Question 1

If the output gap is negative, then the Federal Reserve will use its floor framework to _____ the federal funds rate, influence short- and long-term interest rates _____, and _____ total spending in the economy.

Accepted Answer

A)  lower; downward; decrease
B)  lower; downward; increase
C)  raise; upward; increase
D)  raise; upward; decrease

Question 2

_____ target is the goal set by the Fed for the _____ rate and uses monetary policy to hit that goal.

Accepted Answer

A)  Inflation; inflation
B)  Inflation; inflation.
C)  Inflation; unemployment
D)  Inflation; unemployment.
E)  Nominal GDP; inflation.F) Nominal GDP; inflationG) Nominal GDP; unemployment.H) Nominal GDP; unemployment

Question 3

You are the manager of a local bank. Due to unstable financial conditions, savers are worried that your bank may fail. When they show up in large numbers to withdraw their savings, you find that you do not have enough cash to meet the obligations. Where can you turn for a loan if no other bank will lend to you?

Accepted Answer

A)  The bond markets
B)  The market for overnight loans
C)  The discount window
D)  The stock market

Question 4

If unemployment is below its sustainable level, then the economy is:

Accepted Answer

A)  experiencing below normal growth rates.
B)  operating above capacity, and inflation will likely rise.
C)  operating below capacity, and inflation will likely fall.
D)  at potential GDP, and inflation is at its target level.

Question 5

In what way can the Federal Reserve's lender-of-last-resort function actually lead to more financial chaos?

Accepted Answer

A)  It encourages businesses to engage in risky projects.
B)  It undermines monetary policy.
C)  It can lead to banks taking increased risks.
D)  The public may expect increased bank failures.

Question 6

If the output gap is positive, then relative to the neutral interest rate, the Federal Reserve will _____ the real interest rate to drive _____ consumption and investment.

Accepted Answer

A)  raise; down
B)  raise; up
C)  lower; down
D)  lower; up

Question 7

Forward guidance occurs when the Federal Reserve:

Accepted Answer

A)  provides information about the future course of monetary policy in order to influence expectations about future interest rates.
B)  follows the same future course of monetary policy that it has been following in the past.
C)  carries out open market operations to influence future interest rates.
D)  provides information about current monetary policy in order to influence expectations about future interest rates.

Question 8

You are the Chair of the Federal Reserve Bank of the United States. The neutral rate of interest is 2%, the inflation rate is 3%, and the output gap is 1%. Using the Fed's rule of thumb, what is the appropriate new nominal federal funds rate that you should set for the economy?

Accepted Answer

A)  6.5%
B)  3.5%
C)  3%
D)  4.5%

Question 9

When was the Federal Reserve created?

Accepted Answer

A)  after the Great Depression
B)  1776
C)  1918
D)  1913

Question 10

Suppose that the Federal Reserve has a 2% target on inflation. If actual inflation is 1%, then the Fed will want the new real interest rate to be:

Accepted Answer

A)  higher than the neutral interest rate.
B)  lower than the neutral interest rate.
C)  equal to the inflation rate.
D)  equal to the neutral interest rate.

Question 11

In a recessionary situation, we expect the Federal Open Market Committee (FOMC)  to _____ interest rates to _____ spending today.

Accepted Answer

A)  lower; reduce
B)  lower; induce
C)  raise; reduce
D)  raise; induce

Question 12

Commercial banks:

Accepted Answer

A)  are equivalent to Federal Reserve district banks.
B)  offer services, such as checking accounts, to the general public.
C)  are banks that sell stock in the Federal Reserve.
D)  serve only commercial businesses and not the general public.

Question 13

The Federal Open Market Committee (FOMC)  is made up of:

Accepted Answer

A)  the Fed governors and the Fed district bank presidents.
B)  the chair of the Fed and the New York Fed bank president.
C)  the Fed governors, the New York Fed president, and a rotating group of four other district bank presidents.
D)  12 members of Congress.

Question 14

You are the Chair of the Federal Reserve Bank of the United States. The neutral rate of interest is 2%, the inflation rate is 3.5%, and the output gap is 1%. Using the Fed's rule of thumb, what is the appropriate new nominal federal funds rate that you should set for the economy?

Accepted Answer

The answer of You are the Chair of the Federal...

Question 15

List four factors that the Federal Reserve takes into consideration when choosing the new interest rate.

Accepted Answer

The answer of List four factors that the Federal Reserve...

Question 16

The neutral interest rate is the rate at which:

Accepted Answer

A)  macroeconomic equilibrium has been reached.
B)  the zero bound has been reached.
C)  real interest rates equal nominal interest rates.
D)  the output gap is equal to zero.

Question 17

Critics of the Federal Reserve have accused the Fed of using the 2% inflation target as a ceiling. What does this mean?

Accepted Answer

A)  The Fed ensures inflation does not rise above 2% instead of allowing inflation to fluctuate around 2%.
B)  The Fed ensures unemployment is unable to fall below 2%.
C)  The Fed ensures the real interest rate does not rise above 2% instead of allowing the real interest rate to fluctuate around 2%.
D)  The Fed ensures inflation does not fall below 2% instead of allowing inflation to fluctuate around 2%.

Question 18

Bowing to political pressures, a central bank decides to print money. What can this scenario lead to?

Accepted Answer

A)  inflation
B)  deflation
C)  high economic growth
D)  higher credit ratings for the country's bonds

Question 19

Explain how the Federal Reserve would use its four tools to lower the federal funds rate.

Accepted Answer

The answer of Explain how the Federal Reserve would use...

Question 20

Monetary policy is defined as the:

Accepted Answer

A)  change of the tax code to achieve economic changes.
B)  adjustment of interest rates to influence economic conditions.
C)  change in government spending to change economic conditions.
D)  implementation of ceilings on the federal funds rate in the economy.

