Question 1

If the Fed reduces $\vec { M }$ to fight inflation after a negative real shock,which of the following should occur?

Accepted Answer

A)  higher inflation 
B)  lower real growth 
C)  higher real growth 
D)  no change in real growth 
A)  higher inflation 
B)  lower real growth 
C)  higher real growth 
D)  no change in real growth B

Question 2

Use the following to answer questions 
Figure: Monetary Policy  
-(Figure: Monetary Policy)Refer to the figure.Assume that the economy is initially at point Y in the graph.If the Fed takes the appropriate action with monetary policy,but banks are slow to lend,then:

Accepted Answer

A)  the Fed action would be magnified and the economy would move to point X. 
B)  the Fed action would be nullified and the economy would remain at point Y. 
C)  the Fed action would be partially effective and the economy would move to point Z. 
D)  the LRAS curve would shift to the left. 
A)  the Fed action would be magnified and the economy would move to point X. 
B)  the Fed action would be nullified and the economy would remain at point Y. 
C)  the Fed action would be partially effective and the economy would move to point Z. 
D)  the LRAS curve would shift to the left. C

Question 3

Low interest rates are a signal that:

Accepted Answer

A)  credit is easy and it is a good idea to borrow money. 
B)  credit is tight and it is a bad idea to borrow money. 
C)  deflation is on the way. 
D)  people are no longer out for profit. 
A)  credit is easy and it is a good idea to borrow money. 
B)  credit is tight and it is a bad idea to borrow money. 
C)  deflation is on the way. 
D)  people are no longer out for profit. A

Question 4

If a central bank wishes to reduce inflation,it should announce its intentions and follow through with them,thereby using _____ monetary policy.

Accepted Answer

A)  visible 
B)  integral 
C)  credible 
D)  authoritative 
A)  visible 
B)  integral 
C)  credible 
D)  authoritative

Question 5

If Alan Greenspan had reduced the money supply to limit the housing bubble,the result would have been a:

Accepted Answer

A)  slowdown in the rise of housing values. 
B)  slowdown in overall economic growth. 
C)  a slowdown in both the rise of housing values and overall economic growth. 
D)  neither a slowdown in the rise of housing values nor overall economic growth. 
A)  slowdown in the rise of housing values. 
B)  slowdown in overall economic growth. 
C)  a slowdown in both the rise of housing values and overall economic growth. 
D)  neither a slowdown in the rise of housing values nor overall economic growth.

Question 6

Which is NOT a tool that the Federal Reserve can use to influence AD?

Accepted Answer

A)  open-market operations 
B)  lending to banks and other financial institutions 
C)  changes in reserve requirements and the interest rate paid on reserves 
D)  printing money 
A)  open-market operations 
B)  lending to banks and other financial institutions 
C)  changes in reserve requirements and the interest rate paid on reserves 
D)  printing money

Question 7

In the AD-AS diagram,an increase in money supply growth causes:

Accepted Answer

A)  a shift of the aggregate demand curve to the left. 
B)  a shift of the aggregate demand curve to the right. 
C)  a downward movement along the aggregate demand curve. 
D)  an upward movement along the aggregate demand curve. 
A)  a shift of the aggregate demand curve to the left. 
B)  a shift of the aggregate demand curve to the right. 
C)  a downward movement along the aggregate demand curve. 
D)  an upward movement along the aggregate demand curve.

Question 8

In the long run,a negative real shock will cause output growth to:

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain unchanged. 
D)  become more difficult to predict. 
A)  increase. 
B)  decrease. 
C)  remain unchanged. 
D)  become more difficult to predict.

Question 9

Suppose a central bank targets a fixed rate of inflation.If a negative real shock occurs,then the central bank would use monetary policy to:

Accepted Answer

A)  shift the AD curve to the right. 
B)  shift the AD curve to the left. 
C)  shift the SRAS curve to the right. 
D)  shift the SRAS curve to the left. 
A)  shift the AD curve to the right. 
B)  shift the AD curve to the left. 
C)  shift the SRAS curve to the right. 
D)  shift the SRAS curve to the left.

Question 10

Disinflation is a decrease in prices,while deflation is a significant reduction in the rate of inflation.

Accepted Answer

A) True 
 B)False

Question 11

The Fed could have popped the bubble of the housing boom in the 2000s by:

Accepted Answer

A)  lending directly to homeowners. 
B)  regulating the stock markets more. 
C)  reducing the growth rate of the money supply. 
D)  doing nothing. 
A)  lending directly to homeowners. 
B)  regulating the stock markets more. 
C)  reducing the growth rate of the money supply. 
D)  doing nothing.

