Question 1

Was the money multiplier stable during the Great Recession? Why would an unstable money multiplier pose a problem for monetary policy?

Accepted Answer

The money multiplier was not stable duri

Question 2

When the central bank announces the inflation rate that it will achieve over the next one to four years,it is following a strategy known as

Accepted Answer

A) money targeting. 
B) inflation targeting. 
C) a currency board. 
D) real business cycle targeting. 
A) money targeting. 
B) inflation targeting. 
C) a currency board. 
D) real business cycle targeting.

Question 3

According to the Taylor rule,if the inflation rate in the last year was 2% and output was equal to its full-employment level,the nominal Fed funds rate should be

Accepted Answer

A) 3%. 
B) 4%. 
C) 5%. 
D) 6%. 
A) 3%. 
B) 4%. 
C) 5%. 
D) 6%.

Question 4

Suppose the Fed cares only about keeping the economy close to full-employment output.The Fed can target the real money supply (thus keeping the LM curve fixed)or it can target the real interest rate,changing the money supply and shifting the LM curve however is necessary to prevent a change in the real interest rate.
(a)Which is the best policy if the main shocks to the economy are shocks to the IS curve? Explain why.Illustrate with a diagram.
(b)Which is the best policy if the main shocks to the economy are shocks to real money demand? Explain why.Illustrate with a diagram.

Accepted Answer

(a)Target the real money suppl

Question 5

The Fed's tools are also known as

Accepted Answer

A) goals. 
B) intermediate targets. 
C) instruments. 
D) derivatives. 
A) goals. 
B) intermediate targets. 
C) instruments. 
D) derivatives.

Question 6

When U.S.banks borrow from one another,they must pay the

Accepted Answer

A) discount rate. 
B) prime rate. 
C) Fed funds rate. 
D) Interbank Offer Rate. 
A) discount rate. 
B) prime rate. 
C) Fed funds rate. 
D) Interbank Offer Rate.

Question 7

Policymakers may be uncertain about the state of the economy because

Accepted Answer

A) initial releases of data may be less accurate than later data releases. 
B) they don't know the predominant source of shocks to the economy. 
C) they don't know how shocks affect people's expectations. 
D) they are not aware of modern macroeconomic modeling techniques. 
A) initial releases of data may be less accurate than later data releases. 
B) they don't know the predominant source of shocks to the economy. 
C) they don't know how shocks affect people's expectations. 
D) they are not aware of modern macroeconomic modeling techniques.

Question 8

Which of the following is the Federal Reserve most likely to use to change the nation's money supply?

Accepted Answer

A) Open-market operations 
B) Reserve requirements 
C) Discount lending 
D) Credit controls 
A) Open-market operations 
B) Reserve requirements 
C) Discount lending 
D) Credit controls

Question 9

The monetary base is defined as

Accepted Answer

A) bank reserves plus currency held by the nonbank public. 
B) bank reserves minus vault cash. 
C) all deposits at the Fed. 
D) deposits at the Fed plus vault cash. 
A) bank reserves plus currency held by the nonbank public. 
B) bank reserves minus vault cash. 
C) all deposits at the Fed. 
D) deposits at the Fed plus vault cash.

Question 10

The Taylor rule relates

Accepted Answer

A) the nominal Fed funds rate to inflation over the past year and the deviation of output from full-employment output. 
B) the growth rate of the monetary base to the growth rate of nominal GDP and the change in velocity over the past year. 
C) the nominal Fed funds rate to the growth rate of nominal GDP and the change in velocity over the past year. 
D) the growth rate of the monetary base to inflation over the past year and the deviation of output from full-employment output. 
A) the nominal Fed funds rate to inflation over the past year and the deviation of output from full-employment output. 
B) the growth rate of the monetary base to the growth rate of nominal GDP and the change in velocity over the past year. 
C) the nominal Fed funds rate to the growth rate of nominal GDP and the change in velocity over the past year. 
D) the growth rate of the monetary base to inflation over the past year and the deviation of output from full-employment output.

