Question 1

An increase in the interest rate causes

Accepted Answer

A) a movement up along the money demand curve. 
B) a movement down along the money demand curve. 
C) the money demand curve to shift to the left. 
D) the money demand curve to shift to the right. 
A) a movement up along the money demand curve. 
B) a movement down along the money demand curve. 
C) the money demand curve to shift to the left. 
D) the money demand curve to shift to the right.

Question 2

In reality,the Fed is unable to use monetary policy to keep real GDP exactly at its potential level.

Accepted Answer

A) True 
 B)False

Question 3

Contractionary monetary policy causes

Accepted Answer

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

Question 4

Figure 15-14  
-Refer to Figure 15-14.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 5

Suppose the Fed increases the money supply.Which of the following is true?

Accepted Answer

A) At the original interest rate,the quantity of money demanded is equal to the quantity of money supplied. 
B) At the original interest rate,the quantity of money demanded is less than the quantity of money supplied. 
C) At the original interest rate,the quantity of money demanded is greater than the quantity of money supplied. 
D) The interest rate must rise for the money market to clear. 
A) At the original interest rate,the quantity of money demanded is equal to the quantity of money supplied. 
B) At the original interest rate,the quantity of money demanded is less than the quantity of money supplied. 
C) At the original interest rate,the quantity of money demanded is greater than the quantity of money supplied. 
D) The interest rate must rise for the money market to clear.

Question 6

Use a graph to show the effects of an expansionary monetary policy moving an economy out of recession and to potential real GDP.Explain what happens to aggregate demand,real GDP,and the price level.

Accepted Answer

If the economy is in recession,it is cur

Question 7

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 8

Write out the expression for the Taylor rule.Use the Taylor rule to explain how a decline in real GDP below potential GDP will affect the Federal Reserve's target for the federal funds rate.

Accepted Answer

The Taylor rule states that the Fed shou

Question 9

Which of the following correctly describes what the Fed used as monetary targets in the past?

Accepted Answer

A) The Fed used M1 and M2 as targets after 1993. 
B) The Fed focused on M1 as a target after deregulation of the financial markets. 
C) The Fed increased its reliance on interest rate targets since the mid-1990s. 
D) After 1980 and before the 1990s,the Fed focused on interest rate targets. 
A) The Fed used M1 and M2 as targets after 1993. 
B) The Fed focused on M1 as a target after deregulation of the financial markets. 
C) The Fed increased its reliance on interest rate targets since the mid-1990s. 
D) After 1980 and before the 1990s,the Fed focused on interest rate targets.

Question 10

Use the money demand and money supply model to show graphically and briefly explain the effect on the interest rate if real GDP increases.

Accepted Answer

The increase in real GDP shift

Question 11

The larger 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 12

Table 15-7
  
-Refer to Table 15-7.Suppose the table above illustrates the values of real and potential GDP and the price level if the Fed did not vote to change their current policy to be more contractionary or expansionary.Suppose that the Fed used an appropriate policy and was successful in keeping real GDP at potential in 2013.Draw an aggregate demand and supply curve to illustrate your answer.

Accepted Answer

@#IMG-DLM& The economy starts in equilibrium in 20

Question 13

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 14

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

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 15

A monetary growth rule means that

Accepted Answer

A) the Fed will lower interest rates if it thinks a recession is on the horizon. 
B) the Fed will raise interest rates if it thinks the economy is growing faster than potential. 
C) the money supply should grow at a constant rate. 
D) the money supply should grow in response to economic conditions. 
A) the Fed will lower interest rates if it thinks a recession is on the horizon. 
B) the Fed will raise interest rates if it thinks the economy is growing faster than potential. 
C) the money supply should grow at a constant rate. 
D) the money supply should grow in response to economic conditions.

Question 16

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 17

To reassure investors who were unwilling to buy mortgages in the secondary market,the U.S.Congress used two government sponsored enterprises,Fannie Mae and Freddie Mac,to stand between investors and banks that grant mortgages.Fannie Mae and Freddie Mac

Accepted Answer

A) sell mortgages to investors and use the funds to purchase bonds from banks. 
B) sell bonds to investors and use the funds to purchase mortgages from banks. 
C) sell bonds to banks and use the funds to purchase mortgages from investors. 
D) sell mortgages to banks and use the funds to purchase bonds from investors. 
A) sell mortgages to investors and use the funds to purchase bonds from banks. 
B) sell bonds to investors and use the funds to purchase mortgages from banks. 
C) sell bonds to banks and use the funds to purchase mortgages from investors. 
D) sell mortgages to banks and use the funds to purchase bonds from investors.

