Question 1

Figure 11-1  
-Refer to Figure 11-1. If the Fed wants to achieve the results shown in Panel (b), it should

Accepted Answer

A)  lower the discount rate. 
B)  decrease margin requirements. 
C)  decrease reserve requirements. 
D)  sell government bonds in the open market. 
A)  lower the discount rate. 
B)  decrease margin requirements. 
C)  decrease reserve requirements. 
D)  sell government bonds in the open market. D

Question 2

The equation of exchange always holds because

Accepted Answer

A)  the quantity of money is determined by the amount of spending on goods and services. 
B)  the quantity of money dictates the size of nominal GDP, since money is a social usage. 
C)  the number of times money is spent to obtain goods and services measures total spending on GDP. 
D)  MV measures total spending on GDP and PY also measures of total spending on GDP. 
A)  the quantity of money is determined by the amount of spending on goods and services. 
B)  the quantity of money dictates the size of nominal GDP, since money is a social usage. 
C)  the number of times money is spent to obtain goods and services measures total spending on GDP. 
D)  MV measures total spending on GDP and PY also measures of total spending on GDP. D

Question 3

When interest rates are near zero and traditional monetary policy is ineffective, the Fed or other central bank may resort to a strategy referred to as quantitative easing. What does this strategy involve?

Accepted Answer

A)  allowing interest rates to rise slowly by providing substantial reserves for as long as is necessary to avoid inflation 
B)  reducing the money supply to raise the interest rates slowly without discouraging spending 
C)  keeping interest rates very low by providing substantial reserves for as long as is necessary to avoid deflation and encourage spending 
D)  increasing the money supply and interest rates at a constant rate to stimulate economic activity 
A)  allowing interest rates to rise slowly by providing substantial reserves for as long as is necessary to avoid inflation 
B)  reducing the money supply to raise the interest rates slowly without discouraging spending 
C)  keeping interest rates very low by providing substantial reserves for as long as is necessary to avoid deflation and encourage spending 
D)  increasing the money supply and interest rates at a constant rate to stimulate economic activity C

Question 4

Figure 11-3  
-Refer to Figure 11-3. By shifting the supply curve from S1 to S2, the Fed is attempting to

Accepted Answer

A)  expand the economy by increasing interest rates. 
B)  contract the economy by increasing interest rates. 
C)  contract the economy by decreasing interest rates. 
D)  expand the economy by decreasing interest rates. 
A)  expand the economy by increasing interest rates. 
B)  contract the economy by increasing interest rates. 
C)  contract the economy by decreasing interest rates. 
D)  expand the economy by decreasing interest rates.

Question 5

What is velocity of money?

Accepted Answer

A)  It is the number of times households convert bonds to money to facilitate economic transactions. 
B)  It is the rate at which money supply is spent to obtain the goods and services that make up GDP during a particular time period. 
C)  It is the rate at which money supply can grow while keeping the price level stable. 
D)  It is the number of times the money supply is spent to obtain the goods and services that make up GDP during a particular time period. 
A)  It is the number of times households convert bonds to money to facilitate economic transactions. 
B)  It is the rate at which money supply is spent to obtain the goods and services that make up GDP during a particular time period. 
C)  It is the rate at which money supply can grow while keeping the price level stable. 
D)  It is the number of times the money supply is spent to obtain the goods and services that make up GDP during a particular time period.

Question 6

Figure 11-1  
-Refer to Figure 11-1. If the Fed wants to achieve the results shown in Panel (a), it should

Accepted Answer

A)  raise the discount rate. 
B)  increase reserve requirements. 
C)  sell government bonds in the open market. 
D)  buy government bonds in the open market. 
A)  raise the discount rate. 
B)  increase reserve requirements. 
C)  sell government bonds in the open market. 
D)  buy government bonds in the open market.

Question 7

Figure 11-5  
-Refer to Figure 11-5. If the economy is at point c, the Federal Reserve can close the output gap by buying bonds. In the bond market,

Accepted Answer

A)  the supply curve shifts right, leading to a decrease in bond prices and an increase in interest rates. 
B)  the demand curve shifts right, leading to an increase in bond prices and a decrease in interest rates. 
C)  the supply curve shifts left, leading to an increase in bond prices and an increase in interest rates. 
D)  the demand curve shifts left, leading to a decrease in bond prices and an increase in interest rates. 
A)  the supply curve shifts right, leading to a decrease in bond prices and an increase in interest rates. 
B)  the demand curve shifts right, leading to an increase in bond prices and a decrease in interest rates. 
C)  the supply curve shifts left, leading to an increase in bond prices and an increase in interest rates. 
D)  the demand curve shifts left, leading to a decrease in bond prices and an increase in interest rates.

Question 8

If the economy experiences an inflationary gap, a contractionary monetary policy will

Accepted Answer

A)  increase real GDP and increase the price level. 
B)  increase real GDP and decrease the price level. 
C)  decrease real GDP and increase the price level. 
D)  decrease real GDP and decrease the price level. 
A)  increase real GDP and increase the price level. 
B)  increase real GDP and decrease the price level. 
C)  decrease real GDP and increase the price level. 
D)  decrease real GDP and decrease the price level.

