Question 1

Expansionary monetary policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

Accepted Answer

A) higher;higher 
B) higher;lower 
C) lower;higher 
D) lower;lower 
A) higher;higher 
B) higher;lower 
C) lower;higher 
D) lower;lower

Question 2

Table 26-3
 $$\begin{array} { | l | l | l | c | } 
\hline \text { Year } & \text { Potential Real GDP } & { \text { Real GDP } } & \text { Price Level } \
\hline 2016 & \$ 18.0 \text { trillion } & \$ 18.0 \text { trillion } & 150 \
\hline 2017 & 18.5 \text { trillion } & 18.8 \text { trillion } & 154 \
\hline
\end{array}$$
-Refer to Table 26-3.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) decrease the required reserve ratio. 
D) decrease income taxes. 
A) buy Treasury securities. 
B) sell Treasury securities. 
C) decrease the required reserve ratio. 
D) decrease income taxes.

Question 3

If the Fed raises its target for the federal fund rate,this indicates that

Accepted Answer

A) the Fed is pursuing an expansionary monetary policy. 
B) the Fed is pursuing a contractionary monetary policy. 
C) the Fed is attempting to combat deflation. 
D) The Fed is concerned that the growth in aggregate demand is too slow to keep up with potential GDP. 
A) the Fed is pursuing an expansionary monetary policy. 
B) the Fed is pursuing a contractionary monetary policy. 
C) the Fed is attempting to combat deflation. 
D) The Fed is concerned that the growth in aggregate demand is too slow to keep up with potential GDP.

Question 4

The top policy goal for Paul Volcker when he became chairman of the Federal Reserve's Board of Governors in 1979 was

Accepted Answer

A) fighting inflation. 
B) increasing employment. 
C) increasing economic growth. 
D) increasing regulation of commercial banks. 
E) a low current account deficit. 
A) fighting inflation. 
B) increasing employment. 
C) increasing economic growth. 
D) increasing regulation of commercial banks. 
E) a low current account deficit.

Question 5

Use the money demand and money supply model to show graphically and explain the effect on interest rates of the Federal Reserve's open market purchase of Treasury securities.

Accepted Answer

An open market purchase of Tre

Question 6

If the amount you owe on your house is greater than the price of the house,you have

Accepted Answer

A) no value to your house. 
B) a mortgage rate that is too high. 
C) negative equity in your house. 
D) a reverse mortgage on your house. 
A) no value to your house. 
B) a mortgage rate that is too high. 
C) negative equity in your house. 
D) a reverse mortgage on your house.

Question 7

Consider the Taylor rule for the target of the federal funds rate.Suppose the equilibrium real federal funds rate is 2 percent,the target rate of inflation is 3 percent,the current inflation rate is 3 percent,real GDP equals potential real GDP,and the weights are 1/2 for the inflation gap and the output gap.Using the Taylor rule,what does the target for the federal funds rate equal? Next,if the Federal Reserve lowered the target for the inflation rate to 1 percent,how much would the target for the federal funds rate change?

Accepted Answer

The federal funds target rate would equa

Question 8

Contractionary monetary policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

Accepted Answer

A) higher;higher 
B) higher;lower 
C) lower;higher 
D) lower;lower 
A) higher;higher 
B) higher;lower 
C) lower;higher 
D) lower;lower

Question 9

An increase in the money supply will

Accepted Answer

A) increase the interest rate. 
B) decrease the interest rate. 
C) have no affect on the interest rate. 
D) decrease the equilibrium quantity of money in the economy. 
A) increase the interest rate. 
B) decrease the interest rate. 
C) have no affect on the interest rate. 
D) decrease the equilibrium quantity of money in the economy.

Question 10

The federal funds rate

Accepted Answer

A) is determined administratively by the Fed. 
B) is determined by the supply of and demand for bank reserves. 
C) is determined directly by household demand for funds. 
D) is determined directly by firm demand for funds. 
A) is determined administratively by the Fed. 
B) is determined by the supply of and demand for bank reserves. 
C) is determined directly by household demand for funds. 
D) is determined directly by firm demand for funds.

Question 11

Between September 2007 and March 2008 there was a substantial reduction in the demand for housing.What action did the Fed take in response to the reduction in the demand for housing?

Accepted Answer

A) The Federal Reserve decreased the required reserve rate. 
B) The Fed conducted open market sales of Treasury securities. 
C) The Federal Reserve cut the federal funds rate seven times. 
D) The Federal Reserve raised the discount rate by 3 percentage points. 
A) The Federal Reserve decreased the required reserve rate. 
B) The Fed conducted open market sales of Treasury securities. 
C) The Federal Reserve cut the federal funds rate seven times. 
D) The Federal Reserve raised the discount rate by 3 percentage points.

Question 12

The Federal Reserve responded to the 2008 financial crisis in several ways.Which of the following is one of the ways the Fed responded?

