Question 1

Which of the following are goals of monetary policy?

Accepted Answer

A) maximizing the value of the dollar relative to other currencies,economic growth,and high employment 
B) price stability,maximizing the value of the dollar relative to other currencies,and high employment 
C) price stability,economic growth,and high employment 
D) price stability,economic growth,and maximizing the value of the dollar relative to other currencies 
A) maximizing the value of the dollar relative to other currencies,economic growth,and high employment 
B) price stability,maximizing the value of the dollar relative to other currencies,and high employment 
C) price stability,economic growth,and high employment 
D) price stability,economic growth,and maximizing the value of the dollar relative to other currencies

Question 2

The Taylor rule links the Federal Reserve's target for the

Accepted Answer

A) money supply to shifts in money demand. 
B) money supply to changes in interest rates. 
C) federal funds rate to economic variables. 
D) federal funds rate to the money supply. 
A) money supply to shifts in money demand. 
B) money supply to changes in interest rates. 
C) federal funds rate to economic variables. 
D) federal funds rate to the money supply.

Question 3

Suppose the equilibrium real federal funds rate is 2 percent,the target rate of inflation is 2 percent,the current inflation rate is 4 percent,and real GDP is 2 percent above potential real GDP.If the weights for the inflation gap and the output gap are both 1/2,then according to the Taylor rule the federal funds target rate equals

Accepted Answer

A) 4 percent. 
B) 6 percent. 
C) 8 percent. 
D) 10 percent. 
A) 4 percent. 
B) 6 percent. 
C) 8 percent. 
D) 10 percent.

Question 4

The money supply curve is vertical if

Accepted Answer

A) banks and the Fed jointly determine the money supply. 
B) the Fed is able to completely determine the money supply. 
C) banks and households determine the money supply. 
D) households and the Fed jointly determine the money supply. 
A) banks and the Fed jointly determine the money supply. 
B) the Fed is able to completely determine the money supply. 
C) banks and households determine the money supply. 
D) households and the Fed jointly determine the money supply.

Question 5

The Federal Reserve does not target both the money supply and an interest rate because

Accepted Answer

A) it would be too confusing to Wall Street and would disrupt the financial markets. 
B) it would be too easy for Wall Street to determine what policy the Fed is following and this would destabilize the economy. 
C) it would be illegal according to the Federal Reserve Act. 
D) the Fed cannot achieve a target for both the money supply and an interest rate at the same time. 
A) it would be too confusing to Wall Street and would disrupt the financial markets. 
B) it would be too easy for Wall Street to determine what policy the Fed is following and this would destabilize the economy. 
C) it would be illegal according to the Federal Reserve Act. 
D) the Fed cannot achieve a target for both the money supply and an interest rate at the same time.

Question 6

An increase in the interest rate should ________ the demand for dollars and the value of the dollar,and net exports should ________.

Accepted Answer

A) decrease;decrease 
B) decrease;increase 
C) increase;decrease 
D) increase;increase 
E) increase;not change 
A) decrease;decrease 
B) decrease;increase 
C) increase;decrease 
D) increase;increase 
E) increase;not change

Question 7

The main goal of monetary policy for recent Fed Chairmen has been to maintain high employment in labor markets.

Accepted Answer

A) True 
 B)False

Question 8

Suppose that households became mistrustful of the banking system and decide to decrease their checking account balances and increase their holdings of currency.Using the money demand and money supply model and assuming everything else is held constant,the equilibrium interest rate should

Accepted Answer

A) increase. 
B) decrease. 
C) not change. 
D) increase,then decrease. 
A) increase. 
B) decrease. 
C) not change. 
D) increase,then decrease.

Question 9

An increase in real GDP can shift

Accepted Answer

A) money demand to the right and decrease the equilibrium interest rate. 
B) money demand to the right and increase the equilibrium interest rate. 
C) money demand to the left and decrease the equilibrium interest rate. 
D) money demand to the left and increase the equilibrium interest rate. 
A) money demand to the right and decrease the equilibrium interest rate. 
B) money demand to the right and increase the equilibrium interest rate. 
C) money demand to the left and decrease the equilibrium interest rate. 
D) money demand to the left and increase the equilibrium interest rate.

Question 10

Inflation targeting refers to conducting ________ policy so as to commit the central bank to achieving a ________.

Accepted Answer

A) fiscal;publicly announced level of inflation 
B) fiscal;zero inflation rate 
C) monetary;publicly announced level of inflation 
D) monetary;zero inflation rate 
A) fiscal;publicly announced level of inflation 
B) fiscal;zero inflation rate 
C) monetary;publicly announced level of inflation 
D) monetary;zero inflation rate

Question 11

Which of the following explains why mortgages weren't considered securities prior to 1970?

Accepted Answer

A) The Federal Reserve Act of 1913 prohibited mortgages from being considered securities.An amendment to the Act was approved in 1970 that allowed mortgages to be considered securities. 
B) Until 1970,the average annual increase in housing prices did not allow the buying and selling of mortgages to be profitable.There has been a significant annual increase in housing prices and mortgage values since 1970. 
C) Congress passed a law in 1970 stipulating that mortgages could be classified as securities. 
D) Prior to 1970,mortgages were rarely resold in the secondary market. 
A) The Federal Reserve Act of 1913 prohibited mortgages from being considered securities.An amendment to the Act was approved in 1970 that allowed mortgages to be considered securities. 
B) Until 1970,the average annual increase in housing prices did not allow the buying and selling of mortgages to be profitable.There has been a significant annual increase in housing prices and mortgage values since 1970. 
C) Congress passed a law in 1970 stipulating that mortgages could be classified as securities. 
D) Prior to 1970,mortgages were rarely resold in the secondary market.