Question 9

Suppose money supply (M) = $500, real GDP (Y) = $1,000, and nominal GDP = $5,000. Calculate the value of velocity and the price level.

Accepted Answer

A)  V = 2; P = 1 
B)  V = 4; P = 5 
C)  V = 10; P = 5 
D)  V = 10; P = 1 
A)  V = 2; P = 1 
B)  V = 4; P = 5 
C)  V = 10; P = 5 
D)  V = 10; P = 1

Question 10

The delay between the time a policy is enacted and the time the policy has its effect on the economy is called

Accepted Answer

A)  the impact lag. 
B)  the implementation lag. 
C)  the government lag. 
D)  the recognition lag. 
A)  the impact lag. 
B)  the implementation lag. 
C)  the government lag. 
D)  the recognition lag.

Question 11

The Case in Point titled "Velocity and the Confederacy" suggests that during the Civil War, the South faced

Accepted Answer

A)  hyperinflation and rising velocity. 
B)  hyperinflation and falling velocity. 
C)  deflation and rising velocity. 
D)  deflation and falling velocity. 
A)  hyperinflation and rising velocity. 
B)  hyperinflation and falling velocity. 
C)  deflation and rising velocity. 
D)  deflation and falling velocity.

Question 12

If the Fed purchases federal government bonds on the open market, bank reserves will

Accepted Answer

A)  decrease leading to a decrease in the money supply. 
B)  increase leading to a decrease in the money supply. 
C)  increase leading to an increase in the money supply. 
D)  decrease leading to an increase in the money supply. 
A)  decrease leading to a decrease in the money supply. 
B)  increase leading to a decrease in the money supply. 
C)  increase leading to an increase in the money supply. 
D)  decrease leading to an increase in the money supply.

Question 13

When the Fed sells bonds in the open market, in the product market (the aggregate demand- aggregate supply model),

Accepted Answer

A)  real GDP will fall and the price level will rise. 
B)  real GDP and the price level will rise. 
C)  real GDP and the price level will fall. 
D)  real GDP will rise and the price level will fall. 
A)  real GDP will fall and the price level will rise. 
B)  real GDP and the price level will rise. 
C)  real GDP and the price level will fall. 
D)  real GDP will rise and the price level will fall.

Question 14

Figure 11-5  
-Refer to Figure 11-5. If the economy is at point c, the Federal Reserve can close the output gap

Accepted Answer

A)  by pursuing an expansionary monetary policy to raise the interest rate and increase short-run aggregate supply. 
B)  by pursuing a contractionary monetary policy to drive down the interest rate and increase aggregate demand. 
C)  by pursuing an expansionary monetary policy to drive down the interest rate and increase aggregate demand. 
D)  by pursuing a contractionary monetary policy to raise the interest rate and short-run aggregate supply. 
A)  by pursuing an expansionary monetary policy to raise the interest rate and increase short-run aggregate supply. 
B)  by pursuing a contractionary monetary policy to drive down the interest rate and increase aggregate demand. 
C)  by pursuing an expansionary monetary policy to drive down the interest rate and increase aggregate demand. 
D)  by pursuing a contractionary monetary policy to raise the interest rate and short-run aggregate supply.

Question 15

The Employment Act of 1946 was an outgrowth of the Great Depression.

Accepted Answer

A) True 
 B)False

Question 16

When the Fed buys government bonds, bank reserves fall.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following factors may cause velocity to fluctuate? 
I. changes in interest rates
II. changes in expectations about inflation
III. changes in expectations about bond prices
IV. an increase in the number of financial products that affects the demand for money

Accepted Answer

A)  I, II, III, and IV 
B)  I, II, and III 
C)  I, III, and IV 
D)  I and II 
A)  I, II, III, and IV 
B)  I, II, and III 
C)  I, III, and IV 
D)  I and II

Question 18

When the Fed lowers the target rate of interest for federal funds, it

Accepted Answer

A)  buys government bonds. 
B)  lowers the discount rate. 
C)  sells government bonds. 
D)  lowers the required reserve ratio. 
A)  buys government bonds. 
B)  lowers the discount rate. 
C)  sells government bonds. 
D)  lowers the required reserve ratio.

Question 19

Figure 11-1  
-Refer to Figure 11-1. Suppose the Fed takes action that shifts the demand curve from S to S′, as illustrated in Panel (b). As a result, the interest rate

Accepted Answer

A)  increases and investment increases. 
B)  increases and investment decreases. 
C)  decreases and investment increases. 
D)  decreases and investment decreases. 
A)  increases and investment increases. 
B)  increases and investment decreases. 
C)  decreases and investment increases. 
D)  decreases and investment decreases.

Question 20

Which of the following statements about the structure of the Fed is an advantage from the perspective of conducting monetary policy?