Accepted Answer

A) The Fed banned investment banks from obtaining discount loans. 
B) The Fed lent investment banks Treasury securities in exchange for mortgage-backed securities. 
C) The Fed lowered the required reserve ratio on demand deposit accounts in order to increase the amount of bank reserves. 
D) The Fed helped Citibank to acquire General Motors and Chrysler. 
A) The Fed banned investment banks from obtaining discount loans. 
B) The Fed lent investment banks Treasury securities in exchange for mortgage-backed securities. 
C) The Fed lowered the required reserve ratio on demand deposit accounts in order to increase the amount of bank reserves. 
D) The Fed helped Citibank to acquire General Motors and Chrysler.

Question 13

The Fed can use contractionary monetary policy in an attempt to keep inflation from increasing.

Accepted Answer

A) True 
 B)False

Question 14

Expansionary monetary policy refers to the ________ to increase real GDP.

Accepted Answer

A) government's increasing spending and lowering taxes 
B) government's decreasing spending and raising taxes 
C) Federal Reserve's increasing the money supply and decreasing interest rates 
D) Federal Reserve's decreasing the money supply and increasing interest rates 
A) government's increasing spending and lowering taxes 
B) government's decreasing spending and raising taxes 
C) Federal Reserve's increasing the money supply and decreasing interest rates 
D) Federal Reserve's decreasing the money supply and increasing interest rates

Question 15

In 2008,the Treasury and Federal Reserve took several actions in response to the deepening financial crisis.One action was the creation of the Term Securities Lending Facility,under which the Fed will loan up to $200 billion of treasury securities in exchange for

Accepted Answer

A) stock. 
B) mortgage-backed securities. 
C) corporate bonds. 
D) required bank reserves. 
A) stock. 
B) mortgage-backed securities. 
C) corporate bonds. 
D) required bank reserves.

Question 16

Figure 26-12  
-Refer to Figure 26-12.In the dynamic AD-AS model,if the economy is at point A in year 1 and is expected to go to point B in year 2,the Federal Reserve would most likely

Accepted Answer

A) increase interest rates. 
B) decrease interest rates. 
C) not change interest rates. 
D) increase the inflation rate. 
A) increase interest rates. 
B) decrease interest rates. 
C) not change interest rates. 
D) increase the inflation rate.

Question 17

Firms that participate in regular open market transactions with the Federal Reserve are called

Accepted Answer

A) secondary market banks. 
B) Treasury banks. 
C) primary dealers. 
D) Federal Reserve partners. 
A) secondary market banks. 
B) Treasury banks. 
C) primary dealers. 
D) Federal Reserve partners.

Question 18

The Fed can directly lower the inflation rate.

Accepted Answer

A) True 
 B)False

Question 19

The situation in which short-term interest rates are pushed to zero,leaving the central bank unable to lower them further is known as

Accepted Answer

A) the Taylor rule. 
B) a liquidity trap. 
C) a zero-sum game. 
D) an interest rate panic. 
A) the Taylor rule. 
B) a liquidity trap. 
C) a zero-sum game. 
D) an interest rate panic.

Question 20

A monetary policy target is a variable that

Accepted Answer

A) the Fed can affect directly. 
B) equals one of the Fed's main policy goals. 
C) the Fed has no ability to change. 
D) the Fed cannot affect directly. 
A) the Fed can affect directly. 
B) equals one of the Fed's main policy goals. 
C) the Fed has no ability to change. 
D) the Fed cannot affect directly.

Exam 26: Monetary Policy

Expansionary monetary policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

If the Fed raises its target for the federal fund rate,this indicates that

The top policy goal for Paul Volcker when he became chairman of the Federal Reserve's Board of Governors in 1979 was

Use the money demand and money supply model to show graphically and explain the effect on interest rates of the Federal Reserve's open market purchase of Treasury securities.

If the amount you owe on your house is greater than the price of the house,you have

Contractionary monetary policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

An increase in the money supply will

The federal funds rate

Between September 2007 and March 2008 there was a substantial reduction in the demand for housing.What action did the Fed take in response to the reduction in the demand for housing?

The Federal Reserve responded to the 2008 financial crisis in several ways.Which of the following is one of the ways the Fed responded?

The Fed can use contractionary monetary policy in an attempt to keep inflation from increasing.

Expansionary monetary policy refers to the ________ to increase real GDP.

In 2008,the Treasury and Federal Reserve took several actions in response to the deepening financial crisis.One action was the creation of the Term Securities Lending Facility,under which the Fed will loan up to $200 billion of treasury securities in exchange for

Figure 26-12 -Refer to Figure 26-12.In the dynamic AD-AS model,if the economy is at point A in year 1 and is expected to go to point B in year 2,the Federal Reserve would most likely

Firms that participate in regular open market transactions with the Federal Reserve are called

The Fed can directly lower the inflation rate.

The situation in which short-term interest rates are pushed to zero,leaving the central bank unable to lower them further is known as

A monetary policy target is a variable that

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

Expansionary monetary policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be and real GDP to be .

Contractionary monetary policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be and real GDP to be .