Question 1

The Fed can raise the target for the federal funds rate by selling government bonds in the open market.

Accepted Answer

A) True 
 B)False

Question 2

Suppose at present people hold a quantity of money equal to 80% of nominal GDP. What happens to velocity if people wish to increase their money holdings to 85% of nominal GDP?

Accepted Answer

A)  Velocity can increase or decrease depending on people's tastes and preferences toward money. 
B)  Velocity is unaffected. 
C)  Velocity increases. 
D)  Velocity decreases. 
A)  Velocity can increase or decrease depending on people's tastes and preferences toward money. 
B)  Velocity is unaffected. 
C)  Velocity increases. 
D)  Velocity decreases.

Question 3

The impact lag is the time between putting a policy in place and when its effects are felt in the economy.

Accepted Answer

A) True 
 B)False

Question 4

Figure 11-6  
-Refer to Figure 11-6. Suppose the economy is operating at point a. Some people observe that an expansionary monetary policy will increase the money supply and ultimately drive the price level to the equilibrium at

Accepted Answer

A)  d. They rationally adjust their behavior, bypassing the short-run equilibrium at c. 
B)  d. They rationally adjust their behavior, bypassing the short-run equilibrium at b 
C)  b. They rationally adjust their behavior, bypassing the long-run equilibrium at d 
D)  a . They rationally adjust their behavior, bypassing the short-run equilibrium at b 
A)  d. They rationally adjust their behavior, bypassing the short-run equilibrium at c. 
B)  d. They rationally adjust their behavior, bypassing the short-run equilibrium at b 
C)  b. They rationally adjust their behavior, bypassing the long-run equilibrium at d 
D)  a . They rationally adjust their behavior, bypassing the short-run equilibrium at b

Question 5

Suppose money supply (M) = $500, price level (P) = 2, and real GDP (Y) = $1,000. Calculate the value of velocity using the equation of exchange.

Accepted Answer

A)  1 
B)  2 
C)  4 
D)  5 
A)  1 
B)  2 
C)  4 
D)  5

Question 6

Suppose the economy experiences a recessionary gap. Expansionary monetary policy will

Accepted Answer

A)  increase interest rates and increase exchange rates. 
B)  increase interest rates and decrease exchange rates. 
C)  decrease interest rates and increase exchange rates. 
D)  decrease interest rates and decrease exchange rates. 
A)  increase interest rates and increase exchange rates. 
B)  increase interest rates and decrease exchange rates. 
C)  decrease interest rates and increase exchange rates. 
D)  decrease interest rates and decrease exchange rates.

Question 7

The congressional act passed in 1946 that contained the first official statement of goals for economic performance in the United States 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 8

Suppose money supply (M) = $4,000, real GDP (Y) = $30,000, and nominal GDP = $60,000. Calculate the value of velocity and the price level.

Accepted Answer

A)  V = 7.5; P = 2 
B)  V = 15; P = 2 
C)  V = 7.5; P = 0.5 
D)  V = 15; P = 15 
A)  V = 7.5; P = 2 
B)  V = 15; P = 2 
C)  V = 7.5; P = 0.5 
D)  V = 15; P = 15

Question 9

The delay between the time at which an event occurs and the time at which policymakers become aware of it 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 10

If the velocity of money is constant, then nominal GDP can change only if there is a change in the money supply.

Accepted Answer

A) True 
 B)False

Question 11

If nominal GDP = $900 billion and the public holds $300 billion in M2, then the velocity of the M2 money supply is

Accepted Answer

A)  1. 
B)  2. 
C)  3. 
D)  4. 
A)  1. 
B)  2. 
C)  3. 
D)  4.

Question 12

Figure 11-2  
-Refer to Figure 11-2. By shifting the demand curve from D1 to D2, the Fed is exercising

Accepted Answer

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

Question 13

The first official statement of goals for macroeconomic performance in the United States came with the passage of the

Accepted Answer

A)  Federal Reserve Act of 1913. 
B)  Employment Act of 1946. 
C)  Great Depression Act of 1933. 
D)  Full Employment and Balanced Growth Act of 1978. 
A)  Federal Reserve Act of 1913. 
B)  Employment Act of 1946. 
C)  Great Depression Act of 1933. 
D)  Full Employment and Balanced Growth Act of 1978.

Question 14

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). What happens to the interest rate?

Accepted Answer

A)  It increases. 
B)  It decreases. 
C)  It remains unchanged. 
D)  Short-term interest rates will increase but long-term interest rates will decrease. 
A)  It increases. 
B)  It decreases. 
C)  It remains unchanged. 
D)  Short-term interest rates will increase but long-term interest rates will decrease.

Question 15

The time it takes for the Fed or government policymakers to enact policies to correct unemployment or inflation problems is a source of which lag?

Accepted Answer

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

Question 16

Figure 11-6  
-Refer to Figure 11-6. If rational expectations exist and the economy is initially operating at Jpoint d. If the Fed undertakes contractionary monetary policy the economy will

Accepted Answer

A)  spend some time at c with a recessionary gap. 
B)  spend no time at c and move directly to b. 
C)  bypass c and move to a, because the short-run aggregate supply curve shifts to the left. 
D)  bypass c and move to a, because the short-run aggregate supply curve shifts immediately to the right and the economy moves down the long-run aggregate supply curve. 
A)  spend some time at c with a recessionary gap. 
B)  spend no time at c and move directly to b. 
C)  bypass c and move to a, because the short-run aggregate supply curve shifts to the left. 
D)  bypass c and move to a, because the short-run aggregate supply curve shifts immediately to the right and the economy moves down the long-run aggregate supply curve.

