Question 1

Adjusting monetary growth based on previous changes in nominal GDP

Accepted Answer

A)  is relatively easy for the Fed to undertake because the implementation lag is quitelong. 
B)  could be destabilizing because of the uncertainty of the length of impact lags. 
C)  is an effective policy because it allows the Fed to influence future macroeconomic performance. 
D)  raises the price level proportionately. 
A)  is relatively easy for the Fed to undertake because the implementation lag is quitelong. 
B)  could be destabilizing because of the uncertainty of the length of impact lags. 
C)  is an effective policy because it allows the Fed to influence future macroeconomic performance. 
D)  raises the price level proportionately.

Question 2

Explain how the Fed could use monetary policy to close a recessionary gap. A complete answer must include an explanation of the policy tools that can be used and their effects on the money supply, interest rates, and aggregate demand. Use a diagram of LRAS, SRAS, and AD to illustrate your answer.

Accepted Answer

The Federal Reserve (the Fed) can use mo

Question 3

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 4

The Fed changes the federal funds rate using open-market operations.

Accepted Answer

A) True 
 B)False

Question 5

The rational expectations hypothesis suggests that

Accepted Answer

A)  people are creatures of habit and tend not to change their economic behavior in the short run. 
B)  people are rational if they make forecasts about economic activity. 
C)  people use all available information to make forecasts about future economic activity and adjust their behavior to these forecasts. 
D)  people use all available information to make forecasts about future economic activity but often fail to adjust their behavior to these forecasts. 
A)  people are creatures of habit and tend not to change their economic behavior in the short run. 
B)  people are rational if they make forecasts about economic activity. 
C)  people use all available information to make forecasts about future economic activity and adjust their behavior to these forecasts. 
D)  people use all available information to make forecasts about future economic activity but often fail to adjust their behavior to these forecasts.

Question 6

Use the following to answer questions .
Exhibit: Monetary Policy and Long-Run Aggregate Demand and Aggregate Supply  
-(Exhibit: Monetary Policy and Long-Run Aggregate Demand and Aggregate Supply) 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 7

The Fed increases the money supply by selling bonds.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A)  exchange rate to rise and interest rates to fall. 
B)  exchange rate and interest rates to rise. 
C)  exchange rate to fall and interest rates to rise. 
D)  exchange rate and interest rates to fall. 
A)  exchange rate to rise and interest rates to fall. 
B)  exchange rate and interest rates to rise. 
C)  exchange rate to fall and interest rates to rise. 
D)  exchange rate and interest rates to fall.

Question 9

All of the following are sources of the impact lag except

Accepted Answer

A)  it takes some time for the deposit multiplier process to work itself out. 
B)  firms need some time to respond to the monetary policy with respect to their investment plans. 
C)  it takes time for the Fed to formulate a policy that best addresses a problem in the economy. 
D)  a monetary change is likely to affect the exchange rate, but that translates into a change in net exports only after some delay. 
A)  it takes some time for the deposit multiplier process to work itself out. 
B)  firms need some time to respond to the monetary policy with respect to their investment plans. 
C)  it takes time for the Fed to formulate a policy that best addresses a problem in the economy. 
D)  a monetary change is likely to affect the exchange rate, but that translates into a change in net exports only after some delay.

Question 10

Use the following to answer questions .
Exhibit: Monetary Policy 2  
-(Exhibit: Monetary Policy 2) 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 11

Historical actions indicate that the Fed's primary goal of monetary policy over the past 30 years has been to

Accepted Answer

A)  maintain high interest rates. 
B)  keep employment rates low. 
C)  limit the availability of consumer credit. 
D)  prevent high rates of inflation. 
A)  maintain high interest rates. 
B)  keep employment rates low. 
C)  limit the availability of consumer credit. 
D)  prevent high rates of inflation.

Question 12

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

Accepted Answer

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

Question 13

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 14

Suppose money supply (M) = $3,960 billion, price level (P) = 1.1, and real GDP (Y) = $7,200 billion. Calculate the value of velocity using the equation of exchange.

Accepted Answer

A)  1.6 
B)  1.8 
C)  2.0 
D)  2.2 
A)  1.6 
B)  1.8 
C)  2.0 
D)  2.2

Question 15

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 16

A liquidity trap exists when a change in the money supply immediately and drastically affects interest rates.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is perhaps the greatest obstacle facing the Fed in discharging monetary policy?

