Question 1

The Federal Reserve's two main ________ are the money supply and the interest rate.

Accepted Answer

A) monetary policy targets 
B) policy tools 
C) fiscal policy targets 
D) fiscal tools 
A) monetary policy targets 
B) policy tools 
C) fiscal policy targets 
D) fiscal tools

Question 2

Which of the following is true?

Accepted Answer

A) The money market model is essentially a model that determines the short-term nominal rate of interest. 
B) The money market model is essentially a model that determines the short-term real rate of interest. 
C) The loanable funds model is essentially a model that determines the short-term real rate of interest. 
D) The loanable funds model is essentially a model that determines the long-term nominal rate of interest. 
A) The money market model is essentially a model that determines the short-term nominal rate of interest. 
B) The money market model is essentially a model that determines the short-term real rate of interest. 
C) The loanable funds model is essentially a model that determines the short-term real rate of interest. 
D) The loanable funds model is essentially a model that determines the long-term nominal rate of interest.

Question 3

Expansionary monetary policy enacted during a recession will cause the inflation rate to increase.

Accepted Answer

A) True 
 B)False

Question 4

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 5

The ability of the Federal Reserve to use monetary policy to affect economic variables such as real GDP ultimately depends upon its ability to affect

Accepted Answer

A) tax rates. 
B) real interest rates. 
C) nominal interest rates. 
D) foreign exchange rates. 
A) tax rates. 
B) real interest rates. 
C) nominal interest rates. 
D) foreign exchange rates.

Question 6

What is a banking panic,and what role did banking panics play in the decision by Congress to establish the Federal Reserve?

Accepted Answer

When the Fed was founded,its primary res

Question 7

The Federal Reserve System's four monetary policy goals are

Accepted Answer

A) low government budget deficits,low current account deficits,high employment,and a high foreign exchange value of the dollar. 
B) low rate of bank failures,high reserve ratios,price stability,and economic growth. 
C) price stability,high employment,economic growth,and stability of financial markets and institutions. 
D) price stability,low government budget deficits,low current account deficits,and low rate of bank failures. 
A) low government budget deficits,low current account deficits,high employment,and a high foreign exchange value of the dollar. 
B) low rate of bank failures,high reserve ratios,price stability,and economic growth. 
C) price stability,high employment,economic growth,and stability of financial markets and institutions. 
D) price stability,low government budget deficits,low current account deficits,and low rate of bank failures.

Question 8

The Fed can directly lower the inflation rate.

Accepted Answer

A) True 
 B)False

Question 9

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 10

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 11

A financial asset is considered a security if

Accepted Answer

A) the owner of the security receives dividends and realizes a capital gain when the asset is sold. 
B) it can be sold in a secondary market. 
C) its value increases after it is sold in a primary market. 
D) its value is secure;that is,the owner will not suffer a financial loss when the asset is sold. 
A) the owner of the security receives dividends and realizes a capital gain when the asset is sold. 
B) it can be sold in a secondary market. 
C) its value increases after it is sold in a primary market. 
D) its value is secure;that is,the owner will not suffer a financial loss when the asset is sold.

Question 12

A decrease in interest rates can ________ the demand for stocks as stocks become relatively ________ attractive investments as compared to bonds.

Accepted Answer

A) increase;more 
B) decrease;less 
C) decrease;more 
D) increase;less 
E) increase;similar 
A) increase;more 
B) decrease;less 
C) decrease;more 
D) increase;less 
E) increase;similar

Question 13

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 14

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 15

Figure 17-5  
-Refer to Figure 17-5.Suppose the Fed lowers its target for the federal funds rate.Using the static AD-AS model in the figure above,this situation would be depicted as a movement from

Accepted Answer

A) A to B. 
B) B to A. 
C) C to B. 
D) E to A. 
E) C to D. 
A) A to B. 
B) B to A. 
C) C to B. 
D) E to A. 
E) C to D.

Question 16

Figure 17-5  
-Refer to Figure 17-5.Suppose the economy is in a recession and no policy is pursued.Using the static AD-AS model in the figure above,this situation would be depicted as a movement from

Accepted Answer

A) A to B. 
B) B to A. 
C) C to B. 
D) A to E. 
E) C to D. 
A) A to B. 
B) B to A. 
C) C to B. 
D) A to E. 
E) C to D.

