Question 1

The Fed must spend time gathering and interpreting economic data,making it difficult to immediately correct a decrease in AD.

Accepted Answer

A) True 
 B)False

Question 2

The Fed dealt with high inflation in the 1980s by:

Accepted Answer

A)  reducing the money supply and causing aggregate demand to fall. 
B)  raising the money supply and causing aggregate demand to rise. 
C)  reducing the money supply and causing aggregate demand to rise. 
D)  raising the money supply and causing aggregate demand to fall. 
A)  reducing the money supply and causing aggregate demand to fall. 
B)  raising the money supply and causing aggregate demand to rise. 
C)  reducing the money supply and causing aggregate demand to rise. 
D)  raising the money supply and causing aggregate demand to fall.

Question 3

If the Fed wants to raise real GDP growth by raising money supply growth,which of the following conditions will make monetary policy more effective in raising real GDP growth?

Accepted Answer

A)  Uncertainty causes people to increase their demand for cash. 
B)  People lose confidence and reduce investment spending. 
C)  People believe the Fed will abandon its policy. 
D)  Prices continue to remain very sticky. 
A)  Uncertainty causes people to increase their demand for cash. 
B)  People lose confidence and reduce investment spending. 
C)  People believe the Fed will abandon its policy. 
D)  Prices continue to remain very sticky.

Question 4

Part of the Fed's job is convincing people of its credibility.

Accepted Answer

A) True 
 B)False

Question 5

Use the following to answer questions  
Figure: Negative Supply Shock  
-(Figure: Negative Supply Shock)Refer to the figure.This economy initially begins at point A and a negative supply shock takes it to point Y.Taking the economy back to the LRAS curve would require:

Accepted Answer

A)  a monetary expansion of 21%. 
B)  an inflation rate much greater than 16%. 
C)  an inflation rate of 16%. 
D)  an unemployment rate of -2%. 
A)  a monetary expansion of 21%. 
B)  an inflation rate much greater than 16%. 
C)  an inflation rate of 16%. 
D)  an unemployment rate of -2%.

Question 6

Under Paul Volcker,the Fed reduced the inflation rate in the early 1980s by more than10 percentage points,causing:

Accepted Answer

A)  unemployment to decrease. 
B)  housing prices to soar and interest rates to remain high. 
C)  GDP growth rise to 6% and consumer confidence to grow. 
D)  a severe recession to take place. 
A)  unemployment to decrease. 
B)  housing prices to soar and interest rates to remain high. 
C)  GDP growth rise to 6% and consumer confidence to grow. 
D)  a severe recession to take place.

Question 7

The economy is growing at its long-run potential growth rate of 3% with an inflation rate of 4%.If a positive aggregate demand shock occurs and the Fed responds by decreasing money growth,but fails to offset the aggregate demand shock,then in the short run:

Accepted Answer

A)  the real growth rate will be 3%,and the inflation rate will be 4%. 
B)  the real growth rate will be lower than 3%,and the inflation rate will be lower than 4%. 
C)  the real growth rate will be higher than 3% and the inflation rate will be lower than 4%. 
D)  the real growth rate will be higher than 3% and the inflation rate will be higher than 4%. 
A)  the real growth rate will be 3%,and the inflation rate will be 4%. 
B)  the real growth rate will be lower than 3%,and the inflation rate will be lower than 4%. 
C)  the real growth rate will be higher than 3% and the inflation rate will be lower than 4%. 
D)  the real growth rate will be higher than 3% and the inflation rate will be higher than 4%.

Question 8

One of the Federal Reserve's most powerful tools is its influence over _____,not its influence over _____.

Accepted Answer

A)  expectations;aggregate supply 
B)  expectations;the money supply 
C)  the money supply;expectations 
D)  aggregate supply;aggregate demand 
A)  expectations;aggregate supply 
B)  expectations;the money supply 
C)  the money supply;expectations 
D)  aggregate supply;aggregate demand

Question 9

Easy credit can start or intensify a housing bubble.

Accepted Answer

A) True 
 B)False

Question 10

How did the Fed encourage business confidence after the September 11 terrorist attacks?

Accepted Answer

A)  by lowering corporate taxes 
B)  by reducing money supply 
C)  by lending billions to banks 
D)  by putting a moratorium on bank loans 
A)  by lowering corporate taxes 
B)  by reducing money supply 
C)  by lending billions to banks 
D)  by putting a moratorium on bank loans

Question 11

One of the Federal Reserve's most powerful tools is its influence over expectations,not its influence over the money supply.

Accepted Answer

A) True 
 B)False

Question 12

The appropriate policy in response to a negative real shock will depend on whether the Fed wishes to fight high inflation or low growth,but it can't address both problems with the same policy.

Accepted Answer

A) True 
 B)False

Question 13

When the Federal Reserve increases the growth rate of the money supply to combat a negative real shock,the growth rate of real GDP:

Accepted Answer

A)  will increase more than the inflation rate. 
B)  will increase less than the inflation rate. 
C)  and the inflation rate will both increase by the same amount. 
D)  and the inflation rate will both decrease by the same amount. 
A)  will increase more than the inflation rate. 
B)  will increase less than the inflation rate. 
C)  and the inflation rate will both increase by the same amount. 
D)  and the inflation rate will both decrease by the same amount.