Question 12

Why is monetary policy not fully effective in combating a negative supply shock?

Accepted Answer

A)  The Fed has no tools that stimulate an economy after a negative supply shock. 
B)  When countering a negative supply shock,Fed action will cause deflation. 
C)  When countering a negative supply shock,Fed action will raise unemployment. 
D)  When countering a negative supply shock,Fed action will raise inflation. 
A)  The Fed has no tools that stimulate an economy after a negative supply shock. 
B)  When countering a negative supply shock,Fed action will cause deflation. 
C)  When countering a negative supply shock,Fed action will raise unemployment. 
D)  When countering a negative supply shock,Fed action will raise inflation.

Question 13

When the Fed responds to a negative spending shock by increasing the money supply,it is using:

Accepted Answer

A)  a policy rule. 
B)  a discretionary policy. 
C)  its political power. 
D)  its credibility. 
A)  a policy rule. 
B)  a discretionary policy. 
C)  its political power. 
D)  its credibility.

Question 14

Use the following to answer questions 50-54:
Figure: Monetary Policy and Demand Shocks  
-(Figure: Monetary Policy and Demand Shocks)Refer to the figure.In the figure,assume the initial real growth rate of the economy is 3% when a positive aggregate demand shock shifts the AD curve from AD1 to AD4.As a result of the Fed's policy response,the AD curve shifts to AD3 in the short run.Which of the following is TRUE about the Fed's policy response?

Accepted Answer

A)  The Fed responded too little to the shock. 
B)  The Fed responded too much to the shock. 
C)  The Fed provided just the right amount of response to the shock. 
D)  The Fed was too fast in responding to the shock. 
A)  The Fed responded too little to the shock. 
B)  The Fed responded too much to the shock. 
C)  The Fed provided just the right amount of response to the shock. 
D)  The Fed was too fast in responding to the shock.

Question 15

Many economists worry about the Federal Reserve overstimulating the economy because such overstimulation will lead to rising:

Accepted Answer

A)  unemployment. 
B)  inflation. 
C)  output growth. 
D)  Solow growth. 
A)  unemployment. 
B)  inflation. 
C)  output growth. 
D)  Solow growth.

Question 16

If the growth rate of the money supply slows,there will be a(n):

Accepted Answer

A)  decrease in aggregate demand. 
B)  decrease in aggregate supply. 
C)  increase in aggregate demand. 
D)  increase in aggregate supply. 
A)  decrease in aggregate demand. 
B)  decrease in aggregate supply. 
C)  increase in aggregate demand. 
D)  increase in aggregate supply.

Question 17

If the Fed adheres to a strict "money growth rule" of 3% (that is,they keep $\vec { M }$ at 3% no matter what),what happens if velocity growth ( $\vec { v }$ )drops?

Accepted Answer

A)  Inflation,real growth,and nominal wage growth all decrease. 
B)  Inflation increases,but real growth and nominal wage growth decrease. 
C)  Inflation and nominal wage growth decrease,but real growth increases. 
D)  Inflation,real growth,and nominal wage growth all increase. 
A)  Inflation,real growth,and nominal wage growth all decrease. 
B)  Inflation increases,but real growth and nominal wage growth decrease. 
C)  Inflation and nominal wage growth decrease,but real growth increases. 
D)  Inflation,real growth,and nominal wage growth all increase.

Question 18

In the short run,a negative AD shock will cause the growth rate of output to:

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain unchanged. 
D)  become more volatile. 
A)  increase. 
B)  decrease. 
C)  remain unchanged. 
D)  become more volatile.

Question 19

When people believe that a central bank will stick with its policy,monetary policy is likely to have:

Accepted Answer

A)  high credibility. 
B)  low credibility. 
C)  a high bandwagon effect. 
D)  a low bandwagon effect. 
A)  high credibility. 
B)  low credibility. 
C)  a high bandwagon effect. 
D)  a low bandwagon effect.

Question 20

In the short run,a monetary contraction leads to increased unemployment because:

Accepted Answer

A)  wages and prices are sticky. 
B)  wages and prices are flexible. 
C)  wages are sticky,while prices are flexible. 
D)  wages are flexible,while prices are sticky. 
A)  wages and prices are sticky. 
B)  wages and prices are flexible. 
C)  wages are sticky,while prices are flexible. 
D)  wages are flexible,while prices are sticky.

If the Fed reduces $\vec { M }$ to fight inflation after a negative real shock,which of the following should occur?

