Question 1

By the 2000s,investment banks had become significant participants in the secondary market for mortgages.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following will lead to a decrease in the equilibrium interest rate in the economy?

Accepted Answer

A) an increase in the price level 
B) a sale of government securities by the Fed 
C) a decrease in GDP 
D) an increase in the discount rate 
E) an increase in the reserve requirement 
A) an increase in the price level 
B) a sale of government securities by the Fed 
C) a decrease in GDP 
D) an increase in the discount rate 
E) an increase in the reserve requirement

Question 3

Figure 26-8  
-Refer to Figure 26-8.In the figure above,if the economy is at point A,the appropriate monetary policy by the Federal Reserve would be to

Accepted Answer

A) lower interest rates. 
B) raise interest rates. 
C) lower income taxes. 
D) raise income taxes. 
A) lower interest rates. 
B) raise interest rates. 
C) lower income taxes. 
D) raise income taxes.

Question 4

Does the money demand curve have a positive slope or a negative slope? Why does it have this slope? Explain why an increase in the variable on the vertical axis of the money demand curve causes either an increase or a decrease in the variable on the horizontal axis of the money demand curve.

Accepted Answer

The money demand curve has a negative sl

Question 5

An increase in the interest rate causes

Accepted Answer

A) a movement up along the money demand curve. 
B) a movement down along the money demand curve. 
C) the money demand curve to shift to the left. 
D) the money demand curve to shift to the right. 
A) a movement up along the money demand curve. 
B) a movement down along the money demand curve. 
C) the money demand curve to shift to the left. 
D) the money demand curve to shift to the right.

Question 6

A borrower defaults on a loan when he stops making payments on the loan.

Accepted Answer

A) True 
 B)False

Question 7

When the Federal Reserve decreases the money supply,at the previous equilibrium interest rate households and firms will now want to

Accepted Answer

A) buy Treasury bills. 
B) sell Treasury bills. 
C) neither buy nor sell Treasury bills. 
D) hold less money. 
A) buy Treasury bills. 
B) sell Treasury bills. 
C) neither buy nor sell Treasury bills. 
D) hold less money.

Question 8

The Fed can simultaneously reduce the inflation rate and stimulate growth through lowering interest rates.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is not an argument against inflation targeting?

Accepted Answer

A) Inflation targeting reduces the flexibility of the Fed to pursue other policy goals. 
B) Inflation targeting assumes that the Fed can accurately forecast future inflation rates. 
C) Inflation targeting makes monetary policy ineffective because the targets are publicly announced. 
D) Inflation targeting holds the Fed accountable for an inflation goal,but may make it less likely the Fed will achieve other goals. 
A) Inflation targeting reduces the flexibility of the Fed to pursue other policy goals. 
B) Inflation targeting assumes that the Fed can accurately forecast future inflation rates. 
C) Inflation targeting makes monetary policy ineffective because the targets are publicly announced. 
D) Inflation targeting holds the Fed accountable for an inflation goal,but may make it less likely the Fed will achieve other goals.

Question 10

Increases in the price level

Accepted Answer

A) increase the opportunity cost of holding money. 
B) decrease the opportunity cost of holding money. 
C) increase the quantity of money needed for buying and selling. 
D) decrease the quantity of money needed for buying and selling. 
A) increase the opportunity cost of holding money. 
B) decrease the opportunity cost of holding money. 
C) increase the quantity of money needed for buying and selling. 
D) decrease the quantity of money needed for buying and selling.

Question 11

Figure 26-5  
-Refer to Figure 26-5.In the figure above,the movement from point A to point B in the money market would be caused by

Accepted Answer

A) an increase in the price level. 
B) a decrease in real GDP. 
C) an open market sale of Treasury securities by the Federal Reserve. 
D) an increase in the required reserve ratio by the Federal Reserve. 
A) an increase in the price level. 
B) a decrease in real GDP. 
C) an open market sale of Treasury securities by the Federal Reserve. 
D) an increase in the required reserve ratio by the Federal Reserve.

Question 12

Contractionary monetary policy causes

Accepted Answer

A) aggregate demand to rise and the price level to rise. 
B) aggregate demand to fall and the price level to fall. 
C) aggregate demand to rise and the price level to fall. 
D) aggregate demand to fall and the price level to rise. 
A) aggregate demand to rise and the price level to rise. 
B) aggregate demand to fall and the price level to fall. 
C) aggregate demand to rise and the price level to fall. 
D) aggregate demand to fall and the price level to rise.

Question 13

What actions should the Fed take if it believes the economy is about to fall into recession?

