 
C) equal to 
D) It is impossible to predict which is greater, money demanded or money supplied.

Question 10

If the Federal Reserve uses expansionary monetary policy there is a _____ short-run effect on _____, but_____.

Accepted Answer

A) negative short-run; real GDP; prices remain unchanged in the long run. 
B) positive short-run; real GDP; GDP remains equal to potential GDP in the long run. 
C) t positive long-run; real GDP; GDP remains unchanged at its potential level in the short run. 
D) positive short-run; the price level; the aggregate price level remains unchanged in the long run. 
A) negative short-run; real GDP; prices remain unchanged in the long run. 
B) positive short-run; real GDP; GDP remains equal to potential GDP in the long run. 
C) t positive long-run; real GDP; GDP remains unchanged at its potential level in the short run. 
D) positive short-run; the price level; the aggregate price level remains unchanged in the long run.

Question 11

In the short run changes in the money supply change the interest rate, but in the long run changes in the money supply have no effect on interest rates.

Accepted Answer

A) True 
 B)False

Question 12

The Taylor rule:

Accepted Answer

A) provides guidance for setting a federal funds rate target. 
B) says that interest rates often should be negative. 
C) provides guidance on timing of monetary policy with fiscal policy. 
D) refers to a discretionary fiscal policy rule. 
A) provides guidance for setting a federal funds rate target. 
B) says that interest rates often should be negative. 
C) provides guidance on timing of monetary policy with fiscal policy. 
D) refers to a discretionary fiscal policy rule.

Question 13

When long-term rates are lower than short-term rates, the market is signaling that it expects short-term rates to fall.

Accepted Answer

A) True 
 B)False

Question 14

Use the following to answer question 177:
Figure: Short-Run and Long-Run Effects of Monetary Policy  
-(Figure: Short-Run and Long-Run Effects of Monetary Policy) Look at the figure Short-Run and Long-Run Effects of Monetary Policy. If the economy is initially at E2 and the central bank makes no change in its monetary policy:

Accepted Answer

A) AD2 will shift to the right, increasing the existing inflationary gap. 
B) AD2 will shift to the left, closing the inflationary gap. 
C) SRAS1 will eventually shift to the left, closing the existing inflationary gap but raising the aggregate price level. 
D) SRAS2 will immediately shift to the right, increasing the existing inflationary gap. 
A) AD2 will shift to the right, increasing the existing inflationary gap. 
B) AD2 will shift to the left, closing the inflationary gap. 
C) SRAS1 will eventually shift to the left, closing the existing inflationary gap but raising the aggregate price level. 
D) SRAS2 will immediately shift to the right, increasing the existing inflationary gap.

Question 15

Use the following to answer questions :
Figure: Money Market I  
-(Figure: Money Market I) Look at the figure Money Market I. If the interest rate is at rL and the central bank neither buys nor sells Treasury bills, then the interest rate will:

Accepted Answer

A) move toward point H. 
B) move toward point L. 
C) move toward point E. 
D) not change. 
A) move toward point H. 
B) move toward point L. 
C) move toward point E. 
D) not change.

Question 16

We hold money to:

Accepted Answer

A) earn interest. 
B) reduce transaction costs. 
C) increase transaction costs 
D) protect our purchasing power. 
A) earn interest. 
B) reduce transaction costs. 
C) increase transaction costs 
D) protect our purchasing power.

Question 17

Expansionary monetary policy may increase consumer spending.

Accepted Answer

A) True 
 B)False

Question 18

If the aggregate price level doubles:

Accepted Answer

A) the money supply will also double. 
B) neither money demand nor the money supply will rise. 
C) both money demand and the money supply will rise proportionally. 
D) money demand at any given interest rate will also double. 
A) the money supply will also double. 
B) neither money demand nor the money supply will rise. 
C) both money demand and the money supply will rise proportionally. 
D) money demand at any given interest rate will also double.

Question 19

The loanable funds model focuses on the:

Accepted Answer

A) demand for money. 
B) supply of funds from lenders. 
C) supply of funds from borrowers and the demand by lenders. 
D) supply of funds from lenders and the demand from borrowers. 
A) demand for money. 
B) supply of funds from lenders. 
C) supply of funds from borrowers and the demand by lenders. 
D) supply of funds from lenders and the demand from borrowers.

Question 20

Suppose that the economy is operating at potential output and the money supply increases. Aggregate output will _____ potential output, nominal wages will _____, and the SRAS will shift _____.