Accepted Answer

A)  the difficulties involved in regulating the complex structure of financial institutions 
B)  the problem of monetary policy lags 
C)  the problem of identifying a monetary measure that is closely linked to real GDP 
D)  the problem of coordinating monetary and fiscal policy 
A)  the difficulties involved in regulating the complex structure of financial institutions 
B)  the problem of monetary policy lags 
C)  the problem of identifying a monetary measure that is closely linked to real GDP 
D)  the problem of coordinating monetary and fiscal policy

Question 18

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 19

Use the following to answer questions .
Exhibit: Effects of Monetary Policy  
-(Exhibit: Effects of Monetary Policy) 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 20

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.

Adjusting monetary growth based on previous changes in nominal GDP

Explain how the Fed could use monetary policy to close a recessionary gap. A complete answer must include an explanation of the policy tools that can be used and their effects on the money supply, interest rates, and aggregate demand. Use a diagram of LRAS, SRAS, and AD to illustrate your answer.

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

The Fed changes the federal funds rate using open-market operations.

The rational expectations hypothesis suggests that

Use the following to answer questions . Exhibit: Monetary Policy and Long-Run Aggregate Demand and Aggregate Supply -(Exhibit: Monetary Policy and Long-Run Aggregate Demand and Aggregate Supply) If the economy is at point a,

The Fed increases the money supply by selling bonds.

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

All of the following are sources of the impact lag except

Use the following to answer questions . Exhibit: Monetary Policy 2 -(Exhibit: Monetary Policy 2) By shifting the supply curve from S₁ to S₂, the Fed will be

Historical actions indicate that the Fed's primary goal of monetary policy over the past 30 years has been to

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

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?

Suppose money supply (M) = $3,960 billion, price level (P) = 1.1, and real GDP (Y) = $7,200 billion. Calculate the value of velocity using the equation of exchange.

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?

A liquidity trap exists when a change in the money supply immediately and drastically affects interest rates.

Which of the following is perhaps the greatest obstacle facing the Fed in discharging monetary policy?

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

Use the following to answer questions . Exhibit: Effects of Monetary Policy -(Exhibit: Effects of Monetary Policy) If a nonintervention policy were adopted in Panel (a),

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

Economics: the Study of Choice

Demand and Supply

Applications of Supply and Demand

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

Filters

Exam 11: Monetary Policy and the Fed

Adjusting monetary growth based on previous changes in nominal GDP

Explain how the Fed could use monetary policy to close a recessionary gap. A complete answer must include an explanation of the policy tools that can be used and their effects on the money supply, interest rates, and aggregate demand. Use a diagram of LRAS, SRAS, and AD to illustrate your answer.

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

The Fed changes the federal funds rate using open-market operations.

The rational expectations hypothesis suggests that

Use the following to answer questions . Exhibit: Monetary Policy and Long-Run Aggregate Demand and Aggregate Supply -(Exhibit: Monetary Policy and Long-Run Aggregate Demand and Aggregate Supply) If the economy is at point a,

The Fed increases the money supply by selling bonds.

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

All of the following are sources of the impact lag except

Use the following to answer questions . Exhibit: Monetary Policy 2 -(Exhibit: Monetary Policy 2) By shifting the supply curve from S1 to S2, the Fed will be

Historical actions indicate that the Fed's primary goal of monetary policy over the past 30 years has been to

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

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?

Suppose money supply (M) = $3,960 billion, price level (P) = 1.1, and real GDP (Y) = $7,200 billion. Calculate the value of velocity using the equation of exchange.

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?

A liquidity trap exists when a change in the money supply immediately and drastically affects interest rates.

Which of the following is perhaps the greatest obstacle facing the Fed in discharging monetary policy?

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

Use the following to answer questions . Exhibit: Effects of Monetary Policy -(Exhibit: Effects of Monetary Policy) If a nonintervention policy were adopted in Panel (a),

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

Economics: the Study of Choice

Demand and Supply

Applications of Supply and Demand

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

Filters

Use the following to answer questions . Exhibit: Monetary Policy 2 -(Exhibit: Monetary Policy 2) By shifting the supply curve from S₁ to S₂, the Fed will be