Question 1

The smaller the fraction of an investment financed by borrowing

Accepted Answer

A) the greater the potential return and potential loss on that investment. 
B) the smaller the potential return and potential loss on that investment. 
C) the greater the potential return and the smaller the potential loss on that investment. 
D) the smaller the potential return and the greater the potential loss on that investment. 
A) the greater the potential return and potential loss on that investment. 
B) the smaller the potential return and potential loss on that investment. 
C) the greater the potential return and the smaller the potential loss on that investment. 
D) the smaller the potential return and the greater the potential loss on that investment.

Question 2

Monetary policy refers to the actions the Federal Reserve takes to manage

Accepted Answer

A) the money supply and income tax rates to pursue its economic objectives. 
B) the money supply and interest rates to pursue its economic objectives. 
C) income tax rates and interest rates to pursue its economic objectives. 
D) government spending and income tax rates to pursue its economic objectives. 
A) the money supply and income tax rates to pursue its economic objectives. 
B) the money supply and interest rates to pursue its economic objectives. 
C) income tax rates and interest rates to pursue its economic objectives. 
D) government spending and income tax rates to pursue its economic objectives.

Question 3

Article Summary
Concerned about low inflation,Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said the Fed needed a more aggressive stimulus policy than the setting of near-zero interest rates,and added that negative interest rates could be an effective policy tool.In a September 2015 interview,Kocherlakota stated "Given the inflation outlook,given how low inflation is expected to be,to ensure the credibility of our inflation target,taking a more accommodative stance in September would have been totally justified." While the Federal Open Market Committee chose to hold rates near zero in their September 2015 meeting,Fed Chair Janet Yellen announced that a rate increase would be warranted by the end of the year,and that "negative interest rates was not something that we considered very seriously at all today."
-Refer to the Article Summary.Implementing a negative interest rate policy,as was advocated by the president of the Federal Reserve Bank of Minneapolis,would be designed to ________ the price level and ________ real GDP.

Accepted Answer

A) decrease;decrease 
B) decrease;increase 
C) increase;decrease 
D) increase;increase 
A) decrease;decrease 
B) decrease;increase 
C) increase;decrease 
D) increase;increase

Question 4

The money demand curve has a negative slope because

Accepted Answer

A) lower interest rates cause households and firms to switch from money to financial assets. 
B) lower interest rates cause households and firms to switch from financial assets to money. 
C) lower interest rates cause households and firms to switch from money to stocks. 
D) lower interest rates cause households and firms to switch from money to bonds. 
A) lower interest rates cause households and firms to switch from money to financial assets. 
B) lower interest rates cause households and firms to switch from financial assets to money. 
C) lower interest rates cause households and firms to switch from money to stocks. 
D) lower interest rates cause households and firms to switch from money to bonds.

Question 5

Would the Federal Reserve respond more aggressively with interest rate cuts in a recession caused by a decrease in spending,as in the 2001 recession,than in a recession caused by an increase in oil prices,as in the 1974-75 recession?

Accepted Answer

The inflation rate responds differently

Question 6

The Federal Reserve cannot target both the money supply and the interest rate because it does not control

Accepted Answer

A) bank reserves. 
B) money demand. 
C) the discount rate. 
D) open market operations. 
A) bank reserves. 
B) money demand. 
C) the discount rate. 
D) open market operations.

Question 7

In 2008,the Treasury and Federal Reserve took several actions in response to the deepening financial crisis.One action was the Treasury's move to have the federal government take control of

Accepted Answer

A) the Federal Deposit Insurance Corporation (FDI
C) . 
B) Fannie Mae and Freddie Mac. 
C) JPMorgan Chase. 
D) Lehman Brothers. 
A) the Federal Deposit Insurance Corporation (FDI
C) . 
B) Fannie Mae and Freddie Mac. 
C) JPMorgan Chase. 
D) Lehman Brothers.

Question 8

What problems can high inflation rates cause for the economy?

Accepted Answer

The problems that inflation ca

Question 9

When the Federal Reserve increases the money supply,people spend more because they now have more money.

Accepted Answer

A) True 
 B)False

Question 10

While many analysts defended the actions taken by the Fed and the Treasury to respond to the financial crisis in 2008,others were critical of these actions.The critics were concerned that by not allowing large firms to fail

Accepted Answer

A) smaller firms will resent not receiving similar assistance. 
B) stockholders and bondholders of these firms were not allowed to receive the proceeds from the sale of assets that would have occurred if the firms had declared bankruptcy. 
C) there is an increased likelihood that other firms will engage in risky behavior in the future with the expectation that they will also not be allowed to fail. 
D) there will be less competition in the U.S.economy,which could led to higher prices for consumers. 
A) smaller firms will resent not receiving similar assistance. 
B) stockholders and bondholders of these firms were not allowed to receive the proceeds from the sale of assets that would have occurred if the firms had declared bankruptcy. 
C) there is an increased likelihood that other firms will engage in risky behavior in the future with the expectation that they will also not be allowed to fail. 
D) there will be less competition in the U.S.economy,which could led to higher prices for consumers.

Question 11

Present two arguments as to why the Fed should adopt inflation targeting as a framework for monetary policy.

Accepted Answer

Any two of the following four reasons ar

Question 12

Which of the following characterizes the Fed's ability to prevent recessions?

Accepted Answer

A) The Fed is able to "fine tune" the economy and entirely eliminate recessions. 
B) The Fed is incapable of changing aggregate demand through its monetary policy tools. 
C) The Fed is able to keep a recession shorter and milder than it would otherwise be. 
D) The Fed is able to eliminate the business cycle and achieve absolute price stability. 
A) The Fed is able to "fine tune" the economy and entirely eliminate recessions. 
B) The Fed is incapable of changing aggregate demand through its monetary policy tools. 
C) The Fed is able to keep a recession shorter and milder than it would otherwise be. 
D) The Fed is able to eliminate the business cycle and achieve absolute price stability.

