Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Which of the following factors may cause velocity to fluctuate?
I. changes in interest rates
II. changes in expectations about inflation
III. changes in expectations about bond prices
IV. an increase in the number of financial products that affects the demand for money

Accepted Answer

A)  I, II, III, and IV 
B)  I, II, and III 
C)  I, III, and IV 
D)  I and II 
A)  I, II, III, and IV 
B)  I, II, and III 
C)  I, III, and IV 
D)  I and II

Question 3

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 c, an open market purchase would cause

Accepted Answer

A)  a shift of the short-run aggregate supply curve from AS1 to AS2. 
B)  a shift of the short-run aggregate supply curve from AS2 to AS1. 
C)  a shift of the aggregate demand curve from AD1 to AD2. 
D)  a shift of the aggregate demand curve from AD2 to AD1. 
A)  a shift of the short-run aggregate supply curve from AS1 to AS2. 
B)  a shift of the short-run aggregate supply curve from AS2 to AS1. 
C)  a shift of the aggregate demand curve from AD1 to AD2. 
D)  a shift of the aggregate demand curve from AD2 to AD1.

Question 4

The time between recognizing the existence of a problem and adopting a course of action to deal with the problem is called the

Accepted Answer

A)  impact lag. 
B)  recognition lag. 
C)  implementation lag. 
D)  theory lag. 
A)  impact lag. 
B)  recognition lag. 
C)  implementation lag. 
D)  theory lag.

Question 5

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 6

Contractionary monetary policy by the Fed could include

Accepted Answer

A)  lowering the discount rate. 
B)  decreasing government transfer payments. 
C)  decreasing reserve requirements. 
D)  selling government securities in the open market. 
A)  lowering the discount rate. 
B)  decreasing government transfer payments. 
C)  decreasing reserve requirements. 
D)  selling government securities in the open market.

Question 7

Open-market operations are such a powerful tool of monetary policy that they are seldom used.

Accepted Answer

A) True 
 B)False

Question 8

Use the following to answer questions .
Exhibit: The Bond Market  
-(Exhibit: The Bond Market) Suppose the Fed takes action that shifts the demand curve from D to D′, as illustrated in Panel (a). What happens to the interest rate?

Accepted Answer

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

Question 9

The monetary policy tool that involves the buying and selling of government bonds is

Accepted Answer

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

Question 10

Expansionary monetary policy, by increasing the money supply, also increases interest rates and recessionary gaps.

Accepted Answer

A) True 
 B)False

Question 11

Studies in the 1980s and early 1990s showed that, in general, greater central bank independence

Accepted Answer

A)  was associated with lower average inflation. 
B)  was associated with lower average inflation and higher average real GDP growth. 
C)  was associated with lower average inflation and higher unemployment. 
D)  was associated with higher average inflation and higher average real GDP growth. 
A)  was associated with lower average inflation. 
B)  was associated with lower average inflation and higher average real GDP growth. 
C)  was associated with lower average inflation and higher unemployment. 
D)  was associated with higher average inflation and higher average real GDP growth.

Question 12

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 13

Which of the following are monetary policy goals?
I. maintain high interest rates
II. keep unemployment rates low
III. reduce the size of the banking sector
IV. prevent high rates of inflation

Accepted Answer

A)  I, II, III, and IV 
B)  I, II, and III 
C)  II, III, and IV 
D)  II and IV 
A)  I, II, III, and IV 
B)  I, II, and III 
C)  II, III, and IV 
D)  II and IV

Question 14

In the equation of exchange, the variable whose value must be computed from the other variables is the

Accepted Answer

A)  price level. 
B)  quantity of output. 
C)  quantity of money. 
D)  velocity of money. 
A)  price level. 
B)  quantity of output. 
C)  quantity of money. 
D)  velocity of money.

