Question 1

The money demand curve,against possible levels of interest rates,has a

Accepted Answer

A) positive slope. 
B) negative slope. 
C) zero slope. 
D) positive slope for low levels of money demand,a negative slope for high levels of money demand.

Question 2

If the Fed raises its target for the federal fund rate,this indicates that

Accepted Answer

A) the Fed is pursuing an expansionary monetary policy. 
B) the Fed is pursuing a contractionary monetary policy. 
C) the Fed is attempting to combat deflation. 
D) The Fed is concerned that the growth in aggregate demand is too slow to keep up with potential GDP.

Question 3

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 4

The core personal consumption expenditures price index excludes

Accepted Answer

A) food and energy prices. 
B) food and housing prices. 
C) energy and housing prices. 
D) housing and health care prices.

Question 5

In response to already low interest rates doing little to stimulate the economy,the Fed announced a new program in September 2011 under which it would purchase long-term Treasury securities while selling an equal amount of shorter-term Treasury securities.This policy was known as

Accepted Answer

A) inflation targeting. 
B) Operation Twist. 
C) securities-bubble deflating. 
D) quantitative easing.

Question 6

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 7

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 8

Figure 15-9 
-Refer to Figure 15-9.In the figure above suppose the economy is initially at point A.The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by the Federal Reserve?

Accepted Answer

A) a decrease in income taxes 
B) an increase in the required reserve ratio 
C) an open market purchase of Treasury bills 
D) an open market sale of Treasury bills

Question 9

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 10

When calculating GDP,the Bureau of Economic Analysis releases its "advanced estimate" of a quarter's GDP approximately

Accepted Answer

A) three months before the quarter has ended. 
B) one month after the quarter has ended. 
C) three months after the quarter has ended. 
D) one year after the quarter has ended.

Question 11

Figure 15-7 
-Refer to Figure 15-7.Suppose the economy is in a recession and no policy is pursued.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 A. 
C) C to B. 
D) A to E. 
E) C to D.

Question 12

When the Fed decided to buy long-term Treasury securities while selling an equal amount of shorter-term treasury securities to keep long-term interest rates low,it was following a strategy known as

Accepted Answer

A) securitization. 
B) operation twist. 
C) quantitative easing. 
D) indirect finance.

Question 13

When Congress established the Federal Reserve in 1913,what was its main responsibility? When did Congress broaden the Fed's responsibilities?

Accepted Answer

The answer of When Congress established the Federal Reserve in...

Question 14

An increase in the price level causes

Accepted Answer

A) the money demand curve to shift to the left. 
B) the money demand curve to shift to the right. 
C) a movement up along the money demand curve. 
D) a movement down along the money demand curve.

Question 15

If the Fed's policy is contractionary,it will

Accepted Answer

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

Question 16

Firms that participate in regular open market transactions with ________ are called primary dealers.

Accepted Answer

A) commercial banks 
B) Treasury banks 
C) the Federal Reserve 
D) mortgage lenders

Question 17

In which of the following situations would the Fed conduct contractionary monetary policy?

Accepted Answer

A) The Fed believes that aggregate demand was growing too slowly to keep up with potential GDP. 
B) The Fed fears that unemployment is climbing above the natural rate. 
C) The Fed is concerned that aggregate demand would continue to exceed the growth in potential GDP. 
D) The Fed is worried that deflation will become a problem.

Question 18

When the Federal Reserve increases the money supply,people spend more because they now have more money.

Accepted Answer

A) True 
 B)False

Question 19

The money demand curve has a negative slope because

Accepted Answer

A) lower interest rates cause households and firms to switch from money to financial assets. 
B) lower interest rates cause households and firms to switch from financial assets to money. 
C) lower interest rates cause households and firms to switch from money to stocks. 
D) lower interest rates cause households and firms to switch from money to bonds.

Question 20

Figure 15-2 
-Refer to Figure 15-2.In the figure above,the movement from point A to point B in the money market would be caused by

Accepted Answer

A) an increase in the price level. 
B) a decrease in real GDP. 
C) an open market sale of Treasury securities by the Federal Reserve. 
D) a decrease in the required reserve ratio by the Federal Reserve.

Exam 15: Monetary Policy