Question 1

In recent years, a monetary growth rule has fallen out of favor because

Accepted Answer

A)  it is believed that active monetary policy destabilizes the economy and makes the business cycle worse. 
B)  the growth rate of GDP has been highly unstable. 
C)  the close relationship between movements in M1 and movements in real GDP has become weaker. 
D)  the growth rate of M1 has become more stable.

Question 2

Using the Taylor rule, if the current inflation rate equals the target inflation rate and real GDP is greater than potential GDP, then the federal funds target rate ________ the sum of the current inflation rate plus the real equilibrium federal funds rate.

Accepted Answer

A)  will be greater than 
B)  will be less than 
C)  will be the same as 
D)  may be greater than or less than

Question 3

Figure 26-10 
-If the Fed pursues expansionary monetary policy then

Accepted Answer

A)  the money supply will decrease, interest rates will rise and GDP will fall. 
B)  the money supply will decrease, interest rates will fall and GDP will fall. 
C)  the money supply will increase, interest rates will rise and GDP will rise. 
D)  the money supply will increase, interest rates will fall and GDP will rise.

Question 4

Figure 26-16 
-Refer to Figure 26-16. In the figure above, suppose the economy in Year 1 is at point A and expected in Year 2 to be at point B. Which of the following policies could the Federal Reserve use to move the economy to point C?

Accepted Answer

A)  decrease income taxes 
B)  decrease the required-reserve ratio 
C)  buy Treasury bills 
D)  sell Treasury bills

Question 5

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 6

The Taylor rule helps explain the relationship between the Fed's ________ and ________.

Accepted Answer

A)  money supply target; economic conditions 
B)  money supply target; the federal funds target 
C)  federal funds target; the monetary growth rule 
D)  federal funds target; economic conditions

Question 7

Increases in the price level

Accepted Answer

A)  increase the opportunity cost of holding money. 
B)  decrease the opportunity cost of holding money. 
C)  increase the quantity of money needed for buying and selling. 
D)  decrease the quantity of money needed for buying and selling.

Question 8

Suppose the Fed increases the money supply. Which of the following is true?

Accepted Answer

A)  At the original interest rate, the quantity of money demanded is equal to the quantity of money supplied. 
B)  At the original interest rate, the quantity of money demanded is less than the quantity of money supplied. 
C)  At the original interest rate, the quantity of money demanded is greater than the quantity of money supplied. 
D)  The interest rate must rise for the money market to clear.

Question 9

In the following table, fill in the columns for your return on investment if the price of your house increased or decreased by 40 percent, based on the down payments specified in the first column.
Return on Your Investment From

Accepted Answer

The answer of In the following table, fill in the...

Question 10

The goals of monetary policy tend to be interrelated. For example, when the Fed pursues the goal of ________, it also can achieve the goal of ________ simultaneously.

Accepted Answer

A)  high employment; economic growth 
B)  high employment; lowering government spending 
C)  economic growth; a low current account deficit 
D)  stability of financial markets; a low current account deficit

Question 11

Figure 26-14 
-Refer to Figure 26-14. In the figure above, if the economy in Year 1 is at point A and expected in Year 2 to be at point B, then the appropriate monetary policy by the Federal Reserve would be to

Accepted Answer

A)  lower interest rates. 
B)  raise interest rates. 
C)  lower income taxes. 
D)  raise income taxes.

Question 12

To reassure investors who were unwilling to buy mortgages in the secondary market, the U.S. Congress used two government sponsored enterprises, ________, to sell bonds to investors and use the funds to purchase mortgages from banks.

Accepted Answer

A)  the Fed and the Treasury Department 
B)  Fannie Mae and Freddie Mac 
C)  the Securities and Exchange Commission (SE
C)  and the Federal Trade Commission (FT
C)  
D)  ACORN and the Federal Housing Administration (FH
A)

Question 13

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 14

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

Accepted Answer

A) True 
 B)False

Question 15

When calculating GDP, the Bureau of Economic Analysis revises its quarterly data

Accepted Answer

A)  a total of one time. 
B)  a total of two times. 
C)  a total of three times. 
D)  many times over the next several years.

Question 16

Table 26-8
 
-Under the monetary growth rule proposed by the monetarists, the money supply would grow each year at a constant rate equal to the long-run rate of growth of

Accepted Answer

A)  inflation. 
B)  real GDP. 
C)  interest rates. 
D)  employment.

Question 17

Using the Taylor rule, if the current inflation rate equals the target inflation rate and real GDP equals potential GDP, then the federal funds target rate equals the

Accepted Answer

A)  current discount rate. 
B)  current inflation rate. 
C)  real equilibrium federal funds rate. 
D)  current inflation rate plus the real equilibrium federal funds rate.

Question 18

Figure 26-12 
-Refer to Figure 26-12. In the dynamic AD-AS model, if 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 no policy, then at point B

Accepted Answer

A)  firms are producing above capacity. 
B)  there is pressure on wages and prices to fall. 
C)  the unemployment rate is greater than the natural rate of unemployment. 
D)  incomes and profits are falling.

Question 19

Monetary policy is conducted by the U.S. Treasury Department.

Accepted Answer

A) True 
 B)False

Question 20

Figure 26-7 
-Refer to Figure 26-7. Suppose the Fed lowers its target for the federal funds rate. 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)  E to A. 
E)  C to D.

Exam 26: Monetary Policy

In recent years, a monetary growth rule has fallen out of favor because

Using the Taylor rule, if the current inflation rate equals the target inflation rate and real GDP is greater than potential GDP, then the federal funds target rate ________ the sum of the current inflation rate plus the real equilibrium federal funds rate.

Figure 26-10 -If the Fed pursues expansionary monetary policy then

Figure 26-16 -Refer to Figure 26-16. In the figure above, suppose the economy in Year 1 is at point A and expected in Year 2 to be at point B. Which of the following policies could the Federal Reserve use to move the economy to point C?

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

The Taylor rule helps explain the relationship between the Fed's and .

Increases in the price level

Suppose the Fed increases the money supply. Which of the following is true?

In the following table, fill in the columns for your return on investment if the price of your house increased or decreased by 40 percent, based on the down payments specified in the first column. Return on Your Investment From

The goals of monetary policy tend to be interrelated. For example, when the Fed pursues the goal of , it also can achieve the goal of simultaneously.

Figure 26-14 -Refer to Figure 26-14. In the figure above, if the economy in Year 1 is at point A and expected in Year 2 to be at point B, then the appropriate monetary policy by the Federal Reserve would be to

To reassure investors who were unwilling to buy mortgages in the secondary market, the U.S. Congress used two government sponsored enterprises, ________, to sell bonds to investors and use the funds to purchase mortgages from banks.

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

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

When calculating GDP, the Bureau of Economic Analysis revises its quarterly data

Table 26-8 -Under the monetary growth rule proposed by the monetarists, the money supply would grow each year at a constant rate equal to the long-run rate of growth of

Using the Taylor rule, if the current inflation rate equals the target inflation rate and real GDP equals potential GDP, then the federal funds target rate equals the

Figure 26-12 -Refer to Figure 26-12. In the dynamic AD-AS model, if 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 no policy, then at point B

Monetary policy is conducted by the U.S. Treasury Department.

Figure 26-7 -Refer to Figure 26-7. Suppose the Fed lowers its target for the federal funds rate. Using the static AD-AS model in the figure above, this situation would be depicted as a movement from