Question 17

Suppose the economy experiences a recessionary gap. Expansionary 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 18

The equation of exchange determines the supply of money in the economy.

Accepted Answer

A) True 
 B)False

Question 19

The recognition lag is the length of time it takes between recognizing a problem and adopting a policy to address that problem.

Accepted Answer

A) True 
 B)False

Question 20

On October 12, 1987, the Dow Jones Industrial Average plunged 508 points, wiping out more than $500 billion in a few hours. How did the Fed respond to this drastic fall in the stock market index?

Accepted Answer

A)  The Fed responded precisely as it did when faced with a similar situation in 1929, that is, it deemed that no action was necessary. 
B)  To encourage the business community to invest in the stock market, the Fed announced that it will sell federal securities to raise the interest rate. 
C)  In an attempt to ward off a recession, the Fed announced that it will provide adequate liquidity, by buying federal securities. 
D)  The Fed provided long-term loans to those corporations that experienced significant decreases in their stock value. 
A)  The Fed responded precisely as it did when faced with a similar situation in 1929, that is, it deemed that no action was necessary. 
B)  To encourage the business community to invest in the stock market, the Fed announced that it will sell federal securities to raise the interest rate. 
C)  In an attempt to ward off a recession, the Fed announced that it will provide adequate liquidity, by buying federal securities. 
D)  The Fed provided long-term loans to those corporations that experienced significant decreases in their stock value.

The Fed can raise the target for the federal funds rate by selling government bonds in the open market.

Suppose at present people hold a quantity of money equal to 80% of nominal GDP. What happens to velocity if people wish to increase their money holdings to 85% of nominal GDP?

The impact lag is the time between putting a policy in place and when its effects are felt in the economy.

Figure 11-6 -Refer to Figure 11-6. Suppose the economy is operating at point a. Some people observe that an expansionary monetary policy will increase the money supply and ultimately drive the price level to the equilibrium at

Suppose money supply (M) = $500, price level (P) = 2, and real GDP (Y) = $1,000. Calculate the value of velocity using the equation of exchange.

Suppose the economy experiences a recessionary gap. Expansionary monetary policy will

The congressional act passed in 1946 that contained the first official statement of goals for economic performance in the United States was the

Suppose money supply (M) = $4,000, real GDP (Y) = $30,000, and nominal GDP = $60,000. Calculate the value of velocity and the price level.

The delay between the time at which an event occurs and the time at which policymakers become aware of it is called

If the velocity of money is constant, then nominal GDP can change only if there is a change in the money supply.

If nominal GDP = $900 billion and the public holds $300 billion in M2, then the velocity of the M2 money supply is

Figure 11-2 -Refer to Figure 11-2. By shifting the demand curve from D₁ to D₂, the Fed is exercising

The first official statement of goals for macroeconomic performance in the United States came with the passage of the

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). What happens to the interest rate?

The time it takes for the Fed or government policymakers to enact policies to correct unemployment or inflation problems is a source of which lag?

Figure 11-6 -Refer to Figure 11-6. If rational expectations exist and the economy is initially operating at Jpoint d. If the Fed undertakes contractionary monetary policy the economy will

Suppose the economy experiences a recessionary gap. Expansionary monetary policy will

The equation of exchange determines the supply of money in the economy.

The recognition lag is the length of time it takes between recognizing a problem and adopting a policy to address that problem.

On October 12, 1987, the Dow Jones Industrial Average plunged 508 points, wiping out more than $500 billion in a few hours. How did the Fed respond to this drastic fall in the stock market index?

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

The Fed can raise the target for the federal funds rate by selling government bonds in the open market.

Suppose at present people hold a quantity of money equal to 80% of nominal GDP. What happens to velocity if people wish to increase their money holdings to 85% of nominal GDP?

The impact lag is the time between putting a policy in place and when its effects are felt in the economy.

Figure 11-6 -Refer to Figure 11-6. Suppose the economy is operating at point a. Some people observe that an expansionary monetary policy will increase the money supply and ultimately drive the price level to the equilibrium at

Suppose money supply (M) = $500, price level (P) = 2, and real GDP (Y) = $1,000. Calculate the value of velocity using the equation of exchange.

Suppose the economy experiences a recessionary gap. Expansionary monetary policy will

The congressional act passed in 1946 that contained the first official statement of goals for economic performance in the United States was the

Suppose money supply (M) = $4,000, real GDP (Y) = $30,000, and nominal GDP = $60,000. Calculate the value of velocity and the price level.

The delay between the time at which an event occurs and the time at which policymakers become aware of it is called

If the velocity of money is constant, then nominal GDP can change only if there is a change in the money supply.

If nominal GDP = $900 billion and the public holds $300 billion in M2, then the velocity of the M2 money supply is

Figure 11-2 -Refer to Figure 11-2. By shifting the demand curve from D1 to D2, the Fed is exercising

The first official statement of goals for macroeconomic performance in the United States came with the passage of the

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). What happens to the interest rate?

The time it takes for the Fed or government policymakers to enact policies to correct unemployment or inflation problems is a source of which lag?

Figure 11-6 -Refer to Figure 11-6. If rational expectations exist and the economy is initially operating at Jpoint d. If the Fed undertakes contractionary monetary policy the economy will

Suppose the economy experiences a recessionary gap. Expansionary monetary policy will

The equation of exchange determines the supply of money in the economy.

The recognition lag is the length of time it takes between recognizing a problem and adopting a policy to address that problem.

On October 12, 1987, the Dow Jones Industrial Average plunged 508 points, wiping out more than $500 billion in a few hours. How did the Fed respond to this drastic fall in the stock market index?

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 11-2 -Refer to Figure 11-2. By shifting the demand curve from D₁ to D₂, the Fed is exercising