Question 1

The price of a bond is equal to:

Accepted Answer

A)   future payment / (1 - interest rate) .
B)   future payment / (1 + interest rate) .
C)   past value / (1 - interest rate) .
D)   past value / (1 + interest rate) .

Question 2

The amount of time it takes a given policy action to bring about a change in the state of the economy is called the:

Accepted Answer

A)   outside lag.
B)   inside lag.
C)   stabilization lag.
D)   external lag.

Question 3

Figure 14.5
-Refer to Figure 14.5. Assume the interest rate equals 8% and the money supply decreases from  to  If the interest rate remains at 8% :

Accepted Answer

A)   there will be an excess demand for money.
B)   money demand will decrease.
C)   money demand will increase.
D)   there will be an excess supply of money.

Question 4

The _______ the interest rate, the _______ the opportunity cost of holding money, and the _______ money people will want to hold.

Accepted Answer

A)   lower; higher; less
B)   higher, higher, less
C)   lower; lower; less
D)   higher; higher; more

Question 5

Explain why the Fed does not often choose to use the discount rate to control the money supply.

Accepted Answer

The Fed does not choose the discount rat...

Question 6

If the Fed reduces the money supply to reduce inflation:

Accepted Answer

A)   the interest rate will increase, and the price of U.S. exports will rise and the price of U.S. imports will fall.
B)   the interest rate will increase, and the price of U.S. exports and U.S. imports will fall.
C)   the interest rate will increase, and the price of both U.S. exports and U.S. imports will rise.
D)   the interest rate will increase, and the price of U.S. exports will fall and the price of U.S. imports will rise. A

Question 7

The speculative demand for money is:

Accepted Answer

A)   positively related to income.
B)   negatively related to the interest rate.
C)   negatively related to income.
D)   positively related to the interest rate.

Question 8

Figure 14.1
-Refer to Figure 14.1. A movement from Point A to Point D can be caused by:

Accepted Answer

A)   a decrease in the interest rate.
B)   a decrease in the price level.
C)   an increase in income.
D)   an increase in the interest rate.

Question 9

A decrease in the required reserve ratio:

Accepted Answer

A)   will decrease the money supply.
B)   will decrease the discount rate.
C)   will not change the money supply.
D)   will increase the money supply. D

Question 10

Assume the money market is initially in equilibrium. Now, suppose that the price level falls. Graphically illustrate and explain what effect this reduction in the aggregate price level will have on the money market.

Accepted Answer

The reduction in the price level will ca...

Question 11

In terms of the demand for money, the interest rate is:

Accepted Answer

A)   the rate at which current consumption can be exchanged for future consumption.
B)   the opportunity cost of holding money.
C)   the price of borrowing money.
D)   the return on money that is saved for the future.

Question 12

d D)  keep Ms constant" class="answers-bank-image d-inline" rel="preload" > Figure 14.4
-Refer to Figure 14.4. If the Fed wants to reduce the economy's market interest rate from 6 percent to 4 percent, it needs to _______.

Accepted Answer

A)   buy government bonds
B)   sell government bonds
C)   increase Md 
D)   keep Ms constant

Question 13

All else constant, if the economy in experiences a deflation, then:

Accepted Answer

A)   the quantity demanded for money increases.
B)   the quantity demanded for money decreases.
C)   demand for money increases.
D)   demand for money decreases.

Question 14

For a given interest rate, a higher level of output means an increase in the number of transactions and an increase in the demand for money.

Accepted Answer

A) True 
 B)False

Question 15

What will happen to the equilibrium interest rate when both the money supply and real GDP decrease?

Accepted Answer

A)   The equilibrium interest rate decreases.
B)   The equilibrium interest rate remains constant.
C)   The impact on the equilibrium interest rate is ambiguous.
D)   The equilibrium interest rate increases.

Question 16

When the Fed conducts open market sales, the:

Accepted Answer

A)   commercial banks sell bonds to the private sector.
B)   Fed buys bonds from the private sector.
C)   Fed sells bonds to the private sector.
D)   commercial banks sell bonds to the Fed.

