Question 1

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

Accepted Answer

A)  buying bonds in the open market which decreases the money supply. 
B)  selling bonds in the open market which decreases the money supply. 
C)  buying bonds in the open market which increases the money supply. 
D)  selling bonds in the open market which increases the money supply. 
A)  buying bonds in the open market which decreases the money supply. 
B)  selling bonds in the open market which decreases the money supply. 
C)  buying bonds in the open market which increases the money supply. 
D)  selling bonds in the open market which increases the money supply.

Question 2

Figure 11-4  
-Refer to Figure 11-4. The shift in the demand for bonds from D1 to D2, in Panel (b) will result in a

Accepted Answer

A)  lower interest rate and no change in investment. 
B)  higher interest rate and lower investment. 
C)  lower interest rate and higher investment. 
D)  higher interest rate and higher investment. 
A)  lower interest rate and no change in investment. 
B)  higher interest rate and lower investment. 
C)  lower interest rate and higher investment. 
D)  higher interest rate and higher investment.

Question 3

Which of the following statements is true about velocity?

Accepted Answer

A)  In the short run, velocity varies but in the long run, velocity is relatively constant. 
B)  In the short run, velocity is relatively constant but in the long run, velocity varies. 
C)  Velocity is relatively constant in the short run and in the long run. 
D)  Velocity fluctuates with fluctuations in economic activity and changes in the growth rate of money supply. 
A)  In the short run, velocity varies but in the long run, velocity is relatively constant. 
B)  In the short run, velocity is relatively constant but in the long run, velocity varies. 
C)  Velocity is relatively constant in the short run and in the long run. 
D)  Velocity fluctuates with fluctuations in economic activity and changes in the growth rate of money supply.

Question 4

Possible targets for monetary policy include all of the following except

Accepted Answer

A)  the government's budget deficit or surplus. 
B)  money growth rate. 
C)  expected changes in the price level. 
D)  the interest rate. 
A)  the government's budget deficit or surplus. 
B)  money growth rate. 
C)  expected changes in the price level. 
D)  the interest rate.

Question 5

A liquidity trap is said to exist when a change in monetary policy has no effect on

Accepted Answer

A)  the money supply. 
B)  the natural level of employment. 
C)  aggregate supply. 
D)  interest rates. 
A)  the money supply. 
B)  the natural level of employment. 
C)  aggregate supply. 
D)  interest rates.

Question 6

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

Accepted Answer

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

Question 7

When the Fed buys bonds in the open market, it pursues an expansionary monetary policy.

Accepted Answer

A) True 
 B)False

Question 8

Define and explain the three lags discussed in monetary policy. For each type identify a
Jproblem caused by the lag.

Accepted Answer

The three lags discussed in monetary pol

Question 9

Figure 11-5  
-Refer to Figure 11-5. If the economy is at point a,

Accepted Answer

A)  employment is greater than the natural level of employment. 
B)  it is at the natural level of employment. 
C)  it is in a recessionary gap. 
D)  the unemployment rate is negative. 
A)  employment is greater than the natural level of employment. 
B)  it is at the natural level of employment. 
C)  it is in a recessionary gap. 
D)  the unemployment rate is negative.

Question 10

If inflation is a threat, then the Fed will conduct monetary policy aimed at

Accepted Answer

A)  increasing the interest rate which then will shift aggregate demand to the right. 
B)  decreasing the interest rate which then will shift aggregate demand to the right. 
C)  decreasing the interest rate which then will shift aggregate demand to the left. 
D)  increasing the interest rate which then will shift aggregate demand to theleft. 
A)  increasing the interest rate which then will shift aggregate demand to the right. 
B)  decreasing the interest rate which then will shift aggregate demand to the right. 
C)  decreasing the interest rate which then will shift aggregate demand to the left. 
D)  increasing the interest rate which then will shift aggregate demand to theleft.

Question 11

Which of the following result from a change in the money supply brought about by an open market purchase?

Accepted Answer

A)  lower interest rate, higher exchange rate, decreased demand for investment and net exports 
B)  higher interest rate, higher exchange rate, increased demand for investment and decreased demand for net exports 
C)  lower interest rate, lower exchange rate, increased demand for investment and net exports 
D)  higher interest rate, lower exchange rate, decreased demand for investment and increased demand for net exports 
A)  lower interest rate, higher exchange rate, decreased demand for investment and net exports 
B)  higher interest rate, higher exchange rate, increased demand for investment and decreased demand for net exports 
C)  lower interest rate, lower exchange rate, increased demand for investment and net exports 
D)  higher interest rate, lower exchange rate, decreased demand for investment and increased demand for net exports

Question 12

Figure 11-6  
-Refer to Figure 11-6. Suppose the economy is operating atpoint 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 and the aggregate demand curve shifts to the left and d becomes the new equilibrium point. 
B)  b. They rationally adjust their behavior and the aggregate demand curve shifts to the left and b becomes the new equilibrium point. 
C)  d. They rationally adjust their behavior and the short-run aggregate supply curve shifts to the left and d becomes the new equilibrium point. 
D)  c. They rationally adjust their behavior and the short-run aggregate supply curve shifts to the left and d becomes the new equilibrium point. 
A)  d. They rationally adjust their behavior and the aggregate demand curve shifts to the left and d becomes the new equilibrium point. 
B)  b. They rationally adjust their behavior and the aggregate demand curve shifts to the left and b becomes the new equilibrium point. 
C)  d. They rationally adjust their behavior and the short-run aggregate supply curve shifts to the left and d becomes the new equilibrium point. 
D)  c. They rationally adjust their behavior and the short-run aggregate supply curve shifts to the left and d becomes the new equilibrium point.

