Question 1

Monetary policy is more effective at combating real shocks than AD shocks.

Accepted Answer

A) True 
 B)False

Question 2

In 2003-2004,the Fed kept the Federal Funds rate:

Accepted Answer

A)  low,because the recession had not ended yet. 
B)  low,even though the recession had ended. 
C)  high,because the recession had ended. 
D)  high,because the recession had not ended yet. 
A)  low,because the recession had not ended yet. 
B)  low,even though the recession had ended. 
C)  high,because the recession had ended. 
D)  high,because the recession had not ended yet.

Question 3

If uncertainty causes people to increase their demand for cash at the same time that the Fed raises money supply growth,then the Fed's action will:

Accepted Answer

A)  shift the AD curve further to the right. 
B)  shift the AD curve less to the right. 
C)  shift the AD curve further to the left. 
D)  more effectively move the economy back to the old equilibrium point. 
A)  shift the AD curve further to the right. 
B)  shift the AD curve less to the right. 
C)  shift the AD curve further to the left. 
D)  more effectively move the economy back to the old equilibrium point.

Question 4

One of the Fed's greatest powers is its ability to:

Accepted Answer

A)  boost market confidence. 
B)  perfectly control the supply of M1 and M2. 
C)  help stabilize commodity prices. 
D)  always keep a nation on its LRAS curve. 
A)  boost market confidence. 
B)  perfectly control the supply of M1 and M2. 
C)  help stabilize commodity prices. 
D)  always keep a nation on its LRAS curve.

Question 5

Explain what factors led to the 2006 decrease in housing prices causing a reduction in aggregate demand.

Accepted Answer

Several factors attributable to the fall

Question 6

If the Fed reacts to a negative real shock by raising aggregate demand,it can keep the inflation rate stable.

Accepted Answer

A) True 
 B)False

Question 7

Following the terrorist attacks of September 11,2001,the Federal Reserve increased:

Accepted Answer

A)  its lending to banks. 
B)  required reserve ratios. 
C)  open market sales of bonds. 
D)  the discount rate. 
A)  its lending to banks. 
B)  required reserve ratios. 
C)  open market sales of bonds. 
D)  the discount rate.

Question 8

The central bank should respond to a negative shock to AD with a decrease in money growth.

Accepted Answer

A) True 
 B)False

Question 9

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 AD2.The correct monetary policy response is to:

Accepted Answer

A)  reduce money supply growth,so that the AD curve shifts back to AD1. 
B)  reduce money supply growth,so that the AD curve remains at AD2. 
C)  increase money supply growth,so that the AD curve shifts to AD3. 
D)  increase money supply growth,so that the AD curve shifts to AD5. 
A)  reduce money supply growth,so that the AD curve shifts back to AD1. 
B)  reduce money supply growth,so that the AD curve remains at AD2. 
C)  increase money supply growth,so that the AD curve shifts to AD3. 
D)  increase money supply growth,so that the AD curve shifts to AD5.

Question 10

A nominal GDP rule says _____ should always grow at a constant rate.

Accepted Answer

A)  M 
B)  Mv 
C)  P 
D)  YR 
A)  M 
B)  Mv 
C)  P 
D)  YR

Question 11

If businesses react to a pessimistic outlook and decrease spending,the Fed can counteract this by:

Accepted Answer

A)  decreasing money supply growth to spur the economy out of the recession. 
B)  increasing money supply growth,lowering real interest rates,and encouraging borrowing. 
C)  increasing government expenditures to spur the economy out of the recession. 
D)  decreasing corporate taxes to encourage firms to increase their spending. 
A)  decreasing money supply growth to spur the economy out of the recession. 
B)  increasing money supply growth,lowering real interest rates,and encouraging borrowing. 
C)  increasing government expenditures to spur the economy out of the recession. 
D)  decreasing corporate taxes to encourage firms to increase their spending.

Question 12

In the best case scenario,the Federal Reserve can increase the money supply after a negative shock to AD and restore the growth rate.

Accepted Answer

A) True 
 B)False

Question 13

Uncertainty always causes:

Accepted Answer

A)  investment to increase. 
B)  consumption to increase. 
C)  government spending to increase. 
D)  investment to decrease. 
A)  investment to increase. 
B)  consumption to increase. 
C)  government spending to increase. 
D)  investment to decrease.

Question 14

Monetary policy is used to stabilize the economy by changing factors that shift the:

Accepted Answer

A)  AD curve. 
B)  SRAS curve. 
C)  LRAS curve. 
D)  aggregate demand,short-run aggregate supply,and LRAS curves. 
A)  AD curve. 
B)  SRAS curve. 
C)  LRAS curve. 
D)  aggregate demand,short-run aggregate supply,and LRAS curves.

Question 15

If the Federal Reserve reduces the growth rate of the money supply to combat a negative real shock,the inflation rate will be:

Accepted Answer

A)  lower,but the growth rate will be higher. 
B)  lower,but the growth rate will be even lower. 
C)  higher,but the growth rate will be lower. 
D)  higher,but the growth rate will be even higher. 
A)  lower,but the growth rate will be higher. 
B)  lower,but the growth rate will be even lower. 
C)  higher,but the growth rate will be lower. 
D)  higher,but the growth rate will be even higher.

