Question 1

The relationship between GDP and the money supply has gotten stronger since the 1980s.

Accepted Answer

A) True 
 B)False

Question 2

Figure 26-14  
-Refer to Figure 26-14.In the figure above,suppose the economy in Year 1 is at point A and is expected in Year 2 to be at point B.Which of the following policies could the Federal Reserve use to move the economy to point C?

Accepted Answer

A) decrease income taxes 
B) increase the required-reserve ratio 
C) buy Treasury bills 
D) sell Treasury bills 
A) decrease income taxes 
B) increase the required-reserve ratio 
C) buy Treasury bills 
D) sell Treasury bills

Question 3

If the Fed pursues expansionary monetary policy,

Accepted Answer

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

Question 4

When the Federal Reserve System was established in 1913,its main policy goal was

Accepted Answer

A) encouraging strong economic growth. 
B) promoting price stability. 
C) preventing bank panics. 
D) keeping employment high. 
A) encouraging strong economic growth. 
B) promoting price stability. 
C) preventing bank panics. 
D) keeping employment high.

Question 5

Inflation targeting has typically been accompanied by lower inflation.

Accepted Answer

A) True 
 B)False

Question 6

Using the money demand and money supply model,show and explain why the Federal Reserve cannot achieve a target for both the money supply and an interest rate.

Accepted Answer

The Fed does not control money demand,so

Question 7

Table 26-7
 $$\begin{array} { | l | l | l | c | } 
\hline \text { Year } & \text { Potential Real GDP } & \text { Real GDP } & \text { Price Level } \
\hline 2012 & \$ 14.2 \text { trillion } & \$ 14.2 \text { trillion } & 154 \
\hline 2013 & 14.8 \text { trillion } & 14.6 \text { trillion } & 156 \
\hline
\end{array}$$
-Use the dynamic aggregate demand and aggregate supply model and start with Year 1 in long-run macroeconomic equilibrium.For Year 2,graph aggregate demand,long-run aggregate supply,and short-run aggregate supply such that the condition of the economy will induce the Federal Reserve to conduct an expansionary monetary policy.Briefly explain the condition of the economy and what the Federal Reserve is attempting to do.

Accepted Answer

The Federal Reserve conducts an expansio

Question 8

Table 26-2
 $$\begin{array} { | l | l | l | c | } 
\hline \text { Year } & \text { Potential Real GDP } & \text { Real GDP } & \text { Price Level } \
\hline 2016 & \$ 18.0 \text { trillion } & \$ 18.0 \text { trillion } & 150 \
\hline 2017 & 18.5 \text { trillion } & 18.2 \text { trillion } & 152 \
\hline
\end{array}$$
-Refer to Table 26-2.Consider the hypothetical information in the table above for potential real GDP,real GDP,and the price level in 2016 and in 2017 if the Federal Reserve does not use monetary policy.If the Fed wants to keep real GDP at its potential level in 2017,it should

Accepted Answer

A) buy Treasury securities. 
B) sell Treasury securities. 
C) increase the required reserve ratio. 
D) increase income taxes. 
A) buy Treasury securities. 
B) sell Treasury securities. 
C) increase the required reserve ratio. 
D) increase income taxes.

Question 9

The Fed

Accepted Answer

A) can easily distinguish the minor ups and downs of the economy from a recession. 
B) can have difficulty distinguishing the minor ups and downs of the economy from a recession. 
C) always times its policy responses correctly. 
D) can easily determine if a drop in production means a recession is inevitable. 
A) can easily distinguish the minor ups and downs of the economy from a recession. 
B) can have difficulty distinguishing the minor ups and downs of the economy from a recession. 
C) always times its policy responses correctly. 
D) can easily determine if a drop in production means a recession is inevitable.

Question 10

When housing prices ________ as they did beginning in 2006 following the housing market bubble,most banks and other lenders tightened the requirement for borrowers,making it ________ for potential home buyers to obtain mortgages.

Accepted Answer

A) fell;easier 
B) fell;harder 
C) rose;easier 
D) rose;harder 
A) fell;easier 
B) fell;harder 
C) rose;easier 
D) rose;harder

Question 11

The Taylor rule accurately predicted the changes in the federal funds target during the period

Accepted Answer

A) when Alan Greenspan was the chairman of the Federal Reserve Board. 
B) when Paul Volcker was the chairman of the Federal Reserve Board. 
C) when Arthur Burns was the chairman of the Federal Reserve Board. 
D) when William McChesney Martin was the chairman of the Federal Reserve Board. 
A) when Alan Greenspan was the chairman of the Federal Reserve Board. 
B) when Paul Volcker was the chairman of the Federal Reserve Board. 
C) when Arthur Burns was the chairman of the Federal Reserve Board. 
D) when William McChesney Martin was the chairman of the Federal Reserve Board.