Question 18

Use a graph to show the effects of a contractionary monetary policy to reduce inflation and move an economy back to potential real GDP.Explain what happens to aggregate demand,real GDP,and the price level.

Accepted Answer

If the economy is experiencing inflation

Question 19

Figure 15-6  
-Refer to Figure 15-6.In the figure above,if the economy is at point A,the appropriate monetary policy by the Federal Reserve would be to

Accepted Answer

A) lower interest rates. 
B) raise interest rates. 
C) lower income taxes. 
D) raise income taxes. 
A) lower interest rates. 
B) raise interest rates. 
C) lower income taxes. 
D) raise income taxes.

Question 20

If the Fed lowers its target for the federal funds 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 inflation. 
D) the Fed is concerned that the growth in aggregate demand will exceed 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 inflation. 
D) the Fed is concerned that the growth in aggregate demand will exceed potential GDP.

An increase in the interest rate causes

In reality,the Fed is unable to use monetary policy to keep real GDP exactly at its potential level.

Contractionary monetary policy causes

Figure 15-14 -Refer to Figure 15-14.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?

Suppose the Fed increases the money supply.Which of the following is true?

Use a graph to show the effects of an expansionary monetary policy moving an economy out of recession and to potential real GDP.Explain what happens to aggregate demand,real GDP,and the price level.

If the Fed pursues expansionary monetary policy,

Write out the expression for the Taylor rule.Use the Taylor rule to explain how a decline in real GDP below potential GDP will affect the Federal Reserve's target for the federal funds rate.

Which of the following correctly describes what the Fed used as monetary targets in the past?

Use the money demand and money supply model to show graphically and briefly explain the effect on the interest rate if real GDP increases.

The larger the fraction of an investment financed by borrowing,

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

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

A monetary growth rule means that

The money demand curve has a negative slope because

To reassure investors who were unwilling to buy mortgages in the secondary market,the U.S.Congress used two government sponsored enterprises,Fannie Mae and Freddie Mac,to stand between investors and banks that grant mortgages.Fannie Mae and Freddie Mac

Use a graph to show the effects of a contractionary monetary policy to reduce inflation and move an economy back to potential real GDP.Explain what happens to aggregate demand,real GDP,and the price level.

Figure 15-6 -Refer to Figure 15-6.In the figure above,if the economy is at point A,the appropriate monetary policy by the Federal Reserve would be to

If the Fed lowers its target for the federal funds rate,this indicates 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

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

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

Exam 15: Monetary Policy

An increase in the interest rate causes

In reality,the Fed is unable to use monetary policy to keep real GDP exactly at its potential level.

Contractionary monetary policy causes

Figure 15-14 -Refer to Figure 15-14.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?

Suppose the Fed increases the money supply.Which of the following is true?

Use a graph to show the effects of an expansionary monetary policy moving an economy out of recession and to potential real GDP.Explain what happens to aggregate demand,real GDP,and the price level.

If the Fed pursues expansionary monetary policy,

Write out the expression for the Taylor rule.Use the Taylor rule to explain how a decline in real GDP below potential GDP will affect the Federal Reserve's target for the federal funds rate.

Which of the following correctly describes what the Fed used as monetary targets in the past?

Use the money demand and money supply model to show graphically and briefly explain the effect on the interest rate if real GDP increases.

The larger the fraction of an investment financed by borrowing,

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

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

A monetary growth rule means that

The money demand curve has a negative slope because

To reassure investors who were unwilling to buy mortgages in the secondary market,the U.S.Congress used two government sponsored enterprises,Fannie Mae and Freddie Mac,to stand between investors and banks that grant mortgages.Fannie Mae and Freddie Mac

Use a graph to show the effects of a contractionary monetary policy to reduce inflation and move an economy back to potential real GDP.Explain what happens to aggregate demand,real GDP,and the price level.

Figure 15-6 -Refer to Figure 15-6.In the figure above,if the economy is at point A,the appropriate monetary policy by the Federal Reserve would be to

If the Fed lowers its target for the federal funds rate,this indicates 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

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

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 relatively and real GDP to be relatively .