Accepted Answer

A) rise above; rise; leftward 
B) fall below; rise; leftward 
C) rise above; fall; leftward 
D) rise above; rise; rightward 
A) rise above; rise; leftward 
B) fall below; rise; leftward 
C) rise above; fall; leftward 
D) rise above; rise; rightward

In the short run:

The Federal Open Market Committee does NOT directly control the _____ with monetary policy.

Use the following to answer questions : Figure: Monetary Policy II -(Figure: Monetary Policy II) Look at the figure Monetary Policy II. To eliminate the inflationary gap from the short-run equilibrium at Y₂, monetary policy should be:

Contractionary monetary policy causes _ in the price level in the short run and _ in the price level in the long run.

If the economy is at potential output and the Fed decreases the money supply, in the SHORT run the likely result will be a(n) _ in investment and a(n) _ in consumption.

The Fed prints money not only when it is conducting monetary policy but also when it is paying bills as the fiscal agent for the federal government.

In September 2007, reversing its course, the Federal Reserve began a series of:

If the equilibrium interest rate in the money market is 5%, then at an interest rate of 2%, money demanded is _____ than money supplied.

If the Federal Reserve uses expansionary monetary policy there is a ___ short-run effect on _, but___.

In the short run changes in the money supply change the interest rate, but in the long run changes in the money supply have no effect on interest rates.

The Taylor rule:

When long-term rates are lower than short-term rates, the market is signaling that it expects short-term rates to fall.

Use the following to answer questions : Figure: Money Market I -(Figure: Money Market I) Look at the figure Money Market I. If the interest rate is at r_L and the central bank neither buys nor sells Treasury bills, then the interest rate will:

We hold money to:

Expansionary monetary policy may increase consumer spending.

If the aggregate price level doubles:

The loanable funds model focuses on the:

Suppose that the economy is operating at potential output and the money supply increases. Aggregate output will ___ potential output, nominal wages will _, and the SRAS will shift ___.

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

In the short run:

The Federal Open Market Committee does NOT directly control the _____ with monetary policy.

Use the following to answer questions : Figure: Monetary Policy II -(Figure: Monetary Policy II) Look at the figure Monetary Policy II. To eliminate the inflationary gap from the short-run equilibrium at Y2, monetary policy should be:

Contractionary monetary policy causes _____ in the price level in the short run and _____ in the price level in the long run.

If the economy is at potential output and the Fed decreases the money supply, in the SHORT run the likely result will be a(n) _____ in investment and a(n) _____ in consumption.

The Fed prints money not only when it is conducting monetary policy but also when it is paying bills as the fiscal agent for the federal government.

In September 2007, reversing its course, the Federal Reserve began a series of:

If the equilibrium interest rate in the money market is 5%, then at an interest rate of 2%, money demanded is _____ than money supplied.

If the Federal Reserve uses expansionary monetary policy there is a _____ short-run effect on _____, but_____.

In the short run changes in the money supply change the interest rate, but in the long run changes in the money supply have no effect on interest rates.

The Taylor rule:

When long-term rates are lower than short-term rates, the market is signaling that it expects short-term rates to fall.

Use the following to answer questions : Figure: Money Market I -(Figure: Money Market I) Look at the figure Money Market I. If the interest rate is at rL and the central bank neither buys nor sells Treasury bills, then the interest rate will:

We hold money to:

Expansionary monetary policy may increase consumer spending.

If the aggregate price level doubles:

The loanable funds model focuses on the:

Suppose that the economy is operating at potential output and the money supply increases. Aggregate output will _____ potential output, nominal wages will _____, and the SRAS will shift _____.

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 II -(Figure: Monetary Policy II) Look at the figure Monetary Policy II. To eliminate the inflationary gap from the short-run equilibrium at Y₂, monetary policy should be:

Contractionary monetary policy causes _ in the price level in the short run and _ in the price level in the long run.

If the economy is at potential output and the Fed decreases the money supply, in the SHORT run the likely result will be a(n) _ in investment and a(n) _ in consumption.

If the Federal Reserve uses expansionary monetary policy there is a ___ short-run effect on _, but___.

Use the following to answer questions : Figure: Money Market I -(Figure: Money Market I) Look at the figure Money Market I. If the interest rate is at r_L and the central bank neither buys nor sells Treasury bills, then the interest rate will:

Suppose that the economy is operating at potential output and the money supply increases. Aggregate output will ___ potential output, nominal wages will _, and the SRAS will shift ___.