Question 1

Economists who believe that the Federal Reserve is likely to make lots of mistakes in the implementation of monetary policy believe:

Accepted Answer

A)  in monetary policy discretion. 
B)  in monetary policy run by the federal government. 
C)  in monetary policy rules. 
D)  that the Federal Reserve should be abolished. 
A)  in monetary policy discretion. 
B)  in monetary policy run by the federal government. 
C)  in monetary policy rules. 
D)  that the Federal Reserve should be abolished.

Question 2

After September 11,2001,the Fed resisted the temptation to loan billions of dollars to banks and boost short-run confidence.

Accepted Answer

A) True 
 B)False

Question 3

To restore growth and reduce unemployment in response to a negative real shock,the Federal Reserve would:

Accepted Answer

A)  decrease the money growth rate,which will lower both the inflation rate and economic growth rate. 
B)  decrease the money growth rate,which will increase both the inflation rate and economic growth rate. 
C)  increase the money growth rate,which will lower both the inflation rate and economic growth rate. 
D)  increase the money growth rate,which will increase both the inflation rate and economic growth rate. 
A)  decrease the money growth rate,which will lower both the inflation rate and economic growth rate. 
B)  decrease the money growth rate,which will increase both the inflation rate and economic growth rate. 
C)  increase the money growth rate,which will lower both the inflation rate and economic growth rate. 
D)  increase the money growth rate,which will increase both the inflation rate and economic growth rate.

Question 4

The Federal Reserve's control of the money supply is subject to uncertain lags.

Accepted Answer

A) True 
 B)False

Question 5

Bubbles in asset markets are usually easy to identify.

Accepted Answer

A) True 
 B)False

Question 6

Disinflation in the early 1980s was a result of tight monetary policy.

Accepted Answer

A) True 
 B)False

Question 7

Uncertainty drives people away from:

Accepted Answer

A)  liquid assets and toward investment spending. 
B)  liquid assets and away from investment spending. 
C)  investment spending and toward more liquid assets. 
D)  investment spending and toward less liquid assets. 
A)  liquid assets and toward investment spending. 
B)  liquid assets and away from investment spending. 
C)  investment spending and toward more liquid assets. 
D)  investment spending and toward less liquid assets.

Question 8

One of the Federal Reserve's least powerful tools is its control over expectations.

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 positive aggregate demand shock shifts the AD curve from AD1 to AD4.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 AD4. 
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 AD4. 
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

In the short run,a negative AD shock will cause the inflation rate 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 11

Low interest rates in 2003-2004:

Accepted Answer

A)  made it more difficult to borrow. 
B)  lowered real growth. 
C)  increased demand for homes. 
D)  decreased demand for homes. 
A)  made it more difficult to borrow. 
B)  lowered real growth. 
C)  increased demand for homes. 
D)  decreased demand for homes.

Question 12

What strict rule did Milton Friedman believe would provide for greater price stability?

Accepted Answer

A)  GDP should not go above 5%. 
B)  Unemployment should never be above 10%. 
C)  Inflation should stay below 3% a year. 
D)  Money supply should grow by 3% annually. 
A)  GDP should not go above 5%. 
B)  Unemployment should never be above 10%. 
C)  Inflation should stay below 3% a year. 
D)  Money supply should grow by 3% annually.

Question 13

The economy's LRAS curve is:

Accepted Answer

A)  upward sloping. 
B)  downward sloping. 
C)  vertical. 
D)  horizontal. 
A)  upward sloping. 
B)  downward sloping. 
C)  vertical. 
D)  horizontal.

Question 14

Which is regarded as a policy rule?

Accepted Answer

A)  making policy on the fly 
B)  changing the money supply growth with discretion 
C)  adjusting policy actions to deal with the nature of the economic shocks 
D)  keeping the money supply growth rate consistent with a given inflation rate 
A)  making policy on the fly 
B)  changing the money supply growth with discretion 
C)  adjusting policy actions to deal with the nature of the economic shocks 
D)  keeping the money supply growth rate consistent with a given inflation rate

Question 15

Economists who believe that the Federal Reserve is likely to make a lot of mistakes in the conduct of monetary policy believe that the Federal Reserve should not respond to all AD shocks.

Accepted Answer

A) True 
 B)False

Question 16

In addition to monetary policy,the Fed also has the power to:

Accepted Answer

A)  control the mortgage market. 
B)  oversee Treasury transactions. 
C)  regulate banks. 
D)  monitor the housing market. 
A)  control the mortgage market. 
B)  oversee Treasury transactions. 
C)  regulate banks. 
D)  monitor the housing market.

