Question 1

Within the market for reserves, an increase in the quantity of reserves results in a

Accepted Answer

A)   rise in the equilibrium real wage rate.
B)   fall in the equilibrium federal funds rate.
C)   fall in the equilibrium money wage rate.
D)   rise in the equilibrium federal funds rate. B

Question 2

The Fedʹs goals include

Accepted Answer

A)   the monetary base.
B)   price level stability.
C)   the federal funds rate.
D)   open market operations. B

Question 3

ʺAs the Fed Chases Inflation, Critics Shout, ʹFaster!ʹ
ʺFor weeks, the Fed has broadcast its intention to raise interest rates glacially.ʺ The Fed was moving slowly, according to an economist because ʺ... the declining price of oil, economic fundamentals, including productivity and global competition, will keep inflation in check.ʺ The Fed, recognizing that the economy was improving stated it planned to ʺrespond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.ʺ Other economists disagree with the Fedʹs restrained policy as a ʺmistakeʺ
Www.nytimes, 7/1/2004
The goal of the Fedʹs policy in 2004 was to decrease

Accepted Answer

A)   the exchange rate
B)   the short-term interest rate
C)   consumption expenditure
D)   the long-term interest rate C

Question 4

-The figure above shows the market for bank reserves in Futureland. If the Bank of Futureland undertakes an open market sale of government securities that changes the quantity of reserves by
$100 billion, then the federal funds rate will___________ .

Accepted Answer

A)   rise to 8 percent a year
B)   fall to 4 percent a year
C)   remain at 6 percent a year
D)   None of the above answers is correct.

Question 5

Long-term interest rates are ___________ than short-term because long-term loans are ___________than short-term loans.

Accepted Answer

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

Question 6

Ben Bernanke has been more precise than his predecessor, suggesting a core inflation rate of___________ per year is the same as price stability.

Accepted Answer

A)   0 to 1 percent
B)   0 to 2 percent
C)   1 to 2 percent
D)   1 to 4 percent

Question 7

If the Fed wants to decrease the quantity of money, it can

Accepted Answer

A)   decrease the government budget deficit.
B)   sell U.S. government securities.
C)   raise income tax rates.
D)   purchase U.S. government securities.

Question 8

In an effort to address the troubled economy, ...ʺFor the ninth time in just over a year, the Federal Reserve is expected to cut interest rates, quite possibly its last reduction in this downturn.ʺ Rates have not been this low ʺ... since 2003, when the economy was growing at a snailʹs pace.
The ʺinterest ratesʺ the Fed is cutting is the__________ .

Accepted Answer

A)   Federal Funds rate
B)   real long-term interest rate
C)   reserve interest rate
D)   nominal long-term interest rate

Question 9

A decrease in the supply of loanable funds decreases the real interest rate.

Accepted Answer

A) True 
 B)False

Question 10

The Fed targets the 30-year bond rate as its monetary policy instrument.)

Accepted Answer

A) True 
 B)False

Question 11

ʺAs the Fed Chases Inflation, Critics Shout, ʹFaster!ʹ
ʺFor weeks, the Fed has broadcast its intention to raise interest rates glacially.ʺ The Fed was moving slowly, according to an economist because ʺ... the declining price of oil, economic fundamentals, including productivity and global competition, will keep inflation in check.ʺ The Fed, recognizing that the economy was improving stated it planned to ʺrespond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.ʺ Other economists disagree with the Fedʹs restrained policy as a ʺmistake.ʺ
Www.nytimes, 7/1/2004
By increasing the federal funds target, the Fed will___________ reserves and __________the quantity of money.

Accepted Answer

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

Question 12

Suppose that initially real GDP equals potential GDP. Then a decrease in aggregate demand occurs. According to the Taylor rule, the Fed should____________ the federal funds rate by ____________government securities in the open market.

Accepted Answer

A)   lower; buying
B)   raise; buying
C)   lower; selling
D)   raise; selling

Question 13

If the Fed lowers the federal funds rate so that the exchange rate falls, then imports and exports __________.

Accepted Answer

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

Question 14

What is the effect of lowering the interest rate on net exports? Explain your answer.

Accepted Answer

The answer of What is the effect of lowering the...

Question 15

If the demand for reserves is unchanged, an increase in the quantity of reserves will

Accepted Answer

A)   lower the federal funds rate.
B)   increase the federal funds rate.
C)   not affect the federal funds rate.
D)   None of the above answers is correct.

Question 16

If the Fed is concerned with recession it will __________the federal funds rate in order to__________ aggregate demand.

Accepted Answer

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

Question 17

Monetary policy is controlled by

Accepted Answer

A)   the president.
B)   Congress.
C)   the Treasury Department.
D)   the Federal Reserve.

Question 18

Suppose in the money market the equilibrium interest rate is 5 percent and quantity of money demanded and supplied are both equal to $2 trillion dollars. If the Fed increases the quantity of money, what is the effect on the interest rate?

Accepted Answer

The answer of Suppose in the money market the equilibrium...

Question 19

The Fed buys U.S. government securities from banks in order to

Accepted Answer

A)   None of the above answers are correct.
B)   decrease banksʹ reserves.
C)   reduce the governmentʹs budget deficit.
D)   lower the federal funds rate.

Question 20

Uncertainty about monetary policy

Accepted Answer

A)   is why the Fed does not use inflation rate targeting.
B)   can keep investment low.
C)   makes deposits in banks more desirable because they become safer.
D)   was the factor that started the financial crisis in 2008.

Exam 14: Monetary Policy