Exam 34: Monetary Policy

Suppose that the Federal Reserve has a 2% target on inflation. If actual inflation is 1%, then the Fed will want the new real interest rate to be:

Correct Answer
verified

You are the Chair of the Federal Reserve Bank of the United States. The neutral rate of interest is 2%, the inflation rate is 3.5%, and the output gap is 1%. Using the Fed's rule of thumb, what is the appropriate new nominal federal funds rate that you should set for the economy?

Correct Answer
verified

Monetary policy is defined as the:

Correct Answer
verified

In what way can the Federal Reserve's lender-of-last-resort function actually lead to more financial chaos?

Correct Answer
verified

_ target is the goal set by the Fed for the _ rate and uses monetary policy to hit that goal.

Correct Answer
verified

Critics of the Federal Reserve have accused the Fed of using the 2% inflation target as a ceiling. What does this mean?

Correct Answer
verified

If unemployment is below its sustainable level, then the economy is:

Correct Answer
verified

The Federal Open Market Committee (FOMC) is made up of:

Correct Answer
verified

The neutral interest rate is the rate at which:

Correct Answer
verified

In a recessionary situation, we expect the Federal Open Market Committee (FOMC) to _ interest rates to _ spending today.

Correct Answer
verified

Correct Answer
verified

You are the Chair of the Federal Reserve Bank of the United States. The neutral rate of interest is 2%, the inflation rate is 3%, and the output gap is 1%. Using the Fed's rule of thumb, what is the appropriate new nominal federal funds rate that you should set for the economy?

Correct Answer
verified

Explain how the Federal Reserve would use its four tools to lower the federal funds rate.

Correct Answer
verified

Forward guidance occurs when the Federal Reserve:

Correct Answer
verified

If the output gap is negative, then the Federal Reserve will use its floor framework to ___ the federal funds rate, influence short- and long-term interest rates _, and ___ total spending in the economy.

Correct Answer
verified

When was the Federal Reserve created?

Correct Answer
verified

If the output gap is positive, then relative to the neutral interest rate, the Federal Reserve will _ the real interest rate to drive _ consumption and investment.

Correct Answer
verified

Bowing to political pressures, a central bank decides to print money. What can this scenario lead to?

Correct Answer
verified

List four factors that the Federal Reserve takes into consideration when choosing the new interest rate.

Correct Answer
verified

Commercial banks:

Correct Answer
verified

Exam 34: Monetary Policy

Suppose that the Federal Reserve has a 2% target on inflation. If actual inflation is 1%, then the Fed will want the new real interest rate to be:

Correct AnswerverifiedShow Answer

You are the Chair of the Federal Reserve Bank of the United States. The neutral rate of interest is 2%, the inflation rate is 3.5%, and the output gap is 1%. Using the Fed's rule of thumb, what is the appropriate new nominal federal funds rate that you should set for the economy?

Correct AnswerverifiedShow Answer

Monetary policy is defined as the:

Correct AnswerverifiedShow Answer

In what way can the Federal Reserve's lender-of-last-resort function actually lead to more financial chaos?

Correct AnswerverifiedShow Answer

_____ target is the goal set by the Fed for the _____ rate and uses monetary policy to hit that goal.

Correct AnswerverifiedShow Answer

Critics of the Federal Reserve have accused the Fed of using the 2% inflation target as a ceiling. What does this mean?

Correct AnswerverifiedShow Answer

If unemployment is below its sustainable level, then the economy is:

Correct AnswerverifiedShow Answer

The Federal Open Market Committee (FOMC) is made up of:

Correct AnswerverifiedShow Answer

The neutral interest rate is the rate at which:

Correct AnswerverifiedShow Answer

In a recessionary situation, we expect the Federal Open Market Committee (FOMC) to _____ interest rates to _____ spending today.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

You are the Chair of the Federal Reserve Bank of the United States. The neutral rate of interest is 2%, the inflation rate is 3%, and the output gap is 1%. Using the Fed's rule of thumb, what is the appropriate new nominal federal funds rate that you should set for the economy?

Correct AnswerverifiedShow Answer

Explain how the Federal Reserve would use its four tools to lower the federal funds rate.

Correct AnswerverifiedShow Answer

Forward guidance occurs when the Federal Reserve:

Correct AnswerverifiedShow Answer

If the output gap is negative, then the Federal Reserve will use its floor framework to _____ the federal funds rate, influence short- and long-term interest rates _____, and _____ total spending in the economy.

Correct AnswerverifiedShow Answer

When was the Federal Reserve created?

Correct AnswerverifiedShow Answer

If the output gap is positive, then relative to the neutral interest rate, the Federal Reserve will _____ the real interest rate to drive _____ consumption and investment.

Correct AnswerverifiedShow Answer

Bowing to political pressures, a central bank decides to print money. What can this scenario lead to?

Correct AnswerverifiedShow Answer

List four factors that the Federal Reserve takes into consideration when choosing the new interest rate.

Correct AnswerverifiedShow Answer

Commercial banks:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

_ target is the goal set by the Fed for the _ rate and uses monetary policy to hit that goal.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

In a recessionary situation, we expect the Federal Open Market Committee (FOMC) to _ interest rates to _ spending today.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

If the output gap is negative, then the Federal Reserve will use its floor framework to ___ the federal funds rate, influence short- and long-term interest rates _, and ___ total spending in the economy.

Correct Answer
verified

Correct Answer
verified

If the output gap is positive, then relative to the neutral interest rate, the Federal Reserve will _ the real interest rate to drive _ consumption and investment.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified