Question 1

When the Fed uses contractionary policy

Accepted Answer

A) the price level rises higher than it would if the Fed did not pursue policy. 
B) the price level rises less than it would if the Fed did not pursue policy. 
C) it does not change the price level. 
D) it causes inflation.

Question 2

With a monetary growth rule as proposed by the monetarists,during a recession the rate of growth of the money supply would

Accepted Answer

A) decrease. 
B) increase. 
C) not change. 
D) decrease or increase depending on economic conditions.

Question 3

Beginning in 2008,The Federal Reserve and the U.S.Treasury Department responded to the financial crisis by intervening in financial markets in unprecedented ways.Briefly summarize the 4 key actions of the Fed and Treasury.

Accepted Answer

The answer of Beginning in 2008,The Federal Reserve and the...

Question 4

A monetary policy target is a variable that the Fed can affect directly,which then affects one or more of the Fed's policy goals.

Accepted Answer

A) True 
 B)False

Question 5

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 6

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

Accepted Answer

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

Question 7

The Fed uses a "core" price index,one that excludes food and energy prices to measure inflation.It does so because

Accepted Answer

A) food and energy have inelastic demand curves and consumers will buy them regardless of their price. 
B) it wants to avoid the blame for high gasoline prices causing inflation. 
C) food and energy prices have wide swings that are not related to the causes of general inflation. 
D) food and energy prices do not change all that much during the short run,so are irrelevant to the calculation of inflation.

Question 8

Suppose the Fed decreases the money supply.In response households and firms will ________ short term assets and this will drive ________ interest rates.

Accepted Answer

A) buy; up 
B) buy; down 
C) sell; up 
D) sell; down

Question 9

The Federal Reserve can directly affect its monetary policy ________,which then affect its monetary policy ________.

Accepted Answer

A) goals; targets 
B) goals; tools 
C) targets; goals 
D) targets; tools

Question 10

While many analysts defended the actions taken by the Fed and the Treasury to respond to the financial crisis in 2008,others were critical of these actions.The critics were concerned that by not allowing large firms to fail

Accepted Answer

A) smaller firms will resent not receiving similar assistance. 
B) stockholders and bondholders of these firms were not allowed to receive the proceeds from the sale of assets that would have occurred if the firms had declared bankruptcy. 
C) there is an increased likelihood that other firms will engage in risky behavior in the future with the expectation that they will also not be allowed to fail. 
D) there will be less competition in the U.S.economy,which could led to higher prices for consumers.

Question 11

According to the Taylor rule,the Fed should set the target for the federal funds rate equal to the sum of the equilibrium real federal funds rate,the current inflation rate,one-half times the ________,and one-half times the ________.

Accepted Answer

A) interest rate gap; inflation gap 
B) interest rate gap; output gap 
C) inflation gap; output gap 
D) unemployment gap; government-spending gap

Question 12

A repurchase agreement is the same as an open market purchase of Treasury securities.

Accepted Answer

A) True 
 B)False

Question 13

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

Question 14

With the federal funds rate near zero and the economy still struggling,in response to already low interest rates doing little to stimulate the economy,the Fed began buying 10-year Treasury notes and certain mortgage-backed securities to keep interest rates low.This policy is known as

Accepted Answer

A) inflation targeting. 
B) contractionary monetary policy. 
C) securities-bubble deflating. 
D) quantitative easing.

Question 15

The Federal Reserve does not target both the money supply and an interest rate because

Accepted Answer

A) it would be too confusing to Wall Street and would disrupt the financial markets. 
B) it would be too easy for Wall Street to determine what policy the Fed is following and this would destabilize the economy. 
C) it would be illegal according to the Federal Reserve Act. 
D) the Fed cannot achieve a target for both the money supply and an interest rate at the same time.

Question 16

The money market model is concerned with ________ and the loanable funds market model is concerned with ________.

Accepted Answer

A) short-term real interest rates; long-term nominal interest rates 
B) short-term nominal interest rates; long-term nominal interest rates 
C) short-term real interest rates; long-term real interest rates 
D) short-term nominal interest rates; long-term real interest rates

Question 17

Inflation targeting refers to conducting ________ policy so as to commit the central bank to achieving a ________.

Accepted Answer

A) fiscal; publicly announced level of inflation 
B) fiscal; zero inflation rate 
C) monetary; publicly announced level of inflation 
D) monetary; zero inflation rate

Question 18

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

Accepted Answer

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

Question 19

Firms that participate in regular open market transactions with the Federal Reserve are called

Accepted Answer

A) secondary market banks. 
B) Treasury banks. 
C) primary dealers. 
D) Federal Reserve partners.

Question 20

In the Taylor rule,does the target for the federal funds rate respond differently for a recession caused by a decrease in aggregate demand and for a recession 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 answer of In the Taylor rule,does the target for...

Exam 15: Monetary Policy

When the Fed uses contractionary policy

With a monetary growth rule as proposed by the monetarists,during a recession the rate of growth of the money supply would

Beginning in 2008,The Federal Reserve and the U.S.Treasury Department responded to the financial crisis by intervening in financial markets in unprecedented ways.Briefly summarize the 4 key actions of the Fed and Treasury.

A monetary policy target is a variable that the Fed can affect directly,which then affects one or more of the Fed's policy goals.

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

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

The Fed uses a "core" price index,one that excludes food and energy prices to measure inflation.It does so because

Suppose the Fed decreases the money supply.In response households and firms will short term assets and this will drive interest rates.

The Federal Reserve can directly affect its monetary policy ,which then affect its monetary policy .

While many analysts defended the actions taken by the Fed and the Treasury to respond to the financial crisis in 2008,others were critical of these actions.The critics were concerned that by not allowing large firms to fail

According to the Taylor rule,the Fed should set the target for the federal funds rate equal to the sum of the equilibrium real federal funds rate,the current inflation rate,one-half times the ,and one-half times the .

A repurchase agreement is the same as an open market purchase of Treasury securities.

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

With the federal funds rate near zero and the economy still struggling,in response to already low interest rates doing little to stimulate the economy,the Fed began buying 10-year Treasury notes and certain mortgage-backed securities to keep interest rates low.This policy is known as

The Federal Reserve does not target both the money supply and an interest rate because

The money market model is concerned with and the loanable funds market model is concerned with .

Inflation targeting refers to conducting policy so as to commit the central bank to achieving a .

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

Firms that participate in regular open market transactions with the Federal Reserve are called