Question 1

A monetary policy target is a variable that

Accepted Answer

A)   the Fed can affect directly.
B)   equals one of the Fed's main policy goals.
C)   the Fed has no ability to change.
D)   the Fed cannot affect directly.

Question 2

Which of the following describes what the Fed would do to pursue an expansionary monetary policy?

Accepted Answer

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

Question 3

The argument advanced by Milton Friedman for adopting a monetary growth rule is that

Accepted Answer

A)   active monetary policy potentially destabilizes the economy.
B)   the Fed can control the money supply, but not the level of interest rates.
C)   a constant rate of growth in the money supply would eliminate the booms and recessions that make up the business cycle.
D)   the growth rate of M1 has been unstable.

Question 4

The Fed's two main monetary policy targets are

Accepted Answer

A)   the money supply and the inflation rate.
B)   the money supply and the interest rate.
C)   the interest rate and real GDP.
D)   the inflation rate and real GDP.

Question 5

Suppose that the Federal Reserve Open Market Committee adheres to the ideas expressed by ________.If the economy moves into a recession,the Fed would recommend that the federal funds target rate decrease as long as the inflation rate did not rise above the publicly announced goal for inflation.

Accepted Answer

A)   the gold standard
B)   the monetarist school of thought
C)   inflation targeting
D)   the Taylor Rule

Question 6

In 2008,the Treasury and Federal Reserve took several actions in response to the deepening financial crisis.One action was that the Fed announced it would loan up to $200 billion of Treasury securities in exchange for

Accepted Answer

A)   stock.
B)   mortgage-backed securities.
C)   corporate bonds.
D)   required bank reserves.

Question 7

Your income will increase if the Federal Reserve buys a Treasury bill from you and pays you with a check from the Fed.

Accepted Answer

A) True 
 B)False

Question 8

An increase in the interest rate should

Accepted Answer

A)   increase investment spending.
B)   decrease consumption spending.
C)   increase government spending.
D)   increase net exports.

Question 9

Give an example of a monetary policy target.Explain why the Fed uses policy targets.

Accepted Answer

One possible monetary target is the mone...

Question 10

Suppose you buy a house for $250,000.One year later,the market price for the house has fallen to $200,000.What is the return on your investment in the house if you made a down payment of 10 percent and took out a mortgage loan for the other 90 percent?

Accepted Answer

The market price has fallen by $50,000,s...

Question 11

Figure 17-8
 
-Refer to Figure 17-8.In the figure above,if the economy is at point A,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

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 13

Your roommate is having trouble grasping how monetary policy works.Which of the following explanations could you use to correctly describe the mechanism by which the Fed can affect the economy through monetary policy? Increasing the money supply

Accepted Answer

A)   lowers the interest rate, and firms increase investment spending.
B)   causes people to spend more because they know prices will rise in the future.
C)   raises the interest rate and consumers decrease spending on durable goods.
D)   lowers the interest rate, raises the value of the dollar, lowers the prices of exports, and raises net exports.

Question 14

The relationship between GDP and the money supply has gotten stronger since the 1980s.

Accepted Answer

A) True 
 B)False

Question 15

From an initial long-run macroeconomic equilibrium,if the Federal Reserve anticipated that next year aggregate demand would grow significantly faster than long-run aggregate supply,then the Federal Reserve would most likely

Accepted Answer

A)   increase income tax rates.
B)   decrease income tax rates.
C)   increase interest rates.
D)   decrease interest rates.

Question 16

Rising prices erode the value of money as a ________ and as a ________.

Accepted Answer

A)   unit of barter; unit of account
B)   store of value; unit of liquidity
C)   medium of exchange; store of value
D)   store of value; unit of barter

Question 17

The Fed can simultaneously reduce the inflation rate and stimulate growth through lowering interest rates.

Accepted Answer

A) True 
 B)False

Question 18

Use the dynamic aggregate demand and aggregate supply model and start with Year 1 in long-run macroeconomic equilibrium.For Year 2,graph aggregate demand,long-run aggregate supply,and short-run aggregate supply such that the condition of the economy will induce the Federal Reserve to conduct an expansionary monetary policy.Briefly explain the condition of the economy and what the Federal Reserve is attempting to do.

Accepted Answer

The Federal Reserve conducts an expansio...

Question 19

A decrease in real GDP can

Accepted Answer

A)   shift money demand to the right and decrease the interest rate.
B)   shift money demand to the right and increase the interest rate.
C)   shift money demand to the left and decrease the interest rate.
D)   shift money demand to the left and increase the interest rate.

Question 20

The dynamic aggregate demand and aggregate supply model accounts for the price level rising every year.

Accepted Answer

A) True 
 B)False

Exam 17: Monetary Policy

Your income will increase if the Federal Reserve buys a Treasury bill from you and pays you with a check from the Fed.

Correct Answer
verified

A decrease in real GDP can

Correct Answer
verified

In 2008,the Treasury and Federal Reserve took several actions in response to the deepening financial crisis.One action was that the Fed announced it would loan up to $200 billion of Treasury securities in exchange for

Correct Answer
verified

Correct Answer
verified
The Federal Reserve conducts an expansio...
View Answer

A monetary policy target is a variable that

Correct Answer
verified

The Fed's two main monetary policy targets are

Correct Answer
verified

Rising prices erode the value of money as a and as a .