Question 15

When the Fed buys government bonds, bank reserves fall.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A)  bond prices and interest rates to fall. 
B)  bond prices to rise and interest rates to fall. 
C)  bond prices to fall and interest rates to rise. 
D)  bond prices and interest rates to rise. 
A)  bond prices and interest rates to fall. 
B)  bond prices to rise and interest rates to fall. 
C)  bond prices to fall and interest rates to rise. 
D)  bond prices and interest rates to rise.

Question 17

The demand for money can be stated as M = (P *Y)/V.

Accepted Answer

A) True 
 B)False

Question 18

The federal funds rate is never targeted by the Fed.

Accepted Answer

A) True 
 B)False

Question 19

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 20

An effort by the Fed to reduce aggregate demand may be thwarted because

Accepted Answer

A)  investment could remain the same or increase because of optimistic expectations by businesses about the future of the economy. 
B)  investment and interest rates are positively related. 
C)  investment could fall because of pessimistic expectations. 
D)  taxes may have been increased. 
A)  investment could remain the same or increase because of optimistic expectations by businesses about the future of the economy. 
B)  investment and interest rates are positively related. 
C)  investment could fall because of pessimistic expectations. 
D)  taxes may have been increased.

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

Which of the following factors may cause velocity to fluctuate? I. changes in interest rates II. changes in expectations about inflation III. changes in expectations about bond prices IV. an increase in the number of financial products that affects the demand for money

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 c, an open market purchase would cause

The time between recognizing the existence of a problem and adopting a course of action to deal with the problem is called the

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

Contractionary monetary policy by the Fed could include

Open-market operations are such a powerful tool of monetary policy that they are seldom used.

Use the following to answer questions . Exhibit: The Bond Market -(Exhibit: The Bond Market) Suppose the Fed takes action that shifts the demand curve from D to D′, as illustrated in Panel (a). What happens to the interest rate?

The monetary policy tool that involves the buying and selling of government bonds is

Expansionary monetary policy, by increasing the money supply, also increases interest rates and recessionary gaps.

Studies in the 1980s and early 1990s showed that, in general, greater central bank independence

The equation of exchange states that

Which of the following are monetary policy goals? I. maintain high interest rates II. keep unemployment rates low III. reduce the size of the banking sector IV. prevent high rates of inflation

In the equation of exchange, the variable whose value must be computed from the other variables is the

When the Fed buys government bonds, bank reserves fall.

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

The demand for money can be stated as M = (P *Y)/V.

The federal funds rate is never targeted by the Fed.

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

An effort by the Fed to reduce aggregate demand may be thwarted because

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

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

Which of the following factors may cause velocity to fluctuate? I. changes in interest rates II. changes in expectations about inflation III. changes in expectations about bond prices IV. an increase in the number of financial products that affects the demand for money

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 c, an open market purchase would cause

The time between recognizing the existence of a problem and adopting a course of action to deal with the problem is called the

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

Contractionary monetary policy by the Fed could include

Open-market operations are such a powerful tool of monetary policy that they are seldom used.

Use the following to answer questions . Exhibit: The Bond Market -(Exhibit: The Bond Market) Suppose the Fed takes action that shifts the demand curve from D to D′, as illustrated in Panel (a). What happens to the interest rate?

The monetary policy tool that involves the buying and selling of government bonds is

Expansionary monetary policy, by increasing the money supply, also increases interest rates and recessionary gaps.

Studies in the 1980s and early 1990s showed that, in general, greater central bank independence

The equation of exchange states that

Which of the following are monetary policy goals? I. maintain high interest rates II. keep unemployment rates low III. reduce the size of the banking sector IV. prevent high rates of inflation

In the equation of exchange, the variable whose value must be computed from the other variables is the

When the Fed buys government bonds, bank reserves fall.

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

The demand for money can be stated as M = (P *Y)/V.

The federal funds rate is never targeted by the Fed.

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

An effort by the Fed to reduce aggregate demand may be thwarted because

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