Question 17

The key to a less-painful disinflation is to reduce the flexibility in nominal wages.

Accepted Answer

A) True 
 B)False

Question 18

In the short run,if the Federal Reserve responds to a negative real shock with an increase in money supply growth,output growth will increase because of:

Accepted Answer

A)  the real shock only. 
B)  the increase in money growth only. 
C)  both the real shock and the increase in money growth. 
D)  some reason other than the real shock and the increase in money growth. 
A)  the real shock only. 
B)  the increase in money growth only. 
C)  both the real shock and the increase in money growth. 
D)  some reason other than the real shock and the increase in money growth.

Question 19

Although the Federal Reserve may increase the monetary base,the larger monetary aggregates (M1 and M2)and thus aggregate demand won't increase very much in response if:

Accepted Answer

A)  the interest rate is too high. 
B)  the tax rate is too high. 
C)  banks are slow to lend. 
D)  the economy is in recession. 
A)  the interest rate is too high. 
B)  the tax rate is too high. 
C)  banks are slow to lend. 
D)  the economy is in recession.

Question 20

A rule that has been suggested to compensate for unexpected changes in velocity is a(n):

Accepted Answer

A)  real GDP rule. 
B)  nominal GDP rule. 
C)  constant money growth rule. 
D)  inflation targeting rule. 
A)  real GDP rule. 
B)  nominal GDP rule. 
C)  constant money growth rule. 
D)  inflation targeting rule.

Economists who believe that the Federal Reserve is likely to make lots of mistakes in the implementation of monetary policy believe:

After September 11,2001,the Fed resisted the temptation to loan billions of dollars to banks and boost short-run confidence.

To restore growth and reduce unemployment in response to a negative real shock,the Federal Reserve would:

The Federal Reserve's control of the money supply is subject to uncertain lags.

Bubbles in asset markets are usually easy to identify.

Disinflation in the early 1980s was a result of tight monetary policy.

Uncertainty drives people away from:

One of the Federal Reserve's least powerful tools is its control over expectations.

In the short run,a negative AD shock will cause the inflation rate to:

Low interest rates in 2003-2004:

What strict rule did Milton Friedman believe would provide for greater price stability?

The economy's LRAS curve is:

Which is regarded as a policy rule?

Economists who believe that the Federal Reserve is likely to make a lot of mistakes in the conduct of monetary policy believe that the Federal Reserve should not respond to all AD shocks.

In addition to monetary policy,the Fed also has the power to:

The key to a less-painful disinflation is to reduce the flexibility in nominal wages.

In the short run,if the Federal Reserve responds to a negative real shock with an increase in money supply growth,output growth will increase because of:

Although the Federal Reserve may increase the monetary base,the larger monetary aggregates (M1 and M2)and thus aggregate demand won't increase very much in response if:

A rule that has been suggested to compensate for unexpected changes in velocity is a(n):

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

Economists who believe that the Federal Reserve is likely to make lots of mistakes in the implementation of monetary policy believe:

After September 11,2001,the Fed resisted the temptation to loan billions of dollars to banks and boost short-run confidence.

To restore growth and reduce unemployment in response to a negative real shock,the Federal Reserve would:

The Federal Reserve's control of the money supply is subject to uncertain lags.

Bubbles in asset markets are usually easy to identify.

Disinflation in the early 1980s was a result of tight monetary policy.

Uncertainty drives people away from:

One of the Federal Reserve's least powerful tools is its control over expectations.

In the short run,a negative AD shock will cause the inflation rate to:

Low interest rates in 2003-2004:

What strict rule did Milton Friedman believe would provide for greater price stability?

The economy's LRAS curve is:

Which is regarded as a policy rule?

Economists who believe that the Federal Reserve is likely to make a lot of mistakes in the conduct of monetary policy believe that the Federal Reserve should not respond to all AD shocks.

In addition to monetary policy,the Fed also has the power to:

The key to a less-painful disinflation is to reduce the flexibility in nominal wages.

In the short run,if the Federal Reserve responds to a negative real shock with an increase in money supply growth,output growth will increase because of:

Although the Federal Reserve may increase the monetary base,the larger monetary aggregates (M1 and M2)and thus aggregate demand won't increase very much in response if:

A rule that has been suggested to compensate for unexpected changes in velocity is a(n):

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