Question 13

All other things unchanged, we expect that an increase in interest rates will tend to

Accepted Answer

A)  increase the quantity of money demanded and increase velocity. 
B)  increase the quantity of money demanded and reduce velocity. 
C)  reduce the quantity of money demanded and increase velocity. 
D)  reduce the quantity of money demanded and reduce velocity. 
A)  increase the quantity of money demanded and increase velocity. 
B)  increase the quantity of money demanded and reduce velocity. 
C)  reduce the quantity of money demanded and increase velocity. 
D)  reduce the quantity of money demanded and reduce velocity.

Question 14

Which of the following is an interest rate that the Fed has targeted in the last several years?

Accepted Answer

A)  the prime rate 
B)  the discount rate 
C)  the government bond rate 
D)  the federal funds rate 
A)  the prime rate 
B)  the discount rate 
C)  the government bond rate 
D)  the federal funds rate

Question 15

Figure 11-6  
-Refer to Figure 11-6. If the economy is initially operating at point a and there are no rational expectations, an expansionary monetary policy would move the short-run equilibrium from

Accepted Answer

A)  a to b. 
B)  a to c. 
C)  b to a. 
D)  c to a. 
A)  a to b. 
B)  a to c. 
C)  b to a. 
D)  c to a.

Question 16

When the Fed buys 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 17

Which lag stems from the fact that it takes time for people and firms to react to a policy change, to acquire or reduce loans, and to change their level of consumption?

Accepted Answer

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

Question 18

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

Accepted Answer

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

Question 19

The velocity of money is

Accepted Answer

A)  independent of M, P, and Y. 
B)  independent of M and Y. 
C)  calculated from M, P, and Y. 
D)  calculated from M and Y. 
A)  independent of M, P, and Y. 
B)  independent of M and Y. 
C)  calculated from M, P, and Y. 
D)  calculated from M and Y.

Question 20

Figure 11-2  
-Refer to Figure 11-2. To shift the demand curve from D1 to D2, the Fed will be

Accepted Answer

A)  buying bonds in the open market which decrease the money supply. 
B)  selling bonds in the open market which decrease the money supply. 
C)  buying bonds in the open market which increases the money supply. 
D)  selling bonds in the open market which increases the money supply. 
A)  buying bonds in the open market which decrease the money supply. 
B)  selling bonds in the open market which decrease the money supply. 
C)  buying bonds in the open market which increases the money supply. 
D)  selling bonds in the open market which increases the money supply.

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

Figure 11-4 -Refer to Figure 11-4. The shift in the demand for bonds from D₁ to D₂, in Panel (b) will result in a

Which of the following statements is true about velocity?

Possible targets for monetary policy include all of the following except

A liquidity trap is said to exist when a change in monetary policy has no effect on

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

When the Fed buys bonds in the open market, it pursues an expansionary monetary policy.

Define and explain the three lags discussed in monetary policy. For each type identify a Jproblem caused by the lag.

Figure 11-5 -Refer to Figure 11-5. If the economy is at point a,

If inflation is a threat, then the Fed will conduct monetary policy aimed at

Which of the following result from a change in the money supply brought about by an open market purchase?

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

All other things unchanged, we expect that an increase in interest rates will tend to

Which of the following is an interest rate that the Fed has targeted in the last several years?

Figure 11-6 -Refer to Figure 11-6. If the economy is initially operating at point a and there are no rational expectations, an expansionary monetary policy would move the short-run equilibrium from

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

Which lag stems from the fact that it takes time for people and firms to react to a policy change, to acquire or reduce loans, and to change their level of consumption?

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

The velocity of money is

Figure 11-2 -Refer to Figure 11-2. To shift the demand curve from D₁ to D₂, the Fed will be

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

Figure 11-4 -Refer to Figure 11-4. The shift in the demand for bonds from D1 to D2, in Panel (b) will result in a

Which of the following statements is true about velocity?

Possible targets for monetary policy include all of the following except

A liquidity trap is said to exist when a change in monetary policy has no effect on

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

When the Fed buys bonds in the open market, it pursues an expansionary monetary policy.

Define and explain the three lags discussed in monetary policy. For each type identify a Jproblem caused by the lag.

Figure 11-5 -Refer to Figure 11-5. If the economy is at point a,

If inflation is a threat, then the Fed will conduct monetary policy aimed at

Which of the following result from a change in the money supply brought about by an open market purchase?

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

All other things unchanged, we expect that an increase in interest rates will tend to

Which of the following is an interest rate that the Fed has targeted in the last several years?

Figure 11-6 -Refer to Figure 11-6. If the economy is initially operating at point a and there are no rational expectations, an expansionary monetary policy would move the short-run equilibrium from

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

Which lag stems from the fact that it takes time for people and firms to react to a policy change, to acquire or reduce loans, and to change their level of consumption?

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

The velocity of money is

Figure 11-2 -Refer to Figure 11-2. To shift the demand curve from D1 to D2, the Fed will be

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 will be

Figure 11-4 -Refer to Figure 11-4. The shift in the demand for bonds from D₁ to D₂, in Panel (b) will result in a

Figure 11-2 -Refer to Figure 11-2. To shift the demand curve from D₁ to D₂, the Fed will be