Question 1

When the Fed buys bonds in the open market, we can expect

Accepted Answer

A)  investment and net exports to rise. 
B)  investment will rise and net exports to fall. 
C)  investment will fall and net exports to rise. 
D)  investment and net exports fall. 
A)  investment and net exports to rise. 
B)  investment will rise and net exports to fall. 
C)  investment will fall and net exports to rise. 
D)  investment and net exports fall.

Question 2

The lag between the time at which a policy is put in place and the time that policy affects the economy is called

Accepted Answer

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

Question 3

If inflation is a threat, then the Fed will be expected to engage in

Accepted Answer

A)  expansionary monetary policy. 
B)  contractionary monetary policy. 
C)  policies to increase the money supply. 
D)  policies to lower the rate of interest. 
A)  expansionary monetary policy. 
B)  contractionary monetary policy. 
C)  policies to increase the money supply. 
D)  policies to lower the rate of interest.

Question 4

The shortest of the three lags for monetary policy is

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 5

The major tools of monetary policy available to the Federal Reserve System are

Accepted Answer

A)  reserve requirements, margin regulations, and moral suasion. 
B)  reserve requirements, open-market operations, and the discount rate. 
C)  open-market operations, margin regulations, and moral suasion. 
D)  the discount rate, margin regulations, and moral suasion. 
A)  reserve requirements, margin regulations, and moral suasion. 
B)  reserve requirements, open-market operations, and the discount rate. 
C)  open-market operations, margin regulations, and moral suasion. 
D)  the discount rate, margin regulations, and moral suasion.

Question 6

Which of the following equations correctly describes the quantity equation in terms of percentage rate of change? ∆ means "change in."

Accepted Answer

A)  % ∆M ÷ % ∆V = % ∆P * % ∆Y 
B)  % ∆M + % ∆V = % ∆P + % ∆Y 
C)  % ∆M ÷ % ∆V = % ∆Y ÷ % ∆P 
D)  % ∆M * % ∆V = % ∆P * % ∆Y 
A)  % ∆M ÷ % ∆V = % ∆P * % ∆Y 
B)  % ∆M + % ∆V = % ∆P + % ∆Y 
C)  % ∆M ÷ % ∆V = % ∆Y ÷ % ∆P 
D)  % ∆M * % ∆V = % ∆P * % ∆Y

Question 7

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

Accepted Answer

A)  expansionary monetary policy in order to lower interest rates. 
B)  expansionary monetary policy in order to increase interest rates. 
C)  contractionary monetary policy in order to increase interest rates. 
D)  contractionary monetary policy in order to lower interest rates. 
A)  expansionary monetary policy in order to lower interest rates. 
B)  expansionary monetary policy in order to increase interest rates. 
C)  contractionary monetary policy in order to increase interest rates. 
D)  contractionary monetary policy in order to lower interest rates.

Question 8

The Fed is structured as an agency of the executive branch, with the Chairman of the Fed answering directly to the President.

Accepted Answer

A) True 
 B)False

Question 9

Holding all else constant, higher interest rates in the United States would

Accepted Answer

A)  decrease the demand for U.S. dollars in the foreign exchange market. In turn, this will lead to a decrease in the exchange rate, and subsequently, U.S. net exports would rise. 
B)  increase the demand for U.S. dollars in the foreign exchange market. In turn, this will lead to an increase in the exchange rate, and subsequently, U.S. net exports would fall. 
C)  increase the demand for U.S. dollars in the foreign exchange market. In turn, this will lead to a decrease in the exchange rate, and subsequently, U.S. net exports would rise. 
D)  decrease the demand for U.S. dollars in the foreign exchange market. In turn, this will lead to an increase in the exchange rate, and subsequently, U.S. net exports would fall. 
A)  decrease the demand for U.S. dollars in the foreign exchange market. In turn, this will lead to a decrease in the exchange rate, and subsequently, U.S. net exports would rise. 
B)  increase the demand for U.S. dollars in the foreign exchange market. In turn, this will lead to an increase in the exchange rate, and subsequently, U.S. net exports would fall. 
C)  increase the demand for U.S. dollars in the foreign exchange market. In turn, this will lead to a decrease in the exchange rate, and subsequently, U.S. net exports would rise. 
D)  decrease the demand for U.S. dollars in the foreign exchange market. In turn, this will lead to an increase in the exchange rate, and subsequently, U.S. net exports would fall.

