Question 1

Which of the following are policy instruments available to the Fed as it tries to achieve its macroeconomic goals?
I.government expenditures on goods and services and taxes
II.the government budget deficit or surplus
III.changes in the federal funds rate

Accepted Answer

A)  I and II 
B)  III only 
C)  II and III 
D)  II only

Question 2

In the aggregate supply-aggregate demand model, raising the federal funds rate initially

Accepted Answer

A)  increases aggregate demand. 
B)  decreases aggregate demand. 
C)  increases long-run aggregate supply. 
D)  decreases long-run aggregate supply.

Question 3

The Federal Reserve monetary policy goals of maximum employment mean

Accepted Answer

A)  a zero percent unemployment rate. 
B)  a zero percent natural unemployment rate. 
C)  keeping the unemployment rate close to the natural unemployment rate. 
D)  that cyclical unemployment should not necessarily be minimized.

Question 4

Open market purchases by the Fed

Accepted Answer

A)  raise the federal funds rate. 
B)  increase bank reserves. 
C)  occur when the Fed wants to decrease the quantity of money. 
D)  All of the above answers are correct.

Question 5

-In the above figure, suppose that the economy is at point D. Which of the following occurs as a result of an open market purchase of government securities by the Fed?

Accepted Answer

A)  a decrease in the real interest rate 
B)  an increase in exports 
C)  an increase in investment 
D)  All of the above occur.

Question 6

Suppose that the market for reserves is in equilibrium and then the Federal Reserve decreases the quantity of reserves by $2 billion. The federal funds rate will ________ and the supply of loanable funds will ________.

Accepted Answer

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

Question 7

The central bank of Cobra sells securities in an open market operation. In the short run, aggregate demand ________, real GDP ________, and the price level ________.

Accepted Answer

A)  does not change; increases; falls 
B)  decreases; decreases; falls 
C)  increases; increases; rises 
D)  does not change; decreases; rises

Question 8

The Fed lowers the federal funds rate. A mechanism through which aggregate demand increases is that the lower federal funds rate

Accepted Answer

A)  increases other short-term interest rates, which decreases investment, thereby decreasing aggregate demand. 
B)  decreases other short-term interest rate, which decreases investment, thereby increasing aggregate demand. 
C)  raises the exchange rate so that net exports decrease, which increases investment, thereby increasing aggregate demand. 
D)  decreases other short-term interest rates, which increases investment, thereby increasing aggregate demand.

Question 9

When the Fed lowers the federal funds rate

Accepted Answer

A)  consumption expenditures decrease. 
B)  the dollar increases in value on foreign exchange markets. 
C)  net exports decrease. 
D)  investment expenditures increase.

Question 10

The Taylor rule uses three variables to determine the target for the federal funds rate. Which of the following is NOT one of those variables?

Accepted Answer

A)  monetary base 
B)  equilibrium real interest rate 
C)  inflation rate 
D)  output gap

Question 11

In the short run, an increase in the federal funds rate ________ the real interest rate and ________ investment.

Accepted Answer

A)  lowers; increases 
B)  raises; increases 
C)  lowers; decreases 
D)  raises; decreases

Question 12

In the short run, the Federal Reserve faces a tradeoff between

Accepted Answer

A)  economic growth and employment. 
B)  inflation and price stability. 
C)  inflation and unemployment. 
D)  real GDP growth and potential GDP growth.

Question 13

When the Federal Reserve lowers the federal funds rate, in the short run

Accepted Answer

A)  the long-run aggregate supply curve shifts leftward. 
B)  the aggregate demand curve shifts rightward. 
C)  the economy moves along a given aggregate demand curve. 
D)  banks decrease the quantity of loans they make.

Question 14

Which of the following are NOT Federal Reserve monetary policy goals?

Accepted Answer

A)  moderate long-term interest rates 
B)  price level stability 
C)  maximum employment 
D)  zero percent unemployment.

Question 15

In 2012, former Fed Chairman Ben Bernanke said that the Fed's policy had raised real GDP by almost 3 percent. Mr. Bernanke believed that the Fed's policy of keeping the federal funds rate ________ had resulted in an increase in ________.

Accepted Answer

A)  high; aggregate demand 
B)  high; aggregate supply 
C)  low; aggregate demand 
D)  low; aggregate supply

Question 16

The President of the United States is also the chairman of the Federal Reserve.

Accepted Answer

A) True 
 B)False

Question 17

-In the above figure, if the economy is initially at point d, the short-run effect of a cut in the federal funds rate is given by movement from point

Accepted Answer

A)  d to point c, increasing output and decreasing the unemployment rate. 
B)  d to point a, increasing output and decreasing the unemployment rate. 
C)  d to point b, increasing output and decreasing the unemployment rate. 
D)  d to point b, keeping output and the unemployment rate constant.

Question 18

In an AS/AD figure, lowering the federal funds rate initially shifts the

Accepted Answer

A)  AD curve leftward. 
B)  AD curve rightward. 
C)  long-run AS curve leftward. 
D)  long-run AS curve rightward.

Question 19

In the short run, the Fed's actions to fight inflation shift the

Accepted Answer

A)  aggregate demand curve rightward. 
B)  aggregate demand curve leftward. 
C)  short-run aggregate supply curve rightward. 
D)  short-run aggregate supply curve leftward.

Question 20

Describe how open market operations change the quantity of money.

Accepted Answer

The answer of Describe how open market operations change the...

Exam 14: Monetary Policy

Which of the following are policy instruments available to the Fed as it tries to achieve its macroeconomic goals? I.government expenditures on goods and services and taxes II.the government budget deficit or surplus III.changes in the federal funds rate