Question 14

An increase in uncertainty will lead to:

Accepted Answer

A)  an increase in
$\vec { v }$ ,but a decrease in
$\vec{ M }$ . 
B)  a decrease in
$\vec { v }$ ,but an increase in
$\vec{ M }$ . 
C)  an increase in both
$\vec { v }$ and
$\vec{ M }$ . 
D)  a decrease in both
$\vec { v }$ and
$\vec{ M }$ . 
A)  an increase in
$\vec { v }$ ,but a decrease in
$\vec{ M }$ . 
B)  a decrease in
$\vec { v }$ ,but an increase in
$\vec{ M }$ . 
C)  an increase in both
$\vec { v }$ and
$\vec{ M }$ . 
D)  a decrease in both
$\vec { v }$ and
$\vec{ M }$ .

Question 15

Briefly explain why monetary policy cannot beat both inflation and unemployment at the same time.

Accepted Answer

Monetary policy is a demand-side tool th

Question 16

Bringing inflation down is more difficult than raising it because wages and prices are sticky downward.

Accepted Answer

A) True 
 B)False

Question 17

When an economy is adjusting to a recent reduction in the money supply,what is a likely consequence?

Accepted Answer

A)  Inflation remains high. 
B)  Growth stays positive. 
C)  Interest rates continue to rise. 
D)  Unemployment is high. 
A)  Inflation remains high. 
B)  Growth stays positive. 
C)  Interest rates continue to rise. 
D)  Unemployment is high.

Question 18

In the AD-AS diagram,a "tight" monetary policy shifts the:

Accepted Answer

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

Question 19

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 negative aggregate demand shock shifts the AD curve from AD1 to AD3.As a result of the Fed's policy response,the AD curve shifts to AD2 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 20

When it is difficult to know the size and timing of monetary policy effects,the central bank should use policy discretion to deal with shocks.

Accepted Answer

A) True 
 B)False

The Fed must spend time gathering and interpreting economic data,making it difficult to immediately correct a decrease in AD.

The Fed dealt with high inflation in the 1980s by:

If the Fed wants to raise real GDP growth by raising money supply growth,which of the following conditions will make monetary policy more effective in raising real GDP growth?

Part of the Fed's job is convincing people of its credibility.

Use the following to answer questions Figure: Negative Supply Shock -(Figure: Negative Supply Shock)Refer to the figure.This economy initially begins at point A and a negative supply shock takes it to point Y.Taking the economy back to the LRAS curve would require:

Under Paul Volcker,the Fed reduced the inflation rate in the early 1980s by more than10 percentage points,causing:

The economy is growing at its long-run potential growth rate of 3% with an inflation rate of 4%.If a positive aggregate demand shock occurs and the Fed responds by decreasing money growth,but fails to offset the aggregate demand shock,then in the short run:

One of the Federal Reserve's most powerful tools is its influence over _,not its influence over _.

Easy credit can start or intensify a housing bubble.

How did the Fed encourage business confidence after the September 11 terrorist attacks?

One of the Federal Reserve's most powerful tools is its influence over expectations,not its influence over the money supply.

The appropriate policy in response to a negative real shock will depend on whether the Fed wishes to fight high inflation or low growth,but it can't address both problems with the same policy.

When the Federal Reserve increases the growth rate of the money supply to combat a negative real shock,the growth rate of real GDP:

An increase in uncertainty will lead to:

Briefly explain why monetary policy cannot beat both inflation and unemployment at the same time.

Bringing inflation down is more difficult than raising it because wages and prices are sticky downward.

When an economy is adjusting to a recent reduction in the money supply,what is a likely consequence?

In the AD-AS diagram,a "tight" monetary policy shifts the:

When it is difficult to know the size and timing of monetary policy effects,the central bank should use policy discretion to deal with shocks.

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

The Fed must spend time gathering and interpreting economic data,making it difficult to immediately correct a decrease in AD.

The Fed dealt with high inflation in the 1980s by:

If the Fed wants to raise real GDP growth by raising money supply growth,which of the following conditions will make monetary policy more effective in raising real GDP growth?

Part of the Fed's job is convincing people of its credibility.

Use the following to answer questions Figure: Negative Supply Shock -(Figure: Negative Supply Shock)Refer to the figure.This economy initially begins at point A and a negative supply shock takes it to point Y.Taking the economy back to the LRAS curve would require:

Under Paul Volcker,the Fed reduced the inflation rate in the early 1980s by more than10 percentage points,causing:

The economy is growing at its long-run potential growth rate of 3% with an inflation rate of 4%.If a positive aggregate demand shock occurs and the Fed responds by decreasing money growth,but fails to offset the aggregate demand shock,then in the short run:

One of the Federal Reserve's most powerful tools is its influence over _____,not its influence over _____.

Easy credit can start or intensify a housing bubble.

How did the Fed encourage business confidence after the September 11 terrorist attacks?

One of the Federal Reserve's most powerful tools is its influence over expectations,not its influence over the money supply.

The appropriate policy in response to a negative real shock will depend on whether the Fed wishes to fight high inflation or low growth,but it can't address both problems with the same policy.

When the Federal Reserve increases the growth rate of the money supply to combat a negative real shock,the growth rate of real GDP:

An increase in uncertainty will lead to:

Briefly explain why monetary policy cannot beat both inflation and unemployment at the same time.

Bringing inflation down is more difficult than raising it because wages and prices are sticky downward.

When an economy is adjusting to a recent reduction in the money supply,what is a likely consequence?

In the AD-AS diagram,a "tight" monetary policy shifts the:

When it is difficult to know the size and timing of monetary policy effects,the central bank should use policy discretion to deal with shocks.

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

One of the Federal Reserve's most powerful tools is its influence over _,not its influence over _.