Question 17

Because the Fed can meet anytime in addition to the 8 scheduled meetings every year, and because the Fed can implement policy changes during any of these meetings, it follows that:

Accepted Answer

A)   the Fed's inside lag is very short.
B)   the Fed's outside lag is shorter than the inside lag.
C)   the Fed's inside lag is equally as long as the outside lag.
D)   the Fed's outside lag is very short. A

Question 18

All else constant, if the GDP in an economy decreases then:

Accepted Answer

A)   demand for money increases.
B)   the quantity demanded for money increases.
C)   demand for money decreases.
D)   the quantity demanded for money decreases.

Question 19

Excess supply in the money market causes:

Accepted Answer

A)   an increase in the demand for money.
B)   a decrease in the money supply.
C)   an increase in the equilibrium interest rate.
D)   a decrease in the equilibrium interest rate.

Question 20

When the economy is in a recession and the stock market plunges, the interest rates _______ and the bond prices _______ .

Accepted Answer

A)   increase; increase
B)   decrease; increase
C)   decrease; decrease
D)   increase; decrease

Exam 14: The Federal Reserve and Monetary Policy

The price of a bond is equal to:

Correct AnswerverifiedShow Answer

The amount of time it takes a given policy action to bring about a change in the state of the economy is called the:

Correct AnswerverifiedShow Answer

Figure 14.5 -Refer to Figure 14.5. Assume the interest rate equals 8% and the money supply decreases from to If the interest rate remains at 8% :

Correct AnswerverifiedShow Answer

The _______ the interest rate, the _______ the opportunity cost of holding money, and the _______ money people will want to hold.

Correct AnswerverifiedShow Answer

Explain why the Fed does not often choose to use the discount rate to control the money supply.

Correct AnswerverifiedThe Fed does not choose the discount rat...View AnswerShow Answer

If the Fed reduces the money supply to reduce inflation:

Correct AnswerverifiedA

The speculative demand for money is:

Correct AnswerverifiedShow Answer

Figure 14.1 -Refer to Figure 14.1. A movement from Point A to Point D can be caused by:

Correct AnswerverifiedShow Answer

A decrease in the required reserve ratio:

Correct AnswerverifiedD

Assume the money market is initially in equilibrium. Now, suppose that the price level falls. Graphically illustrate and explain what effect this reduction in the aggregate price level will have on the money market.

Correct AnswerverifiedThe reduction in the price level will ca...View AnswerShow Answer

In terms of the demand for money, the interest rate is:

Correct AnswerverifiedShow Answer

Figure 14.4 -Refer to Figure 14.4. If the Fed wants to reduce the economy's market interest rate from 6 percent to 4 percent, it needs to _______.

Correct AnswerverifiedShow Answer

All else constant, if the economy in experiences a deflation, then:

Correct AnswerverifiedShow Answer

For a given interest rate, a higher level of output means an increase in the number of transactions and an increase in the demand for money.

Correct AnswerverifiedShow Answer

What will happen to the equilibrium interest rate when both the money supply and real GDP decrease?

Correct AnswerverifiedShow Answer

When the Fed conducts open market sales, the:

Correct AnswerverifiedShow Answer

Because the Fed can meet anytime in addition to the 8 scheduled meetings every year, and because the Fed can implement policy changes during any of these meetings, it follows that:

Correct AnswerverifiedA

All else constant, if the GDP in an economy decreases then:

Correct AnswerverifiedShow Answer

Excess supply in the money market causes:

Correct AnswerverifiedShow Answer

When the economy is in a recession and the stock market plunges, the interest rates _______ and the bond prices _______ .

Correct AnswerverifiedShow Answer

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The ___ the interest rate, the _ the opportunity cost of holding money, and the _____ money people will want to hold.

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The Fed does not choose the discount rat...
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A

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D

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The reduction in the price level will ca...
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A

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When the economy is in a recession and the stock market plunges, the interest rates _ and the bond prices _ .

Correct Answer
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