Question 1

Which of the following is not an argument against inflation targeting?

Accepted Answer

A) Inflation targeting reduces the flexibility of the Fed to pursue other policy goals. 
B) Inflation targeting assumes that the Fed can accurately forecast future inflation rates. 
C) Inflation targeting makes monetary policy ineffective because the targets are publicly announced. 
D) Inflation targeting holds the Fed accountable for an inflation goal,but may make it less likely the Fed will achieve other goals. 
A) Inflation targeting reduces the flexibility of the Fed to pursue other policy goals. 
B) Inflation targeting assumes that the Fed can accurately forecast future inflation rates. 
C) Inflation targeting makes monetary policy ineffective because the targets are publicly announced. 
D) Inflation targeting holds the Fed accountable for an inflation goal,but may make it less likely the Fed will achieve other goals.

Question 2

Which of the following situations is one in which the Fed will potentially pursue expansionary monetary policy?

Accepted Answer

A) Potential GDP is forecasted to be higher than equilibrium GDP. 
B) Potential GDP is forecasted to be lower than equilibrium GDP. 
C) Aggregate demand is growing too fast to keep the economy at full employment. 
D) Aggregate demand is growing too slowly and the economy is in danger of producing GDP above full employment. 
A) Potential GDP is forecasted to be higher than equilibrium GDP. 
B) Potential GDP is forecasted to be lower than equilibrium GDP. 
C) Aggregate demand is growing too fast to keep the economy at full employment. 
D) Aggregate demand is growing too slowly and the economy is in danger of producing GDP above full employment.

Question 3

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 4

Figure 15-7  
-Refer to Figure 15-7.Suppose the Fed sells Treasury Bills in pursuit of contractionary monetary policy.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 D. 
C) C to B. 
D) B to C. 
E) C to D. 
A) A to B. 
B) B to D. 
C) C to B. 
D) B to C. 
E) C to D.

Question 5

When the Federal Reserve increases the money supply,people spend more because interest rates fall.

Accepted Answer

A) True 
 B)False

Question 6

Figure 15-1  
-Refer to Figure 15-1.In the figure,the money demand curve would move from Money demand1 to Money demand2 if

Accepted Answer

A) real GDP increased. 
B) the price level decreased. 
C) the interest rate increased. 
D) the Federal Reserve sold Treasury securities. 
A) real GDP increased. 
B) the price level decreased. 
C) the interest rate increased. 
D) the Federal Reserve sold Treasury securities.

Question 7

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 8

The Fed's two main monetary policy targets are

Accepted Answer

A) the money supply and the inflation rate. 
B) the money supply and the interest rate. 
C) the interest rate and real GDP. 
D) the inflation rate and real GDP. 
A) the money supply and the inflation rate. 
B) the money supply and the interest rate. 
C) the interest rate and real GDP. 
D) the inflation rate and real GDP.

Question 9

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 10

List the Fed's four main monetary goals.

Accepted Answer

1.Price stability
2.High emplo

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

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 13

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

Accepted Answer

A) True 
 B)False

Question 14

Figure 15-7  
-Refer to Figure 15-7.Suppose the economy is in short-run equilibrium above potential GDP,the unemployment rate is very low,and wages and prices are rising.Using the static AD-AS model in the figure above,the correct Fed policy for this situation would be depicted as a movement from

Accepted Answer

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

Question 15

If money demand is extremely sensitive to changes in the interest rate,the money demand curve becomes almost horizontal.If the Fed expands the money supply under these circumstances,then the interest rate will

Accepted Answer

A) fall substantially and investment and consumer spending will fall substantially. 
B) rise substantially and investment and consumer spending will rise substantially. 
C) fall substantially and investment and consumer spending will change very little. 
D) change very little and investment and consumer spending will change very little. 
A) fall substantially and investment and consumer spending will fall substantially. 
B) rise substantially and investment and consumer spending will rise substantially. 
C) fall substantially and investment and consumer spending will change very little. 
D) change very little and investment and consumer spending will change very little.

Question 16

According to the Taylor rule,does the target for the federal funds rate respond differently for an increase in inflation caused by an increase in aggregate demand and for an increase in inflation caused by a decrease in short-run aggregate supply? Explain whether there is or is not a difference in how the target for the federal funds rate changes.

Accepted Answer

The target for the federal funds rate re

Question 17

In November 2008,the Fed began its first round of quantitative easing.In total,the Fed conducted ________ rounds of quantitative easing before ending the program in October 2014.

