Question 1

Figure 26-5
 
-Refer to Figure 26-5.Suppose the economy is in a recession and the Fed pursues an expansionary monetary policy.Using the static AD-AS model in the figure above,this would be depicted as a movement from

Accepted Answer

A)   A to B.
B)   B to C.
C)   C to B.
D)   A to E.
E)   C to D.

Question 2

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 are inelastic goods 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 3

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 4

Would the Federal Reserve respond more aggressively with interest rate cuts in a recession caused by a decrease in spending,as in the 2001 recession,than in a recession caused by an increase in oil prices,as in the 1974-75 recession?

Accepted Answer

The inflation rate responds differently ...

Question 5

Figure 26-7
 
-Refer to Figure 26-7.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,the Federal Reserve would most likely

Accepted Answer

A)   increase interest rates.
B)   decrease interest rates.
C)   not change interest rates.
D)   increase the inflation rate.

Question 6

If the amount you owe on your house is greater than the price of the house,you have

Accepted Answer

A)   no value to your house.
B)   a mortgage rate that is too high.
C)   negative equity in your house.
D)   a reverse mortgage on your house.

Question 7

In October 2008,Congress passed the ________,under which the Treasury provided funds to banks in exchange for stock.

Accepted Answer

A)   Bank Rescue Alliance Treaty (BRAT) 
B)   Mortgage Transfer Agency (MT
A)  
C)   Troubled Asset Relief Program (TARP) 
D)   Financial Assurance Association (FA
A)

Question 8

According to the Taylor rule,does the target for the federal funds rate respond differently for an increase in inflation caused by an increase in aggregate demand and for an increase in inflation 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 target for the federal funds rate re...

Question 9

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

Accepted Answer

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

Question 10

An increase in interest rates

Accepted Answer

A)   decreases investment spending on machinery, equipment and factories, but increases consumption spending on durable goods and net exports.
B)   decreases investment spending on machinery, equipment and factories, and consumption spending on durable goods, but increases net exports.
C)   decreases investment spending on machinery, equipment and factories, consumption spending on durable goods, and net exports.
D)   increases investment spending on machinery, equipment and factories, consumption spending on durable goods, and net exports.

Question 11

Which of the following statements about inflation targeting is true?

Accepted Answer

A)   Inflation targeting would not allow the central bank the flexibility to take action against a severe recession.
B)   Inflation targeting has been adopted by the central banks of fewer than five countries.
C)   With changes in leadership over time at the Federal Reserve, inflation targeting could help institutionalize good U.S. monetary policy.
D)   Inflation targeting is practiced strongly in the United States but is ignored in Europe.

Question 12

Suppose that households became mistrustful of the banking system and decide to decrease their checking accounts and increase their holdings of currency.Using the money demand and money supply model and assuming everything else is held constant,the equilibrium interest rate should

Accepted Answer

A)   increase.
B)   decrease.
C)   not change.
D)   increase, then decrease.

Question 13

The money demand curve has a

Accepted Answer

A)   negative slope because an increase in the interest rate decreases the quantity of money demanded.
B)   positive slope because an increase in the interest rate increases the quantity of money demanded.
C)   negative slope because an increase in the price level decreases the quantity of money demanded.
D)   positive slope because an increase in the price level increases the quantity of money demanded.

Question 14

If the Fed orders a contractionary monetary policy,describe what will happen to the following variables relative to what would have happened without the policy:
a.The money supply
b.Interest rates
c.Investment
d.Consumption
e.Net Exports
f.The aggregate demand curve
g.Real GDP
h.The price level

Accepted Answer

a.The money supply decreases
b.Interest ...

Question 15

A financial asset is considered a security if

Accepted Answer

A)   the owner of the security receives dividends and realizes a capital gain when the asset is sold.
B)   it can be sold in a secondary market.
C)   its value increases after it is sold in a primary market.
D)   its value is secure; that is, the owner will not suffer a financial loss when the asset is sold.

Question 16

Using the Taylor rule,if the current inflation rate equals the target inflation rate and real GDP is less 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 17

For purposes of monetary policy,the Federal Reserve has targeted the interest rate known as the

Accepted Answer

A)   federal funds rate.
B)   Treasury bill rate.
C)   discount rate.
D)   prime rate.

Question 18

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 19

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 20

List the Fed's four main monetary goals.