Question 17

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 sale of Treasury securities.

Accepted Answer

An open market sale of Treasur

Question 18

If the Fed orders a contractionary monetary policy,describe what will happen to the following variables relative to what would have happened without the policy:
a.The money supply
b.Interest rates
c.Investment
d.Consumption
e.Net Exports
f.The aggregate demand curve
g.Real GDP
h.The price level

Accepted Answer

a.The money supply decreases
b.Interest

Question 19

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 20

The supporters of a monetary growth rule believe that active monetary policy

Accepted Answer

A) stabilizes the economy,decreasing the number of recessions and their severity. 
B) destabilizes the economy,increasing the number of recessions and their severity. 
C) cannot change the inflation rate. 
D) cannot change real GDP. 
A) stabilizes the economy,decreasing the number of recessions and their severity. 
B) destabilizes the economy,increasing the number of recessions and their severity. 
C) cannot change the inflation rate. 
D) cannot change real GDP.

The Federal Reserve's two main ________ are the money supply and the interest rate.

Which of the following is true?

Expansionary monetary policy enacted during a recession will cause the inflation rate to increase.

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

The ability of the Federal Reserve to use monetary policy to affect economic variables such as real GDP ultimately depends upon its ability to affect

What is a banking panic,and what role did banking panics play in the decision by Congress to establish the Federal Reserve?

The Federal Reserve System's four monetary policy goals are

The Fed can directly lower the inflation rate.

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.

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.

A financial asset is considered a security if

A decrease in interest rates can the demand for stocks as stocks become relatively attractive investments as compared to bonds.

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

Figure 17-5 -Refer to Figure 17-5.Suppose the Fed lowers its target for the federal funds rate.Using the static AD-AS model in the figure above,this situation would be depicted as a movement from

Figure 17-5 -Refer to Figure 17-5.Suppose the economy is in a recession and no policy is pursued.Using the static AD-AS model in the figure above,this situation would be depicted as a movement from

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 sale of Treasury securities.

If the Fed orders a contractionary monetary policy,describe what will happen to the following variables relative to what would have happened without the policy: a.The money supply b.Interest rates c.Investment d.Consumption e.Net Exports f.The aggregate demand curve g.Real GDP h.The price level

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

The supporters of a monetary growth rule believe that active monetary policy

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Consumer Choice and Elasticity

Technology,production,and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Fiscal Policy

Comparative Advantage,international Trade,and Exchange Rates

Filters

Exam 17: Monetary Policy

The Federal Reserve's two main ________ are the money supply and the interest rate.

Which of the following is true?

Expansionary monetary policy enacted during a recession will cause the inflation rate to increase.

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

The ability of the Federal Reserve to use monetary policy to affect economic variables such as real GDP ultimately depends upon its ability to affect

What is a banking panic,and what role did banking panics play in the decision by Congress to establish the Federal Reserve?

The Federal Reserve System's four monetary policy goals are

The Fed can directly lower the inflation rate.

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.

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.

A financial asset is considered a security if

A decrease in interest rates can ________ the demand for stocks as stocks become relatively ________ attractive investments as compared to bonds.

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

Figure 17-5 -Refer to Figure 17-5.Suppose the Fed lowers its target for the federal funds rate.Using the static AD-AS model in the figure above,this situation would be depicted as a movement from

Figure 17-5 -Refer to Figure 17-5.Suppose the economy is in a recession and no policy is pursued.Using the static AD-AS model in the figure above,this situation would be depicted as a movement from

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 sale of Treasury securities.

If the Fed orders a contractionary monetary policy,describe what will happen to the following variables relative to what would have happened without the policy: a.The money supply b.Interest rates c.Investment d.Consumption e.Net Exports f.The aggregate demand curve g.Real GDP h.The price level

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

The supporters of a monetary growth rule believe that active monetary policy

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Consumer Choice and Elasticity

Technology,production,and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Fiscal Policy

Comparative Advantage,international Trade,and Exchange Rates

Filters

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.

A decrease in interest rates can the demand for stocks as stocks become relatively attractive investments as compared to bonds.

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