Accepted Answer

If the Fed believes the economy is about

Question 14

The Fed seeks to promote stability of financial markets because

Accepted Answer

A) they want to lift the self-esteem of workers. 
B) Congress directed them to do so by the Employment Act of 1946. 
C) resources are lost when there is not an efficient matching of savers and borrowers. 
D) unstable markets result in increased efficiency. 
A) they want to lift the self-esteem of workers. 
B) Congress directed them to do so by the Employment Act of 1946. 
C) resources are lost when there is not an efficient matching of savers and borrowers. 
D) unstable markets result in increased efficiency.

Question 15

By the height of the housing bubble in 2005 and early 2006,lenders had greatly loosened the standards for obtaining a mortgage loan,with many mortgages being granted to ________ borrowers with flawed credit histories and ________ borrowers who did not document their incomes.

Accepted Answer

A) sub-prime;"Alt-A" 
B) adjustable rate;shadow-banking 
C) "credit crunch";black market 
D) "fresh-start";prime rate 
A) sub-prime;"Alt-A" 
B) adjustable rate;shadow-banking 
C) "credit crunch";black market 
D) "fresh-start";prime rate

Question 16

A monetary policy target is a variable that the Fed can affect directly,which then affects one or more of the Fed's policy goals.

Accepted Answer

A) True 
 B)False

Question 17

Monetary policy is conducted by the U.S.Treasury Department.

Accepted Answer

A) True 
 B)False

Question 18

Beginning in 2008,The Federal Reserve and the U.S.Treasury Department responded to the financial crisis by intervening in financial markets in unprecedented ways.Briefly summarize the actions of the Fed and Treasury.

Accepted Answer

Among the actions taken by the Fed and T

Question 19

From an initial long-run macroeconomic equilibrium,if the Federal Reserve anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply,then the Federal Reserve would most likely

Accepted Answer

A) increase income tax rates. 
B) decrease income tax rates. 
C) increase interest rates. 
D) decrease interest rates. 
A) increase income tax rates. 
B) decrease income tax rates. 
C) increase interest rates. 
D) decrease interest rates.

Question 20

If the Federal Reserve targets the interest rate and the money demand curve shifts to the left,then the Fed

Accepted Answer

A) cannot maintain the interest rate target. 
B) can maintain the interest rate target,but at a lower quantity of the money supply. 
C) can maintain the interest rate target,but at a higher quantity of the money supply. 
D) can maintain the interest rate target with no change in the money supply. 
A) cannot maintain the interest rate target. 
B) can maintain the interest rate target,but at a lower quantity of the money supply. 
C) can maintain the interest rate target,but at a higher quantity of the money supply. 
D) can maintain the interest rate target with no change in the money supply.

Exam 26: Monetary Policy

By the 2000s,investment banks had become significant participants in the secondary market for mortgages.

Which of the following will lead to a decrease in the equilibrium interest rate in the economy?

Figure 26-8 -Refer to Figure 26-8.In the figure above,if the economy is at point A,the appropriate monetary policy by the Federal Reserve would be to

Does the money demand curve have a positive slope or a negative slope? Why does it have this slope? Explain why an increase in the variable on the vertical axis of the money demand curve causes either an increase or a decrease in the variable on the horizontal axis of the money demand curve.

An increase in the interest rate causes

A borrower defaults on a loan when he stops making payments on the loan.

When the Federal Reserve decreases the money supply,at the previous equilibrium interest rate households and firms will now want to

The Fed can simultaneously reduce the inflation rate and stimulate growth through lowering interest rates.

Which of the following is not an argument against inflation targeting?

Increases in the price level

Figure 26-5 -Refer to Figure 26-5.In the figure above,the movement from point A to point B in the money market would be caused by

Contractionary monetary policy causes

What actions should the Fed take if it believes the economy is about to fall into recession?

The Fed seeks to promote stability of financial markets because

By the height of the housing bubble in 2005 and early 2006,lenders had greatly loosened the standards for obtaining a mortgage loan,with many mortgages being granted to ________ borrowers with flawed credit histories and ________ borrowers who did not document their incomes.

A monetary policy target is a variable that the Fed can affect directly,which then affects one or more of the Fed's policy goals.

Monetary policy is conducted by the U.S.Treasury Department.

Beginning in 2008,The Federal Reserve and the U.S.Treasury Department responded to the financial crisis by intervening in financial markets in unprecedented ways.Briefly summarize the actions of the Fed and Treasury.

From an initial long-run macroeconomic equilibrium,if the Federal Reserve anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply,then the Federal Reserve would most likely

If the Federal Reserve targets the interest rate and the money demand curve shifts to the left,then the Fed

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, government Price Setting, and Taxes

Externalities, environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms,the Stock Market,and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology,production,and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, taxes, and the Distribution of Income

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money,banks,and the Federal Reserve System

Fiscal Policy

Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

By the height of the housing bubble in 2005 and early 2006,lenders had greatly loosened the standards for obtaining a mortgage loan,with many mortgages being granted to borrowers with flawed credit histories and borrowers who did not document their incomes.