Correct Answer
verified

Which of the following describes what the Fed would do to pursue an expansionary monetary policy?

Correct Answer
verified

The Fed can simultaneously reduce the inflation rate and stimulate growth through lowering interest rates.

Correct Answer
verified

From an initial long-run macroeconomic equilibrium,if the Federal Reserve anticipated that next year aggregate demand would grow significantly faster than long-run aggregate supply,then the Federal Reserve would most likely

Correct Answer
verified

The relationship between GDP and the money supply has gotten stronger since the 1980s.

Correct Answer
verified

Figure 17-8 -Refer to Figure 17-8.In the figure above,if the economy is at point A,the appropriate monetary policy by the Federal Reserve would be to

Correct Answer
verified

An increase in the interest rate should

Correct Answer
verified

Suppose that the Federal Reserve Open Market Committee adheres to the ideas expressed by ________.If the economy moves into a recession,the Fed would recommend that the federal funds target rate decrease as long as the inflation rate did not rise above the publicly announced goal for inflation.

Correct Answer
verified

Give an example of a monetary policy target.Explain why the Fed uses policy targets.

Correct Answer
verified
One possible monetary target is the mone...
View Answer

Your roommate is having trouble grasping how monetary policy works.Which of the following explanations could you use to correctly describe the mechanism by which the Fed can affect the economy through monetary policy? Increasing the money supply

Correct Answer
verified

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

Correct Answer
verified

The dynamic aggregate demand and aggregate supply model accounts for the price level rising every year.

Correct Answer
verified

The argument advanced by Milton Friedman for adopting a monetary growth rule is that

Correct Answer
verified

Suppose you buy a house for $250,000.One year later,the market price for the house has fallen to $200,000.What is the return on your investment in the house if you made a down payment of 10 percent and took out a mortgage loan for the other 90 percent?

Correct Answer
verified
The market price has fallen by $50,000,s...
View Answer

Exam 17: Monetary Policy

Your income will increase if the Federal Reserve buys a Treasury bill from you and pays you with a check from the Fed.

Correct AnswerverifiedShow Answer

A decrease in real GDP can

Correct AnswerverifiedShow Answer

In 2008,the Treasury and Federal Reserve took several actions in response to the deepening financial crisis.One action was that the Fed announced it would loan up to $200 billion of Treasury securities in exchange for

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe Federal Reserve conducts an expansio...View AnswerShow Answer

A monetary policy target is a variable that

Correct AnswerverifiedShow Answer

The Fed's two main monetary policy targets are

Correct AnswerverifiedShow Answer

Rising prices erode the value of money as a ________ and as a ________.

Correct AnswerverifiedShow Answer

Which of the following describes what the Fed would do to pursue an expansionary monetary policy?

Correct AnswerverifiedShow Answer

The Fed can simultaneously reduce the inflation rate and stimulate growth through lowering interest rates.

Correct AnswerverifiedShow Answer

From an initial long-run macroeconomic equilibrium,if the Federal Reserve anticipated that next year aggregate demand would grow significantly faster than long-run aggregate supply,then the Federal Reserve would most likely

Correct AnswerverifiedShow Answer

The relationship between GDP and the money supply has gotten stronger since the 1980s.

Correct AnswerverifiedShow Answer

Figure 17-8 -Refer to Figure 17-8.In the figure above,if the economy is at point A,the appropriate monetary policy by the Federal Reserve would be to

Correct AnswerverifiedShow Answer

An increase in the interest rate should

Correct AnswerverifiedShow Answer

Suppose that the Federal Reserve Open Market Committee adheres to the ideas expressed by ________.If the economy moves into a recession,the Fed would recommend that the federal funds target rate decrease as long as the inflation rate did not rise above the publicly announced goal for inflation.

Correct AnswerverifiedShow Answer

Give an example of a monetary policy target.Explain why the Fed uses policy targets.

Correct AnswerverifiedOne possible monetary target is the mone...View AnswerShow Answer

Your roommate is having trouble grasping how monetary policy works.Which of the following explanations could you use to correctly describe the mechanism by which the Fed can affect the economy through monetary policy? Increasing the money supply

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The dynamic aggregate demand and aggregate supply model accounts for the price level rising every year.

Correct AnswerverifiedShow Answer

The argument advanced by Milton Friedman for adopting a monetary growth rule is that

Correct AnswerverifiedShow Answer

Suppose you buy a house for $250,000.One year later,the market price for the house has fallen to $200,000.What is the return on your investment in the house if you made a down payment of 10 percent and took out a mortgage loan for the other 90 percent?

Correct AnswerverifiedThe market price has fallen by $50,000,s...View AnswerShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The Federal Reserve conducts an expansio...
View Answer

Correct Answer
verified

Correct Answer
verified

Rising prices erode the value of money as a and as a .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
One possible monetary target is the mone...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The market price has fallen by $50,000,s...
View Answer