Question 10

The equation of exchange states that

Accepted Answer

A)  saving equals investment. 
B)  gross domestic product equals the money supply multiplied by its velocity. 
C)  increases in money supply cause decreases in velocity. 
D)  increases in money supply cause increases in velocity. 
A)  saving equals investment. 
B)  gross domestic product equals the money supply multiplied by its velocity. 
C)  increases in money supply cause decreases in velocity. 
D)  increases in money supply cause increases in velocity.

Question 11

Figure 11-6  
-Refer to Figure 11-6. Suppose the economy is operating at point a and that individuals have rational expectations. They calculate that expansionary monetary policy

Accepted Answer

A)  will raise the price level to Pd; and they adjust their expectations and wage demands shifting the short-run aggregate supply curve to AS2.  
B)  will raise the price level to Pc; and they adjust their expectations and wage demands shifting the short-run aggregate supply curve to AS2. 
C)  will raise the price level to Pb; and they adjust their expectations and wage demands shifting the short-run aggregate supply curve to AS1. 
D)  will keep the price level at Pa; and the short-run aggregate supply curve at AS1. 
A)  will raise the price level to Pd; and they adjust their expectations and wage demands shifting the short-run aggregate supply curve to AS2.  
B)  will raise the price level to Pc; and they adjust their expectations and wage demands shifting the short-run aggregate supply curve to AS2. 
C)  will raise the price level to Pb; and they adjust their expectations and wage demands shifting the short-run aggregate supply curve to AS1. 
D)  will keep the price level at Pa; and the short-run aggregate supply curve at AS1.

Question 12

In an economy experiencing hyperinflation, we expect to observe

Accepted Answer

A)  an increase in the demand for money and an increase in velocity. 
B)  an increase in the demand for money and a reduction in velocity. 
C)  a decrease in the demand for money and an increase in velocity. 
D)  a decrease in the demand for money and a reduction in velocity. 
A)  an increase in the demand for money and an increase in velocity. 
B)  an increase in the demand for money and a reduction in velocity. 
C)  a decrease in the demand for money and an increase in velocity. 
D)  a decrease in the demand for money and a reduction in velocity.

Question 13

Contractionary monetary policy, achieved by selling bonds in the open market, tends to discourage investment.

Accepted Answer

A) True 
 B)False

Question 14

The equation of exchange can be stated as M = (V * P)/Y.

Accepted Answer

A) True 
 B)False

Question 15

What are the two policy making bodies of the Federal Reserve?

Accepted Answer

A)  the Board of Governors and the U.S. Congress 
B)  the Board of Governors and the Federal Open Market Committee 
C)  the Board of Governors and the Presidents' office 
D)  the Federal Open Market Committee and the U.S. Congress 
A)  the Board of Governors and the U.S. Congress 
B)  the Board of Governors and the Federal Open Market Committee 
C)  the Board of Governors and the Presidents' office 
D)  the Federal Open Market Committee and the U.S. Congress

Question 16

The congressional act that established the U.S. central banking system in 1913 was the

Accepted Answer

A)  Federal Reserve Act. 
B)  Gramm-Rudman Act. 
C)  Employment Act. 
D)  Humphrey-Hawkins Act. 
A)  Federal Reserve Act. 
B)  Gramm-Rudman Act. 
C)  Employment Act. 
D)  Humphrey-Hawkins Act.

Question 17

Figure 11-4  
-Refer to Figure 11-4. If a nonintervention policy were adopted in Panel (a),

Accepted Answer

A)  the aggregate demand curve would have eventually shifted as shown. 
B)  the short-run aggregate supply curve would have eventually shifted to the left and restored full employment. 
C)  the short-run aggregate supply curve would have eventually shifted to the right and restored full employment. 
D)  both the aggregate demand curve and the short-run aggregate supply curve would have eventually shifted to the left. 
A)  the aggregate demand curve would have eventually shifted as shown. 
B)  the short-run aggregate supply curve would have eventually shifted to the left and restored full employment. 
C)  the short-run aggregate supply curve would have eventually shifted to the right and restored full employment. 
D)  both the aggregate demand curve and the short-run aggregate supply curve would have eventually shifted to the left.

Question 18

If people wished to hold a quantity of money equal to 80% of nominal GDP, the velocity of money would be

Accepted Answer

A)  1.00. 
B)  1.25. 
C)  1.50. 
D)  1.75. 
A)  1.00. 
B)  1.25. 
C)  1.50. 
D)  1.75.