Question 11

Vault cash is equal to $8 million,deposits by depository institutions at the central bank are $2 million,the monetary base is $40 million,and bank deposits are $90 million.The money multiplier is equal to

Accepted Answer

A) 2)5. 
B) 3)0. 
C) 4)0. 
D) 5)0. 
A) 2)5. 
B) 3)0. 
C) 4)0. 
D) 5)0.

Question 12

The Federal Open Market Committee consists of all the following people EXCEPT

Accepted Answer

A) the Board of Governors of the Federal Reserve System. 
B) five presidents of Federal Reserve Banks,on a rotating basis. 
C) the chairman of the President's Council of Economic Advisors. 
D) the President of the Federal Reserve Bank of New York. 
A) the Board of Governors of the Federal Reserve System. 
B) five presidents of Federal Reserve Banks,on a rotating basis. 
C) the chairman of the President's Council of Economic Advisors. 
D) the President of the Federal Reserve Bank of New York.

Question 13

Suppose the Federal Reserve wanted to reduce the money supply without using open-market operations.It could try to get the public to ________ their currency-deposit ratio and ________ banks' reserve requirements,which would in turn change the banks' reserve-deposit ratio.

Accepted Answer

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

Question 14

Suppose the reserve-deposit ratio is
res = 0.5 - 2 i,
where i is the nominal interest rate.The currency-deposit ratio is 0.2 and the monetary base equals 100.The real quantity of money demanded is given by the money demand function
L(Y,i)= 0.5Y - 10 i,
where Y is real output.Currently the real interest rate is 5% and the economy expects an inflation rate of 5%.Assume the price level P is equal to 1.
(a)Calculate the money multiplier.
(b)Calculate the reserve-deposit ratio.
(c)Calculate the money supply.
(d)Calculate the value of output Y that clears the asset market.

Accepted Answer

(a)2.4
(b)

Question 15

Many countries dropped their use of money-growth targets in the 1980s because

Accepted Answer

A) they were in severe recessions. 
B) political opponents claimed money-growth targeting helped the rich at the expense of the poor. 
C) money demand became unstable. 
D) it was too difficult to coordinate monetary policy with fiscal policy. 
A) they were in severe recessions. 
B) political opponents claimed money-growth targeting helped the rich at the expense of the poor. 
C) money demand became unstable. 
D) it was too difficult to coordinate monetary policy with fiscal policy.

Question 16

Fractional reserve banking is the system that

Accepted Answer

A) allows banks not to insure their deposits. 
B) allows banks not to join the Federal Reserve System. 
C) limits banks' activities from crossing state lines. 
D) allows banks to keep smaller reserves than their deposits. 
A) allows banks not to insure their deposits. 
B) allows banks not to join the Federal Reserve System. 
C) limits banks' activities from crossing state lines. 
D) allows banks to keep smaller reserves than their deposits.

Question 17

Which of the following is an instrument of monetary policy?

Accepted Answer

A) The interest rate on 3-month Treasury bills 
B) The mortgage interest rate 
C) The discount rate 
D) The budget deficit 
A) The interest rate on 3-month Treasury bills 
B) The mortgage interest rate 
C) The discount rate 
D) The budget deficit

Question 18

When the Fed signals how long it expects interest rates to remain at a low level,it is said to be engaging in

Accepted Answer

A) credit easing. 
B) forward guidance. 
C) quantitative easing. 
D) a maturity extension program. 
A) credit easing. 
B) forward guidance. 
C) quantitative easing. 
D) a maturity extension program.

Question 19

There is ________ relationship between inflation and central bank independence and ________ relationship between long-run rates of unemployment and central bank independence.

Accepted Answer

A) a negative; no 
B) a negative; a negative 
C) a positive; no 
D) a positive; a negative 
A) a negative; no 
B) a negative; a negative 
C) a positive; no 
D) a positive; a negative

Question 20

Macroeconomic variables that the Fed cannot control directly but can influence fairly predictably,and which are related to the Fed's goals,are known as

Accepted Answer

A) instruments. 
B) tools. 
C) intermediate targets. 
D) initial targets. 
A) instruments. 
B) tools. 
C) intermediate targets. 
D) initial targets.