Use the following to answer questions Figure: Monetary Policy -(Figure: Monetary Policy)Refer to the figure.Assume that the economy is initially at point Y in the graph.If the Fed takes the appropriate action with monetary policy,but banks are slow to lend,then:

Low interest rates are a signal that:

If a central bank wishes to reduce inflation,it should announce its intentions and follow through with them,thereby using _____ monetary policy.

If Alan Greenspan had reduced the money supply to limit the housing bubble,the result would have been a:

Which is NOT a tool that the Federal Reserve can use to influence AD?

In the AD-AS diagram,an increase in money supply growth causes:

In the long run,a negative real shock will cause output growth to:

Suppose a central bank targets a fixed rate of inflation.If a negative real shock occurs,then the central bank would use monetary policy to:

Disinflation is a decrease in prices,while deflation is a significant reduction in the rate of inflation.

The Fed could have popped the bubble of the housing boom in the 2000s by:

Why is monetary policy not fully effective in combating a negative supply shock?

When the Fed responds to a negative spending shock by increasing the money supply,it is using:

Many economists worry about the Federal Reserve overstimulating the economy because such overstimulation will lead to rising:

If the growth rate of the money supply slows,there will be a(n):

If the Fed adheres to a strict "money growth rule" of 3% (that is,they keep $\vec { M }$ at 3% no matter what),what happens if velocity growth ( $\vec { v }$ )drops?

In the short run,a negative AD shock will cause the growth rate of output to:

When people believe that a central bank will stick with its policy,monetary policy is likely to have:

In the short run,a monetary contraction leads to increased unemployment because:

The Big Ideas

The Power of Trade

Supply and Demand

Equilibrium- How Supply and Demand

Price Ceilings and Floors

GDP and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth,capital Accumulation

Saving,investment,and the Financial System

Stock Markets and Personal Finance

Unemployment and Labor Force Participation

Inflation and the Quantity Theory of Money

Business Fluctuations

Transmission and Amplification Mechanisms

The Federal Reserve System

The Federal Budget- Taxes and Spending

Fiscal Policy

International Trade

International Finance

Political Economy and Public Choice

Filters

Exam 16: Monetary Policy

If the Fed reduces M⃗\vec { M }M to fight inflation after a negative real shock,which of the following should occur?

Use the following to answer questions Figure: Monetary Policy -(Figure: Monetary Policy)Refer to the figure.Assume that the economy is initially at point Y in the graph.If the Fed takes the appropriate action with monetary policy,but banks are slow to lend,then:

Low interest rates are a signal that:

If a central bank wishes to reduce inflation,it should announce its intentions and follow through with them,thereby using _____ monetary policy.

If Alan Greenspan had reduced the money supply to limit the housing bubble,the result would have been a:

Which is NOT a tool that the Federal Reserve can use to influence AD?

In the AD-AS diagram,an increase in money supply growth causes:

In the long run,a negative real shock will cause output growth to:

Suppose a central bank targets a fixed rate of inflation.If a negative real shock occurs,then the central bank would use monetary policy to:

Disinflation is a decrease in prices,while deflation is a significant reduction in the rate of inflation.

The Fed could have popped the bubble of the housing boom in the 2000s by:

Why is monetary policy not fully effective in combating a negative supply shock?

When the Fed responds to a negative spending shock by increasing the money supply,it is using:

Many economists worry about the Federal Reserve overstimulating the economy because such overstimulation will lead to rising:

If the growth rate of the money supply slows,there will be a(n):

If the Fed adheres to a strict "money growth rule" of 3% (that is,they keep M⃗\vec { M }M at 3% no matter what),what happens if velocity growth ( v⃗\vec { v }v )drops?

In the short run,a negative AD shock will cause the growth rate of output to:

When people believe that a central bank will stick with its policy,monetary policy is likely to have:

In the short run,a monetary contraction leads to increased unemployment because:

The Big Ideas

The Power of Trade

Supply and Demand

Equilibrium- How Supply and Demand

Price Ceilings and Floors

GDP and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth,capital Accumulation

Saving,investment,and the Financial System

Stock Markets and Personal Finance

Unemployment and Labor Force Participation

Inflation and the Quantity Theory of Money

Business Fluctuations

Transmission and Amplification Mechanisms

The Federal Reserve System

The Federal Budget- Taxes and Spending

Fiscal Policy

International Trade

International Finance

Political Economy and Public Choice

Filters

If the Fed reduces $\vec { M }$ to fight inflation after a negative real shock,which of the following should occur?

If the Fed adheres to a strict "money growth rule" of 3% (that is,they keep $\vec { M }$ at 3% no matter what),what happens if velocity growth ( $\vec { v }$ )drops?