Question 16

When a central bank reacts the same way to a shock every time,it is likely using:

Accepted Answer

A)  policy discretion. 
B)  a policy rule. 
C)  a bandwagon policy. 
D)  a wait-and-see policy. 
A)  policy discretion. 
B)  a policy rule. 
C)  a bandwagon policy. 
D)  a wait-and-see policy.

Question 17

The Fed's job in manipulating monetary policy is made harder by the fact that:

Accepted Answer

A)  monetary authorities do not have a good understanding of how monetary policy works. 
B)  monetary policy is usually pulling the economy in the opposite direction from fiscal policy. 
C)  the Fed operates in real time and information on recessions becomes available with a lag. 
D)  monetary policy is hardly ever effective in influencing business fluctuations. 
A)  monetary authorities do not have a good understanding of how monetary policy works. 
B)  monetary policy is usually pulling the economy in the opposite direction from fiscal policy. 
C)  the Fed operates in real time and information on recessions becomes available with a lag. 
D)  monetary policy is hardly ever effective in influencing business fluctuations.

Question 18

What was Milton Friedman's reasoning behind the 3% growth rule for money supply?

Accepted Answer

A)  monetary neutrality 
B)  increasing long-run economic growth rates 
C)  minimization of negative supply shocks 
D)  price stability 
A)  monetary neutrality 
B)  increasing long-run economic growth rates 
C)  minimization of negative supply shocks 
D)  price stability

Question 19

In 2006,house prices started to _____,making homeowners feel _____.

Accepted Answer

A)  rise;poorer 
B)  rise;richer 
C)  fall;richer 
D)  fall;poorer 
A)  rise;poorer 
B)  rise;richer 
C)  fall;richer 
D)  fall;poorer

Question 20

In the best case scenario,the Federal Reserve is most successful at counteracting a negative:

Accepted Answer

A)  AD shock. 
B)  SRAS shock. 
C)  LRAS shock. 
D)  real shock. 
A)  AD shock. 
B)  SRAS shock. 
C)  LRAS shock. 
D)  real shock.

Monetary policy is more effective at combating real shocks than AD shocks.

In 2003-2004,the Fed kept the Federal Funds rate:

If uncertainty causes people to increase their demand for cash at the same time that the Fed raises money supply growth,then the Fed's action will:

One of the Fed's greatest powers is its ability to:

Explain what factors led to the 2006 decrease in housing prices causing a reduction in aggregate demand.

If the Fed reacts to a negative real shock by raising aggregate demand,it can keep the inflation rate stable.

Following the terrorist attacks of September 11,2001,the Federal Reserve increased:

The central bank should respond to a negative shock to AD with a decrease in money growth.

A nominal GDP rule says _____ should always grow at a constant rate.

If businesses react to a pessimistic outlook and decrease spending,the Fed can counteract this by:

In the best case scenario,the Federal Reserve can increase the money supply after a negative shock to AD and restore the growth rate.

Uncertainty always causes:

Monetary policy is used to stabilize the economy by changing factors that shift the:

If the Federal Reserve reduces the growth rate of the money supply to combat a negative real shock,the inflation rate will be:

When a central bank reacts the same way to a shock every time,it is likely using:

The Fed's job in manipulating monetary policy is made harder by the fact that:

What was Milton Friedman's reasoning behind the 3% growth rule for money supply?

In 2006,house prices started to _,making homeowners feel _.

In the best case scenario,the Federal Reserve is most successful at counteracting a negative:

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

Monetary policy is more effective at combating real shocks than AD shocks.

In 2003-2004,the Fed kept the Federal Funds rate:

If uncertainty causes people to increase their demand for cash at the same time that the Fed raises money supply growth,then the Fed's action will:

One of the Fed's greatest powers is its ability to:

Explain what factors led to the 2006 decrease in housing prices causing a reduction in aggregate demand.

If the Fed reacts to a negative real shock by raising aggregate demand,it can keep the inflation rate stable.

Following the terrorist attacks of September 11,2001,the Federal Reserve increased:

The central bank should respond to a negative shock to AD with a decrease in money growth.

A nominal GDP rule says _____ should always grow at a constant rate.

If businesses react to a pessimistic outlook and decrease spending,the Fed can counteract this by:

In the best case scenario,the Federal Reserve can increase the money supply after a negative shock to AD and restore the growth rate.

Uncertainty always causes:

Monetary policy is used to stabilize the economy by changing factors that shift the:

If the Federal Reserve reduces the growth rate of the money supply to combat a negative real shock,the inflation rate will be:

When a central bank reacts the same way to a shock every time,it is likely using:

The Fed's job in manipulating monetary policy is made harder by the fact that:

What was Milton Friedman's reasoning behind the 3% growth rule for money supply?

In 2006,house prices started to _____,making homeowners feel _____.

In the best case scenario,the Federal Reserve is most successful at counteracting a negative:

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

In 2006,house prices started to _,making homeowners feel _.