Accepted Answer

A)  The two policymaking bodies of the Fed are deliberately large to allow for different viewpoints and they work very closely with other political institutions. 
B)  The two policymaking bodies of the Fed are deliberately large to allow for different viewpoints and they work relatively independently of other political institutions. 
C)  The two policymaking bodies of the Fed are small to allow deliberations in private and they work relatively independently of other political institutions. 
D)  The two policymaking bodies of the Fed are small to allow members to work closely with other political institutions. 
A)  The two policymaking bodies of the Fed are deliberately large to allow for different viewpoints and they work very closely with other political institutions. 
B)  The two policymaking bodies of the Fed are deliberately large to allow for different viewpoints and they work relatively independently of other political institutions. 
C)  The two policymaking bodies of the Fed are small to allow deliberations in private and they work relatively independently of other political institutions. 
D)  The two policymaking bodies of the Fed are small to allow members to work closely with other political institutions.

Figure 11-1 -Refer to Figure 11-1. If the Fed wants to achieve the results shown in Panel (b), it should

The equation of exchange always holds because

When interest rates are near zero and traditional monetary policy is ineffective, the Fed or other central bank may resort to a strategy referred to as quantitative easing. What does this strategy involve?

Figure 11-3 -Refer to Figure 11-3. By shifting the supply curve from S₁ to S₂, the Fed is attempting to

What is velocity of money?

Figure 11-1 -Refer to Figure 11-1. If the Fed wants to achieve the results shown in Panel (a), it should

Figure 11-5 -Refer to Figure 11-5. If the economy is at point c, the Federal Reserve can close the output gap by buying bonds. In the bond market,

If the economy experiences an inflationary gap, a contractionary monetary policy will

Suppose money supply (M) = $500, real GDP (Y) = $1,000, and nominal GDP = $5,000. Calculate the value of velocity and the price level.

The delay between the time a policy is enacted and the time the policy has its effect on the economy is called

The Case in Point titled "Velocity and the Confederacy" suggests that during the Civil War, the South faced

If the Fed purchases federal government bonds on the open market, bank reserves will

When the Fed sells bonds in the open market, in the product market (the aggregate demand- aggregate supply model),

Figure 11-5 -Refer to Figure 11-5. If the economy is at point c, the Federal Reserve can close the output gap

The Employment Act of 1946 was an outgrowth of the Great Depression.

When the Fed buys government bonds, bank reserves fall.

Which of the following factors may cause velocity to fluctuate? I. changes in interest rates II. changes in expectations about inflation III. changes in expectations about bond prices IV. an increase in the number of financial products that affects the demand for money

When the Fed lowers the target rate of interest for federal funds, it

Figure 11-1 -Refer to Figure 11-1. Suppose the Fed takes action that shifts the demand curve from S to S′, as illustrated in Panel (b). As a result, the interest rate

Which of the following statements about the structure of the Fed is an advantage from the perspective of conducting monetary policy?

Economics: the Study of Choice

Demand and Supply

Applications of Demand and Supply

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Financial Markets and the Economy

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Economic Development

Socialist Economies in Transition

Filters

Exam 11: Monetary Policy and the Fed

Figure 11-1 -Refer to Figure 11-1. If the Fed wants to achieve the results shown in Panel (b), it should

The equation of exchange always holds because

When interest rates are near zero and traditional monetary policy is ineffective, the Fed or other central bank may resort to a strategy referred to as quantitative easing. What does this strategy involve?

Figure 11-3 -Refer to Figure 11-3. By shifting the supply curve from S1 to S2, the Fed is attempting to

What is velocity of money?

Figure 11-1 -Refer to Figure 11-1. If the Fed wants to achieve the results shown in Panel (a), it should

Figure 11-5 -Refer to Figure 11-5. If the economy is at point c, the Federal Reserve can close the output gap by buying bonds. In the bond market,

If the economy experiences an inflationary gap, a contractionary monetary policy will

Suppose money supply (M) = $500, real GDP (Y) = $1,000, and nominal GDP = $5,000. Calculate the value of velocity and the price level.

The delay between the time a policy is enacted and the time the policy has its effect on the economy is called

The Case in Point titled "Velocity and the Confederacy" suggests that during the Civil War, the South faced

If the Fed purchases federal government bonds on the open market, bank reserves will

When the Fed sells bonds in the open market, in the product market (the aggregate demand- aggregate supply model),

Figure 11-5 -Refer to Figure 11-5. If the economy is at point c, the Federal Reserve can close the output gap

The Employment Act of 1946 was an outgrowth of the Great Depression.

When the Fed buys government bonds, bank reserves fall.

Which of the following factors may cause velocity to fluctuate? I. changes in interest rates II. changes in expectations about inflation III. changes in expectations about bond prices IV. an increase in the number of financial products that affects the demand for money

When the Fed lowers the target rate of interest for federal funds, it

Figure 11-1 -Refer to Figure 11-1. Suppose the Fed takes action that shifts the demand curve from S to S′, as illustrated in Panel (b). As a result, the interest rate

Which of the following statements about the structure of the Fed is an advantage from the perspective of conducting monetary policy?

Economics: the Study of Choice

Demand and Supply

Applications of Demand and Supply

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Financial Markets and the Economy

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Economic Development

Socialist Economies in Transition

Filters

Figure 11-3 -Refer to Figure 11-3. By shifting the supply curve from S₁ to S₂, the Fed is attempting to