Accepted Answer

A) 2 
B) 3 
C) 4 
D) 5 
A) 2 
B) 3 
C) 4 
D) 5

Question 18

Suppose you buy a house for $250,000.One year later,the market price for the house has fallen to $200,000.What is the return on your investment in the house if you made a down payment of 10 percent and took out a mortgage loan for the other 90 percent?

Accepted Answer

The market price has fallen by $50,000,s

Question 19

A financial asset is considered ________ if it can be sold in a secondary market.

Accepted Answer

A) a commodity 
B) a security 
C) a liability 
D) durable 
A) a commodity 
B) a security 
C) a liability 
D) durable

Question 20

Which of the following describes what the Fed would do to pursue an expansionary monetary policy?

Accepted Answer

A) use open market operations to buy Treasury bills 
B) use open market operations to sell Treasury bills 
C) use discount policy to raise the discount rate 
D) raise the reserve requirement 
A) use open market operations to buy Treasury bills 
B) use open market operations to sell Treasury bills 
C) use discount policy to raise the discount rate 
D) raise the reserve requirement

Which of the following is not an argument against inflation targeting?

Which of the following situations is one in which the Fed will potentially pursue expansionary monetary policy?

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

Figure 15-7 -Refer to Figure 15-7.Suppose the Fed sells Treasury Bills in pursuit of contractionary monetary policy.Using the static AD-AS model in the figure above,this situation would be depicted as a movement from

When the Federal Reserve increases the money supply,people spend more because interest rates fall.

Figure 15-1 -Refer to Figure 15-1.In the figure,the money demand curve would move from Money demand1 to Money demand2 if

Which of the following statements about inflation targeting is true?

The Fed's two main monetary policy targets are

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

List the Fed's four main monetary goals.

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

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

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

Figure 15-7 -Refer to Figure 15-7.Suppose the economy is in short-run equilibrium above potential GDP,the unemployment rate is very low,and wages and prices are rising.Using the static AD-AS model in the figure above,the correct Fed policy for this situation would be depicted as a movement from

If money demand is extremely sensitive to changes in the interest rate,the money demand curve becomes almost horizontal.If the Fed expands the money supply under these circumstances,then the interest rate will

In November 2008,the Fed began its first round of quantitative easing.In total,the Fed conducted ________ rounds of quantitative easing before ending the program in October 2014.

Suppose you buy a house for $250,000.One year later,the market price for the house has fallen to $200,000.What is the return on your investment in the house if you made a down payment of 10 percent and took out a mortgage loan for the other 90 percent?

A financial asset is considered ________ if it can be sold in a secondary market.

Which of the following describes what the Fed would do to pursue an expansionary 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

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

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Exam 15: Monetary Policy

Which of the following is not an argument against inflation targeting?

Which of the following situations is one in which the Fed will potentially pursue expansionary monetary policy?

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

Figure 15-7 -Refer to Figure 15-7.Suppose the Fed sells Treasury Bills in pursuit of contractionary monetary policy.Using the static AD-AS model in the figure above,this situation would be depicted as a movement from

When the Federal Reserve increases the money supply,people spend more because interest rates fall.

Figure 15-1 -Refer to Figure 15-1.In the figure,the money demand curve would move from Money demand1 to Money demand2 if

Which of the following statements about inflation targeting is true?

The Fed's two main monetary policy targets are

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

List the Fed's four main monetary goals.

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

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

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

Figure 15-7 -Refer to Figure 15-7.Suppose the economy is in short-run equilibrium above potential GDP,the unemployment rate is very low,and wages and prices are rising.Using the static AD-AS model in the figure above,the correct Fed policy for this situation would be depicted as a movement from

If money demand is extremely sensitive to changes in the interest rate,the money demand curve becomes almost horizontal.If the Fed expands the money supply under these circumstances,then the interest rate will

In November 2008,the Fed began its first round of quantitative easing.In total,the Fed conducted ________ rounds of quantitative easing before ending the program in October 2014.

Suppose you buy a house for $250,000.One year later,the market price for the house has fallen to $200,000.What is the return on your investment in the house if you made a down payment of 10 percent and took out a mortgage loan for the other 90 percent?

A financial asset is considered ________ if it can be sold in a secondary market.

Which of the following describes what the Fed would do to pursue an expansionary 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

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