Was the money multiplier stable during the Great Recession? Why would an unstable money multiplier pose a problem for monetary policy?

When the central bank announces the inflation rate that it will achieve over the next one to four years,it is following a strategy known as

According to the Taylor rule,if the inflation rate in the last year was 2% and output was equal to its full-employment level,the nominal Fed funds rate should be

The Fed's tools are also known as

When U.S.banks borrow from one another,they must pay the

Policymakers may be uncertain about the state of the economy because

Which of the following is the Federal Reserve most likely to use to change the nation's money supply?

The monetary base is defined as

The Taylor rule relates

Vault cash is equal to $8 million,deposits by depository institutions at the central bank are $2 million,the monetary base is $40 million,and bank deposits are $90 million.The money multiplier is equal to

The Federal Open Market Committee consists of all the following people EXCEPT

Suppose the Federal Reserve wanted to reduce the money supply without using open-market operations.It could try to get the public to their currency-deposit ratio and banks' reserve requirements,which would in turn change the banks' reserve-deposit ratio.

Many countries dropped their use of money-growth targets in the 1980s because

Fractional reserve banking is the system that

Which of the following is an instrument of monetary policy?

When the Fed signals how long it expects interest rates to remain at a low level,it is said to be engaging in

There is relationship between inflation and central bank independence and relationship between long-run rates of unemployment and central bank independence.

Macroeconomic variables that the Fed cannot control directly but can influence fairly predictably,and which are related to the Fed's goals,are known as

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, Output, and Employment

Consumption, Saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, Money, and Prices

Business Cycles

The IS-LM/AD-AS Model

Classical Business Cycle Analysis

Keynesianism: The Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Exchange Rates,Business Cycles,and Macroeconomic Policy in the Open Economy

Government Spending and Its Financing

Filters

Exam 14: Monetary Policy and the Federal Reserve System

Was the money multiplier stable during the Great Recession? Why would an unstable money multiplier pose a problem for monetary policy?

When the central bank announces the inflation rate that it will achieve over the next one to four years,it is following a strategy known as

According to the Taylor rule,if the inflation rate in the last year was 2% and output was equal to its full-employment level,the nominal Fed funds rate should be

The Fed's tools are also known as

When U.S.banks borrow from one another,they must pay the

Policymakers may be uncertain about the state of the economy because

Which of the following is the Federal Reserve most likely to use to change the nation's money supply?

The monetary base is defined as

The Taylor rule relates

Vault cash is equal to $8 million,deposits by depository institutions at the central bank are $2 million,the monetary base is $40 million,and bank deposits are $90 million.The money multiplier is equal to

The Federal Open Market Committee consists of all the following people EXCEPT

Suppose the Federal Reserve wanted to reduce the money supply without using open-market operations.It could try to get the public to ________ their currency-deposit ratio and ________ banks' reserve requirements,which would in turn change the banks' reserve-deposit ratio.

Many countries dropped their use of money-growth targets in the 1980s because

Fractional reserve banking is the system that

Which of the following is an instrument of monetary policy?

When the Fed signals how long it expects interest rates to remain at a low level,it is said to be engaging in

There is ________ relationship between inflation and central bank independence and ________ relationship between long-run rates of unemployment and central bank independence.

Macroeconomic variables that the Fed cannot control directly but can influence fairly predictably,and which are related to the Fed's goals,are known as

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, Output, and Employment

Consumption, Saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, Money, and Prices

Business Cycles

The IS-LM/AD-AS Model

Classical Business Cycle Analysis

Keynesianism: The Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Exchange Rates,Business Cycles,and Macroeconomic Policy in the Open Economy

Government Spending and Its Financing

Filters

Suppose the Federal Reserve wanted to reduce the money supply without using open-market operations.It could try to get the public to their currency-deposit ratio and banks' reserve requirements,which would in turn change the banks' reserve-deposit ratio.

There is relationship between inflation and central bank independence and relationship between long-run rates of unemployment and central bank independence.