Question 19

Suppose the public holds $200 billion in M2 and the velocity of the M2 money supply is 5. What is the value of nominal GDP?

Accepted Answer

A)  $500. 
B)  $1,000. 
C)  $1,500. 
D)  That information cannot be determined. 
A)  $500. 
B)  $1,000. 
C)  $1,500. 
D)  That information cannot be determined.

Question 20

If velocity is constant, which of the following results flow from the quantity equation?

Accepted Answer

A)  Nominal GDP could change only if there were a change in the money supply. 
B)  In the short run, nominal GDP could change only if there were a change in the money supply and in the long run, nominal GDP could change only if there were a change in the money supply. 
C)  In the short run, nominal GDP could change only if there were a change in the money supply but in the long run, nominal GDP is affected by changes in any component of GDP. 
D)  In the short run, nominal GDP is affected by changes in any component of GDP but in the long run, nominal GDP could change only if there were a change in the money supply. 
A)  Nominal GDP could change only if there were a change in the money supply. 
B)  In the short run, nominal GDP could change only if there were a change in the money supply and in the long run, nominal GDP could change only if there were a change in the money supply. 
C)  In the short run, nominal GDP could change only if there were a change in the money supply but in the long run, nominal GDP is affected by changes in any component of GDP. 
D)  In the short run, nominal GDP is affected by changes in any component of GDP but in the long run, nominal GDP could change only if there were a change in the money supply.

When the Fed buys bonds in the open market, we can expect

The lag between the time at which a policy is put in place and the time that policy affects the economy is called

If inflation is a threat, then the Fed will be expected to engage in

The shortest of the three lags for monetary policy is

The major tools of monetary policy available to the Federal Reserve System are

Which of the following equations correctly describes the quantity equation in terms of percentage rate of change? ∆ means "change in."

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

The Fed is structured as an agency of the executive branch, with the Chairman of the Fed answering directly to the President.

Holding all else constant, higher interest rates in the United States would

The equation of exchange states that

Figure 11-6 -Refer to Figure 11-6. Suppose the economy is operating at point a and that individuals have rational expectations. They calculate that expansionary monetary policy

In an economy experiencing hyperinflation, we expect to observe

Contractionary monetary policy, achieved by selling bonds in the open market, tends to discourage investment.

The equation of exchange can be stated as M = (V * P)/Y.

What are the two policy making bodies of the Federal Reserve?

The congressional act that established the U.S. central banking system in 1913 was the

Figure 11-4 -Refer to Figure 11-4. If a nonintervention policy were adopted in Panel (a),

If people wished to hold a quantity of money equal to 80% of nominal GDP, the velocity of money would be

Suppose the public holds $200 billion in M2 and the velocity of the M2 money supply is 5. What is the value of nominal GDP?

If velocity is constant, which of the following results flow from the quantity equation?

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

When the Fed buys bonds in the open market, we can expect

The lag between the time at which a policy is put in place and the time that policy affects the economy is called

If inflation is a threat, then the Fed will be expected to engage in

The shortest of the three lags for monetary policy is

The major tools of monetary policy available to the Federal Reserve System are

Which of the following equations correctly describes the quantity equation in terms of percentage rate of change? ∆ means "change in."

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

The Fed is structured as an agency of the executive branch, with the Chairman of the Fed answering directly to the President.

Holding all else constant, higher interest rates in the United States would

The equation of exchange states that

Figure 11-6 -Refer to Figure 11-6. Suppose the economy is operating at point a and that individuals have rational expectations. They calculate that expansionary monetary policy

In an economy experiencing hyperinflation, we expect to observe

Contractionary monetary policy, achieved by selling bonds in the open market, tends to discourage investment.

The equation of exchange can be stated as M = (V * P)/Y.

What are the two policy making bodies of the Federal Reserve?

The congressional act that established the U.S. central banking system in 1913 was the

Figure 11-4 -Refer to Figure 11-4. If a nonintervention policy were adopted in Panel (a),

If people wished to hold a quantity of money equal to 80% of nominal GDP, the velocity of money would be

Suppose the public holds $200 billion in M2 and the velocity of the M2 money supply is 5. What is the value of nominal GDP?

If velocity is constant, which of the following results flow from the quantity equation?

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 exercising