Question 13

Which of the following would cause the money demand curve to shift to the left?

Accepted Answer

A) an open market purchase of Treasury securities by the Federal Reserve 
B) an increase in the interest rate 
C) an increase in the price level 
D) a decrease in real GDP 
A) an open market purchase of Treasury securities by the Federal Reserve 
B) an increase in the interest rate 
C) an increase in the price level 
D) a decrease in real GDP

Question 14

In recent years,a monetary growth rule has fallen out of favor because

Accepted Answer

A) it is believed that active monetary policy destabilizes the economy and makes the business cycle worse. 
B) the growth rate of GDP has been highly unstable. 
C) the close relationship between movements in M1 and movements in real GDP has become weaker. 
D) the growth rate of M1 has become more stable. 
A) it is believed that active monetary policy destabilizes the economy and makes the business cycle worse. 
B) the growth rate of GDP has been highly unstable. 
C) the close relationship between movements in M1 and movements in real GDP has become weaker. 
D) the growth rate of M1 has become more stable.

Question 15

Changes in interest rates affect all four components of aggregate demand.

Accepted Answer

A) True 
 B)False

Question 16

In the following table,fill in the columns for your return on investment if the price of your house increased or decreased by 20 percent,based on the down payments specified in the first column.
Return on Your Investment From
 $$\begin{array} { | c | c | c | } 
\hline \text { Dawn Payment } & \begin{array} { c } 
\text { A 20 Percent Increase in the } \
\text { Price of Your Hause }
\end{array} & \begin{array} { c } 
\text { A 20 Percent Decrease in } \
\text { the Price of Your House }
\end{array} \
\hline 100 \% & & \
\hline 20 & & \
\hline 10 & & \
\hline 5 & & \
\hline
\end{array}$$

Accepted Answer

Return on Your Investment From
 \[\begin

Question 17

Which of the following statements about inflation targeting is true?

Accepted Answer

A) Inflation targeting by the central banks in other countries has not typically lowered inflation. 
B) Inflation targeting would not reduce the flexibility of monetary policy to address other policy goals. 
C) Inflation targeting would not allow the central bank the flexibility to take action against a severe recession. 
D) Inflation targeting would make it easier for households and firms to form accurate expectations of future inflation,improving their planning and the efficiency of the economy. 
A) Inflation targeting by the central banks in other countries has not typically lowered inflation. 
B) Inflation targeting would not reduce the flexibility of monetary policy to address other policy goals. 
C) Inflation targeting would not allow the central bank the flexibility to take action against a severe recession. 
D) Inflation targeting would make it easier for households and firms to form accurate expectations of future inflation,improving their planning and the efficiency of the economy.

Question 18

Mortgage lenders often resell mortgages in secondary markets.How might this make lenders act differently than if they intended to hold the mortgages themselves?

Accepted Answer

Lenders would be more likely to grant mo

Question 19

Monetarists think that the Fed should use ________ as a target when conducting monetary policy.

Accepted Answer

A) the money supply 
B) the federal funds rate 
C) the Treasury bill rate 
D) the inflation rate 
E) the unemployment rate 
A) the money supply 
B) the federal funds rate 
C) the Treasury bill rate 
D) the inflation rate 
E) the unemployment rate

Question 20

In which of the following situations would the Fed conduct contractionary monetary policy?

Accepted Answer

A) The Fed believes that aggregate demand was growing too slowly to keep up with potential GDP. 
B) The Fed fears that unemployment is climbing above the natural rate. 
C) The Fed is concerned that aggregate demand would continue to exceed the growth in potential GDP. 
D) The Fed is worried that deflation will become a problem. 
A) The Fed believes that aggregate demand was growing too slowly to keep up with potential GDP. 
B) The Fed fears that unemployment is climbing above the natural rate. 
C) The Fed is concerned that aggregate demand would continue to exceed the growth in potential GDP. 
D) The Fed is worried that deflation will become a problem.

Exam 26: Monetary Policy

The smaller the fraction of an investment financed by borrowing

Monetary policy refers to the actions the Federal Reserve takes to manage

The money demand curve has a negative slope because

Would the Federal Reserve respond more aggressively with interest rate cuts in a recession caused by a decrease in spending,as in the 2001 recession,than in a recession caused by an increase in oil prices,as in the 1974-75 recession?

The Federal Reserve cannot target both the money supply and the interest rate because it does not control

In 2008,the Treasury and Federal Reserve took several actions in response to the deepening financial crisis.One action was the Treasury's move to have the federal government take control of

What problems can high inflation rates cause for the economy?

When the Federal Reserve increases the money supply,people spend more because they now have more money.

While many analysts defended the actions taken by the Fed and the Treasury to respond to the financial crisis in 2008,others were critical of these actions.The critics were concerned that by not allowing large firms to fail

Present two arguments as to why the Fed should adopt inflation targeting as a framework for monetary policy.

Which of the following characterizes the Fed's ability to prevent recessions?

Which of the following would cause the money demand curve to shift to the left?

In recent years,a monetary growth rule has fallen out of favor because

Changes in interest rates affect all four components of aggregate demand.

Which of the following statements about inflation targeting is true?

Mortgage lenders often resell mortgages in secondary markets.How might this make lenders act differently than if they intended to hold the mortgages themselves?

Monetarists think that the Fed should use ________ as a target when conducting monetary policy.

In which of the following situations would the Fed conduct contractionary monetary policy?

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

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