Question 1

Changes in interest rates affect all four components of aggregate demand.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Using the Taylor rule,if the current inflation rate exceeds the target inflation rate and real GDP exceeds 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 4

If the probability of losing your job remains ________,a recession would be a good time to purchase a home because the Fed usually ________ interest rates during this time.

Accepted Answer

A)   low; lowers
B)   low; raises
C)   high; lowers
D)   high; raises
E)   low; does not change

Question 5

The monetary policy target the Federal Reserve focuses primarily on today is

Accepted Answer

A)   the unemployment rate.
B)   M1.
C)   the inflation rate.
D)   the interest rate.
E)   M2.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

The Federal Reserve does not target both the money supply and an interest rate because

Accepted Answer

A)   it would be too confusing to Wall Street and would disrupt the financial markets.
B)   it would be too easy for Wall Street to determine what policy the Fed is following and this would destabilize the economy.
C)   it would be illegal according to the Federal Reserve Act.
D)   the Fed cannot achieve a target for both the money supply and an interest rate at the same time.

Question 8

If the Federal Reserve raises or lowers interest rates too late,it could result in a ________ policy that destabilizes the economy.

Accepted Answer

A)   fiscal
B)   budgetary
C)   procyclical
D)   countercylical

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Which of the following will lead to a decrease in the equilibrium interest rate in the economy?

Accepted Answer

A)   an increase in the price level
B)   a sale of government securities by the Fed
C)   a decrease in GDP
D)   an increase in the discount rate
E)   an increase in the reserve requirement

Question 11

Using the money demand and money supply model,an increase in money demand would cause the equilibrium interest rate to

Accepted Answer

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

Question 12

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 13

Refer to Figure 26-5.Suppose the Fed sells Treasury Bills in pursuit of contractionary monetary policy.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 D.
C)   C to B.
D)   B to C.
E)   C to D.

Question 14

An increase in the interest rate

Accepted Answer

A)   decreases the opportunity cost of holding money.
B)   increases the opportunity cost of holding money.
C)   decreases the percentage yield of holding money.
D)   increases the percentage yield of holding money.

Question 15

The larger the fraction of an investment financed by borrowing,

Accepted Answer

A)   the greater the potential return and potential loss on that investment.
B)   the smaller the potential return and potential loss on that investment.
C)   the greater the potential return and the smaller the potential loss on that investment.
D)   the smaller the potential return and the greater the potential loss on that investment.

Question 16

Which of the following would most likely induce the Federal Reserve to conduct expansionary monetary policy? A significant decrease in

Accepted Answer

A)   oil prices.
B)   business taxes.
C)   income tax rates.
D)   investment spending.

Question 17

Using the money demand and money supply model,show and explain why the Federal Reserve cannot achieve a target for both the money supply and an interest rate.

Accepted Answer

The Fed does not control money demand,so...

Question 18

Since World War II,the Federal Reserve has not been involved in carrying out monetary policy.

Accepted Answer

A) True 
 B)False

Question 19

An increase in the interest rate causes

Accepted Answer

A)   a movement up along the money demand curve.
B)   a movement down along the money demand curve.
C)   the money demand curve to shift to the left.
D)   the money demand curve to shift to the right.

Question 20

Figure 26-6
 
-Refer to Figure 26-6.In the dynamic model of AD-AS in the figure above,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)   decrease the inflation rate.

Exam 15: Monetary Policy

Using the money demand and money supply model,show and explain why the Federal Reserve cannot achieve a target for both the money supply and an interest rate.

Correct AnswerverifiedThe Fed does not control money demand,so...View AnswerShow Answer

The monetary policy target the Federal Reserve focuses primarily on today is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An increase in the interest rate

Correct AnswerverifiedShow Answer

Since World War II,the Federal Reserve has not been involved in carrying out monetary policy.

Correct AnswerverifiedShow Answer

Which of the following will lead to a decrease in the equilibrium interest rate in the economy?

Correct AnswerverifiedShow Answer

Using the money demand and money supply model,an increase in money demand would cause the equilibrium interest rate to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Refer to Figure 26-5.Suppose the Fed sells Treasury Bills in pursuit of contractionary monetary policy.Using the static AD-AS model in the figure above,this situation would be depicted as a movement from

Correct AnswerverifiedShow Answer

If the Federal Reserve raises or lowers interest rates too late,it could result in a ________ policy that destabilizes the economy.

Correct AnswerverifiedShow Answer

Using the Taylor rule,if the current inflation rate exceeds the target inflation rate and real GDP exceeds 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

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

Correct AnswerverifiedShow Answer

Figure 26-6 -Refer to Figure 26-6.In the dynamic model of AD-AS in the figure above,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

The Federal Reserve does not target both the money supply and an interest rate because

Correct AnswerverifiedShow Answer

An increase in the interest rate causes

Correct AnswerverifiedShow Answer

Changes in interest rates affect all four components of aggregate demand.

Correct AnswerverifiedShow Answer

If the probability of losing your job remains ________,a recession would be a good time to purchase a home because the Fed usually ________ interest rates during this time.

Correct AnswerverifiedShow Answer

Which of the following would most likely induce the Federal Reserve to conduct expansionary monetary policy? A significant decrease in

Correct AnswerverifiedShow Answer

The larger the fraction of an investment financed by borrowing,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
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The Fed does not control money demand,so...
View Answer

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

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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If the probability of losing your job remains ,a recession would be a good time to purchase a home because the Fed usually interest rates during this time.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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