Question 1

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) a 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 a low rate of bank failures.

Question 2

Using the money demand and money supply model,an open market purchase of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to

Accepted Answer

A) increase. 
B) decrease. 
C) not change. 
D) increase if the economy is in a recession.

Question 3

Monetary policy refers to the actions the Federal Reserve takes to manage

Accepted Answer

A) the money supply and income tax rates to pursue its economic objectives. 
B) the money supply and interest rates to pursue its economic objectives. 
C) income tax rates and interest rates to pursue its economic objectives. 
D) government spending and income tax rates to pursue its economic objectives.

Question 4

From an initial long-run macroeconomic equilibrium,if the Federal Reserve anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply,then the Federal Reserve would most likely

Accepted Answer

A) decrease interest rates. 
B) increase interest rates. 
C) decrease income tax rates. 
D) increase income tax rates.

Question 5

Describe how the Fed would traditionally use open market operations to change short-term and long-term interest rates.

Accepted Answer

The answer of Describe how the Fed would traditionally use...

Question 6

In March 2008,the Fed announced that primary dealers would be eligible to receive discount loans.

Accepted Answer

A) True 
 B)False

Question 7

If the Federal Reserve targets the interest rate and the money demand curve shifts to the left,then the Fed

Accepted Answer

A) cannot maintain the interest rate target. 
B) can maintain the interest rate target,but at a lower quantity of the money supply. 
C) can maintain the interest rate target,but at a higher quantity of the money supply. 
D) can maintain the interest rate target with no change in the money supply.

Question 8

Falling interest rates can

Accepted Answer

A) increase a firm's stock price,which causes firms to issue more stock shares,and thus increases funds for investment. 
B) raise the cost of borrowing for firms and decrease investment. 
C) raise the cost of buying new homes and fewer new homes will be purchased. 
D) lower the cost of buying new homes and fewer new homes will be purchased.

Question 9

From an initial long-run macroeconomic equilibrium,if the Federal Reserve anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply,then the Federal Reserve would most likely

Accepted Answer

A) increase income tax rates. 
B) decrease income tax rates. 
C) increase interest rates. 
D) decrease interest rates.

Question 10

By the 2000s,an important change in the mortgage market had occurred when ________ became significant participants in the secondary market for mortgages.

Accepted Answer

A) investment banks 
B) Federal Reserve Banks 
C) commercial banks 
D) savings banks

Question 11

If the Federal Reserve raises or lowers interest rates too late,it could result in a ________ policy that destabilizes the economy.

Accepted Answer

A) fiscal 
B) budgetary 
C) procyclical 
D) countercyclical

Question 12

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.

Question 13

Using the money demand and money supply model,show and explain why the Federal Reserve cannot achieve a target for both the money supply and an interest rate.

Accepted Answer

The answer of Using the money demand and money supply...

Question 14

One of the monetary policy goals of the Federal Reserve is price stability.

Accepted Answer

A) True 
 B)False

Question 15

Figure 15-12 
-Refer to Figure 15-12.In the dynamic AD-AS model,the economy is at point A in year 1 and is expected to go to point B in year 2,and the Federal Reserve pursues policy.This will result in

Accepted Answer

A) unemployment rates higher than what would occur if no policy had been pursued. 
B) inflation rates higher than what would occur if no policy had been pursued. 
C) potential real GDP levels lower than what would occur if no policy had been pursued. 
D) real GDP levels higher than what would occur if no policy had been pursued.

Question 16

Table 15-4
 
-Refer to Table 15-4.Suppose the following table illustrates the values of real and potential GDP and the price level if the Fed does not vote to change their current policy to be more contractionary or expansionary.If the Fed wants to keep real GDP at its potential level in 2019,should the Fed use a contractionary or expansionary policy? How should it conduct open market operations to achieve its goal?

Accepted Answer

The answer of Table 15-4
 
-Refer to Table 15-4.Suppose the...

Question 17

In June 2017,the Federal Open Market Committee raised the target for the federal funds rate to a range of 1.00 to 1.25 percent.To keep the federal funds rate in this target band,the Fed set the interest rate it pays on bank reserves to

Accepted Answer

A) 1.00 percent. 
B) 1.125 percent,the mid-point of the target range. 
C) 1.25 percent. 
D) 2.25 percent.

Question 18

The money demand curve has a

Accepted Answer

A) negative slope because an increase in the interest rate decreases the quantity of money demanded. 
B) positive slope because an increase in the interest rate increases the quantity of money demanded. 
C) negative slope because an increase in the price level decreases the quantity of money demanded. 
D) positive slope because an increase in the price level increases the quantity of money demanded.

Question 19

Maintaining a strong dollar in international currency markets is not one of the four monetary policy goals of the Fed listed in the textbook.

Accepted Answer

A) True 
 B)False

Question 20

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

The answer of If the Fed orders a contractionary monetary...

Exam 15: Monetary Policy

The Federal Reserve System's four monetary policy goals are

Using the money demand and money supply model,an open market purchase of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to

Monetary policy refers to the actions the Federal Reserve takes to manage

From an initial long-run macroeconomic equilibrium,if the Federal Reserve anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply,then the Federal Reserve would most likely

Describe how the Fed would traditionally use open market operations to change short-term and long-term interest rates.

In March 2008,the Fed announced that primary dealers would be eligible to receive discount loans.

If the Federal Reserve targets the interest rate and the money demand curve shifts to the left,then the Fed

Falling interest rates can

From an initial long-run macroeconomic equilibrium,if the Federal Reserve anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply,then the Federal Reserve would most likely

By the 2000s,an important change in the mortgage market had occurred when ________ became significant participants in the secondary market for mortgages.

If the Federal Reserve raises or lowers interest rates too late,it could result in a ________ policy that destabilizes the economy.

A financial asset is considered a security if

Using the money demand and money supply model,show and explain why the Federal Reserve cannot achieve a target for both the money supply and an interest rate.

One of the monetary policy goals of the Federal Reserve is price stability.

Figure 15-12 -Refer to Figure 15-12.In the dynamic AD-AS model,the economy is at point A in year 1 and is expected to go to point B in year 2,and the Federal Reserve pursues policy.This will result in

In June 2017,the Federal Open Market Committee raised the target for the federal funds rate to a range of 1.00 to 1.25 percent.To keep the federal funds rate in this target band,the Fed set the interest rate it pays on bank reserves to

The money demand curve has a

Maintaining a strong dollar in international currency markets is not one of the four monetary policy goals of the Fed listed in the textbook.

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