Accepted Answer

1.Price stability
2.High emplo...

Exam 15: Monetary Policy

An increase in interest rates

Correct Answer
verified

A financial asset is considered a security if

Correct Answer
verified

Figure 26-5 -Refer to Figure 26-5.Suppose the economy is in a recession and the Fed pursues an expansionary monetary policy.Using the static AD-AS model in the figure above,this would be depicted as a movement from

Correct Answer
verified

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

Correct Answer
verified

The money demand curve has a

Correct Answer
verified

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

Correct Answer
verified

Figure 26-7 -Refer to Figure 26-7.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,the Federal Reserve would most likely

Correct Answer
verified

Would the Federal Reserve respond more aggressively with interest rate cuts in a recession caused by a decrease in spending,as in the 2001 recession,than in a recession caused by an increase in oil prices,as in the 1974-75 recession?

Correct Answer
verified
The inflation rate responds differently ...
View Answer

Correct Answer
verified
The target for the federal funds rate re...
View Answer

Suppose that households became mistrustful of the banking system and decide to decrease their checking accounts and increase their holdings of currency.Using the money demand and money supply model and assuming everything else is held constant,the equilibrium interest rate should

Correct Answer
verified

If the amount you owe on your house is greater than the price of the house,you have

Correct Answer
verified

If the Fed orders a contractionary monetary policy,describe what will happen to the following variables relative to what would have happened without the policy: a.The money supply b.Interest rates c.Investment d.Consumption e.Net Exports f.The aggregate demand curve g.Real GDP h.The price level

Correct Answer
verified
a.The money supply decreases
b.Interest ...
View Answer

List the Fed's four main monetary goals.

Correct Answer
verified
1.Price stability
2.High emplo...
View Answer

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

For purposes of monetary policy,the Federal Reserve has targeted the interest rate known as the

Correct Answer
verified

Which of the following statements about inflation targeting is true?

Correct Answer
verified

In October 2008,Congress passed the ________,under which the Treasury provided funds to banks in exchange for stock.

Correct Answer
verified

Exam 15: Monetary Policy

An increase in interest rates

Correct AnswerverifiedShow Answer

A financial asset is considered a security if

Correct AnswerverifiedShow Answer

Figure 26-5 -Refer to Figure 26-5.Suppose the economy is in a recession and the Fed pursues an expansionary monetary policy.Using the static AD-AS model in the figure above,this would be depicted as a movement from

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The money demand curve has a

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 26-7 -Refer to Figure 26-7.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,the Federal Reserve would most likely

Correct AnswerverifiedShow Answer

Would the Federal Reserve respond more aggressively with interest rate cuts in a recession caused by a decrease in spending,as in the 2001 recession,than in a recession caused by an increase in oil prices,as in the 1974-75 recession?

Correct AnswerverifiedThe inflation rate responds differently ...View AnswerShow Answer

Correct AnswerverifiedThe target for the federal funds rate re...View AnswerShow Answer

Suppose that households became mistrustful of the banking system and decide to decrease their checking accounts and increase their holdings of currency.Using the money demand and money supply model and assuming everything else is held constant,the equilibrium interest rate should

Correct AnswerverifiedShow Answer

If the amount you owe on your house is greater than the price of the house,you have

Correct AnswerverifiedShow Answer

If the Fed orders a contractionary monetary policy,describe what will happen to the following variables relative to what would have happened without the policy: a.The money supply b.Interest rates c.Investment d.Consumption e.Net Exports f.The aggregate demand curve g.Real GDP h.The price level

Correct Answerverifieda.The money supply decreasesb.Interest ...View AnswerShow Answer

List the Fed's four main monetary goals.

Correct Answerverified1.Price stability2.High emplo...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

For purposes of monetary policy,the Federal Reserve has targeted the interest rate known as the

Correct AnswerverifiedShow Answer

Which of the following statements about inflation targeting is true?

Correct AnswerverifiedShow Answer

In October 2008,Congress passed the ________,under which the Treasury provided funds to banks in exchange for stock.

Correct AnswerverifiedShow Answer

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The inflation rate responds differently ...
View Answer

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The target for the federal funds rate re...
View Answer

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Correct Answer
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a.The money supply decreases
b.Interest ...
View Answer

Correct Answer
verified
1.Price stability
2.High emplo...
View Answer

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

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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