Question 12

Since World War II,the Federal Reserve has not been involved in carrying out monetary policy.

Accepted Answer

A) True 
 B)False

Question 13

Figure 26-2  
-Refer to Figure 26-2.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) a decrease 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) a decrease in the required reserve ratio by the Federal Reserve.

Question 14

An increase in real GDP

Accepted Answer

A) increases the buying and selling of goods and increases the demand for money as a medium of exchange. 
B) increases the buying and selling of goods and decreases the demand for money as a medium of exchange. 
C) decreases the buying and selling of goods and increases the demand for money as a medium of exchange. 
D) decreases the buying and selling of goods and decreases the demand for money as a medium of exchange. 
A) increases the buying and selling of goods and increases the demand for money as a medium of exchange. 
B) increases the buying and selling of goods and decreases the demand for money as a medium of exchange. 
C) decreases the buying and selling of goods and increases the demand for money as a medium of exchange. 
D) decreases the buying and selling of goods and decreases the demand for money as a medium of exchange.

Question 15

The money demand curve,against possible levels of interest rates,has a

Accepted Answer

A) positive slope. 
B) negative slope. 
C) zero slope. 
D) positive slope for low levels of money demand,and a negative slope for high levels of money demand. 
A) positive slope. 
B) negative slope. 
C) zero slope. 
D) positive slope for low levels of money demand,and a negative slope for high levels of money demand.

Question 16

An increase in the interest rate

Accepted Answer

A) decreases the opportunity cost of holding money. 
B) increases the opportunity cost of holding money. 
C) decreases the percentage yield of holding money. 
D) increases the percentage yield of holding money. 
A) decreases the opportunity cost of holding money. 
B) increases the opportunity cost of holding money. 
C) decreases the percentage yield of holding money. 
D) increases the percentage yield of holding money.

Question 17

Figure 26-9  
-Refer to Figure 26-9.In the figure above suppose the economy is initially at point A.The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by the Federal Reserve?

Accepted Answer

A) a decrease in income taxes 
B) an increase in the required reserve ratio 
C) an open market purchase of Treasury bills 
D) an open market sale of Treasury bills 
A) a decrease in income taxes 
B) an increase in the required reserve ratio 
C) an open market purchase of Treasury bills 
D) an open market sale of Treasury bills

Question 18

Using the Taylor rule,if the current inflation rate equals the target inflation rate and real GDP equals potential GDP,then the federal funds target rate equals the

Accepted Answer

A) current discount rate. 
B) current inflation rate. 
C) real equilibrium federal funds rate. 
D) current inflation rate plus the real equilibrium federal funds rate. 
A) current discount rate. 
B) current inflation rate. 
C) real equilibrium federal funds rate. 
D) current inflation rate plus the real equilibrium federal funds rate.

Question 19

If the Fed raises the interest rate,this will ________ inflation and ________ real GDP in the short run.

Accepted Answer

A) reduce;raise 
B) increase;lower 
C) increase;raise 
D) reduce;lower 
A) reduce;raise 
B) increase;lower 
C) increase;raise 
D) reduce;lower

Question 20

The Taylor rule predicted a federal funds rate which was ________ that set when Paul Volcker was chairman of the Fed,and a rate which was ________ that set when Arthur Burns chaired the Fed.

Accepted Answer

A) greater than;equal to 
B) greater than;less than 
C) less than;equal to 
D) less than;greater than 
A) greater than;equal to 
B) greater than;less than 
C) less than;equal to 
D) less than;greater than

Exam 26: Monetary Policy

Which of the following are goals of monetary policy?

The Taylor rule links the Federal Reserve's target for the

The money supply curve is vertical if

The Federal Reserve does not target both the money supply and an interest rate because

An increase in the interest rate should ________ the demand for dollars and the value of the dollar,and net exports should ________.

The main goal of monetary policy for recent Fed Chairmen has been to maintain high employment in labor markets.

Suppose that households became mistrustful of the banking system and decide to decrease their checking account balances and increase their holdings of currency.Using the money demand and money supply model and assuming everything else is held constant,the equilibrium interest rate should

An increase in real GDP can shift

Inflation targeting refers to conducting ________ policy so as to commit the central bank to achieving a ________.

Which of the following explains why mortgages weren't considered securities prior to 1970?

Since World War II,the Federal Reserve has not been involved in carrying out monetary policy.

Figure 26-2 -Refer to Figure 26-2.In the figure above,the movement from point A to point B in the money market would be caused by

An increase in real GDP

The money demand curve,against possible levels of interest rates,has a

An increase in the interest rate

Figure 26-9 -Refer to Figure 26-9.In the figure above suppose the economy is initially at point A.The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by the Federal Reserve?

Using the Taylor rule,if the current inflation rate equals the target inflation rate and real GDP equals potential GDP,then the federal funds target rate equals the

If the Fed raises the interest rate,this will ________ inflation and ________ real GDP in the short run.

The Taylor rule predicted a federal funds rate which was ________ that set when Paul Volcker was chairman of the Fed,and a rate which was ________ that set when Arthur Burns chaired 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

An increase in the interest rate should the demand for dollars and the value of the dollar,and net exports should .

Inflation targeting refers to conducting policy so as to commit the central bank to achieving a .

If the Fed raises the interest rate,this will inflation and real GDP in the short run.

The Taylor rule predicted a federal funds rate which was that set when Paul Volcker was chairman of the Fed,and a rate which was that set when Arthur Burns chaired the Fed.