Question 12

The monetary policy target the Federal Reserve focuses primarily on today is

Accepted Answer

A) the unemployment rate. 
B) M1. 
C) the inflation rate. 
D) the interest rate. 
E) M2. 
A) the unemployment rate. 
B) M1. 
C) the inflation rate. 
D) the interest rate. 
E) M2.

Question 13

Buying a house during a recession may be a good idea if your job is secure because the Federal Reserve often

Accepted Answer

A) raises interest rates during recessions. 
B) lowers interest rates during recessions. 
C) lowers income taxes during recessions. 
D) sells Treasury bills to help the housing market. 
A) raises interest rates during recessions. 
B) lowers interest rates during recessions. 
C) lowers income taxes during recessions. 
D) sells Treasury bills to help the housing market.

Question 14

Describe how the Fed uses open market operations to change short-term and long-term interest rates.

Accepted Answer

The Fed tries to achieve a target level

Question 15

Rising prices erode the value of money as a ________ and as a ________.

Accepted Answer

A) unit of barter;unit of account 
B) store of value;unit of liquidity 
C) medium of exchange;store of value 
D) store of value;unit of barter 
A) unit of barter;unit of account 
B) store of value;unit of liquidity 
C) medium of exchange;store of value 
D) store of value;unit of barter

Question 16

The core personal consumption expenditures price index excludes

Accepted Answer

A) food and energy prices. 
B) food and housing prices. 
C) energy and housing prices. 
D) housing and health care prices. 
A) food and energy prices. 
B) food and housing prices. 
C) energy and housing prices. 
D) housing and health care prices.

Question 17

When housing prices fall,as they did beginning in 2006 following the housing market bubble,consumption spending on furniture,appliances,and home improvements ________ as many households found it ________ to borrow against the value of their homes.

Accepted Answer

A) declined;easier 
B) declined;harder 
C) increased;easier 
D) increased;harder 
A) declined;easier 
B) declined;harder 
C) increased;easier 
D) increased;harder

Question 18

If the probability of losing your job remains ________,a recession would be a good time to purchase a home because the Fed usually ________ interest rates during this time.

Accepted Answer

A) low;lowers 
B) low;raises 
C) high;lowers 
D) high;raises 
E) low;does not change 
A) low;lowers 
B) low;raises 
C) high;lowers 
D) high;raises 
E) low;does not change

Question 19

When the Federal Reserve increases the money supply,people spend more because interest rates fall.

Accepted Answer

A) True 
 B)False

Question 20

A financial asset is considered ________ if it can be sold in a secondary market.

Accepted Answer

A) a commodity 
B) a security 
C) a liability 
D) durable 
A) a commodity 
B) a security 
C) a liability 
D) durable

Exam 26: Monetary Policy

The relationship between GDP and the money supply has gotten stronger since the 1980s.

Figure 26-14 -Refer to Figure 26-14.In the figure above,suppose the economy in Year 1 is at point A and is expected in Year 2 to be at point B.Which of the following policies could the Federal Reserve use to move the economy to point C?

If the Fed pursues expansionary monetary policy,

When the Federal Reserve System was established in 1913,its main policy goal was

Inflation targeting has typically been accompanied by lower inflation.

Using the money demand and money supply model,show and explain why the Federal Reserve cannot achieve a target for both the money supply and an interest rate.

The Fed

When housing prices ________ as they did beginning in 2006 following the housing market bubble,most banks and other lenders tightened the requirement for borrowers,making it ________ for potential home buyers to obtain mortgages.

The Taylor rule accurately predicted the changes in the federal funds target during the period

The monetary policy target the Federal Reserve focuses primarily on today is

Buying a house during a recession may be a good idea if your job is secure because the Federal Reserve often

Describe how the Fed uses open market operations to change short-term and long-term interest rates.

Rising prices erode the value of money as a ________ and as a ________.

The core personal consumption expenditures price index excludes

When housing prices fall,as they did beginning in 2006 following the housing market bubble,consumption spending on furniture,appliances,and home improvements ________ as many households found it ________ to borrow against the value of their homes.

If the probability of losing your job remains ________,a recession would be a good time to purchase a home because the Fed usually ________ interest rates during this time.

When the Federal Reserve increases the money supply,people spend more because interest rates fall.

A financial asset is considered ________ if it can be sold in a secondary market.

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

When housing prices as they did beginning in 2006 following the housing market bubble,most banks and other lenders tightened the requirement for borrowers,making it for potential home buyers to obtain mortgages.

Rising prices erode the value of money as a and as a .

When housing prices fall,as they did beginning in 2006 following the housing market bubble,consumption spending on furniture,appliances,and home improvements as many households found it to borrow against the value of their homes.

If the probability of losing your job remains ,a recession would be a good time to purchase a home because the Fed usually interest rates during this time.