Question 1

Which of the following is a tool used by the Fed in the conduct of monetary policy?

Accepted Answer

A)  changes in the prime rate 
B)  issuing new government bonds and retiring old ones 
C)  buying and selling corporate bonds 
D)  buying and selling federal government bonds 
A)  changes in the prime rate 
B)  issuing new government bonds and retiring old ones 
C)  buying and selling corporate bonds 
D)  buying and selling federal government bonds

Question 2

If the demand curve for money were horizontal at some interest rate, an increase in the money supply

Accepted Answer

A)  would lower the interest rate. 
B)  would increase the rate of inflation. 
C)  would be highly effective in reducing inflation. 
D)  would not change the interest rate. 
A)  would lower the interest rate. 
B)  would increase the rate of inflation. 
C)  would be highly effective in reducing inflation. 
D)  would not change the interest rate.

Question 3

Which of the following is a major problem with deflation?

Accepted Answer

A)  Money loses value so rapidly that economic agents will be reluctant to hold money. 
B)  Economic agents tend to put off purchases in anticipation of lower prices for goods and services, leading to a downward spiral in economic activity. 
C)  Low prices for goods and services tend to result in massive shortages in most markets. 
D)  Money supply cannot keep pace with consumption spending. 
A)  Money loses value so rapidly that economic agents will be reluctant to hold money. 
B)  Economic agents tend to put off purchases in anticipation of lower prices for goods and services, leading to a downward spiral in economic activity. 
C)  Low prices for goods and services tend to result in massive shortages in most markets. 
D)  Money supply cannot keep pace with consumption spending.

Question 4

If the Fed buys government bonds through open-market operations, it will

Accepted Answer

A)  increase the demand for bonds in the bond market. 
B)  decrease the demand for bonds in the bond market. 
C)  increase the supply of bonds in the bond market. 
D)  decrease the supply of bonds in the bond market. 
A)  increase the demand for bonds in the bond market. 
B)  decrease the demand for bonds in the bond market. 
C)  increase the supply of bonds in the bond market. 
D)  decrease the supply of bonds in the bond market.

Question 5

If the velocity of money is constant, then a 2% increase in the money supply

Accepted Answer

A)  must be the result of a 2% increase in the price level. 
B)  would change nominal GDP by a smaller percentage. 
C)  would change nominal GDP by an equal percentage. 
D)  would change nominal GDP by a larger percentage. 
A)  must be the result of a 2% increase in the price level. 
B)  would change nominal GDP by a smaller percentage. 
C)  would change nominal GDP by an equal percentage. 
D)  would change nominal GDP by a larger percentage.

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

If the economy experiences an inflationary gap, a contractionary 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 8

Which of the following predictions can be made using the growth rates associated with the quantity equation, assuming velocity is stable?

Accepted Answer

A)  If the money supply grows at a faster rate than real GDP, there will be inflation. 
B)  If the money supply grows at a slower rate than real GDP, there will be inflation. 
C)  If the money supply grows at the same rate as real GDP, the price level will be fall and there will be deflation. 
D)  If the money supply grows at the same rate as real GDP, the price level will also increase at the same rate as real GDP. 
A)  If the money supply grows at a faster rate than real GDP, there will be inflation. 
B)  If the money supply grows at a slower rate than real GDP, there will be inflation. 
C)  If the money supply grows at the same rate as real GDP, the price level will be fall and there will be deflation. 
D)  If the money supply grows at the same rate as real GDP, the price level will also increase at the same rate as real GDP.

Question 9

Use the following to answer questions .
Exhibit: Monetary Policy and Rational Expectations  
-(Exhibit: Monetary Policy and Rational Expectations) 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 10

The time it takes to collect and process data is the biggest source of which lag?

Accepted Answer

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

Question 11

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 12

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

Accepted Answer

The three lags discussed in monetary pol

Question 13

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 14

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 15

The rational expectations argument relies on

Accepted Answer

A)  wages and prices being sticky so that changes in expectations about future economic activity and the price level will prevent the short-run aggregate supply curve from shifting quickly to restore long-run equilibrium. 
B)  the ability of monetary policy authorities to identify and respond quickly to close output gaps and restore the economy to its long-run equilibrium. 
C)  wages and prices being sufficiently flexible so that the change in expectations about future economic activity and the price level will allow the short-run aggregate supply curve to shift quickly to restore long-run equilibrium. 
D)  wages and prices being sufficiently flexible so that changes in expectations about future economic activity and the price level will allow the aggregate demand curve to shift quickly to restore long-run equilibrium. 
A)  wages and prices being sticky so that changes in expectations about future economic activity and the price level will prevent the short-run aggregate supply curve from shifting quickly to restore long-run equilibrium. 
B)  the ability of monetary policy authorities to identify and respond quickly to close output gaps and restore the economy to its long-run equilibrium. 
C)  wages and prices being sufficiently flexible so that the change in expectations about future economic activity and the price level will allow the short-run aggregate supply curve to shift quickly to restore long-run equilibrium. 
D)  wages and prices being sufficiently flexible so that changes in expectations about future economic activity and the price level will allow the aggregate demand curve to shift quickly to restore long-run equilibrium.

Question 16

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 17

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 18

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 19

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 20

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.

Which of the following is a tool used by the Fed in the conduct of monetary policy?

If the demand curve for money were horizontal at some interest rate, an increase in the money supply

Which of the following is a major problem with deflation?

If the Fed buys government bonds through open-market operations, it will

If the velocity of money is constant, then a 2% increase in the money supply

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

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

Which of the following predictions can be made using the growth rates associated with the quantity equation, assuming velocity is stable?

The time it takes to collect and process data is the biggest source of which lag?

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

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

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

The rational expectations argument relies on

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?

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

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

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

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

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

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Exam 11: Monetary Policy and the Fed

Which of the following is a tool used by the Fed in the conduct of monetary policy?

If the demand curve for money were horizontal at some interest rate, an increase in the money supply

Which of the following is a major problem with deflation?

If the Fed buys government bonds through open-market operations, it will

If the velocity of money is constant, then a 2% increase in the money supply

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

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

Which of the following predictions can be made using the growth rates associated with the quantity equation, assuming velocity is stable?

The time it takes to collect and process data is the biggest source of which lag?

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

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

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

The rational expectations argument relies on

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?

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

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

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

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

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