Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Use the following to answer questions .
Exhibit: Effects of Monetary Policy  
-(Exhibit: Effects of Monetary Policy) Which of the following actions by the Fed could have caused the movement from AD1 to AD2 in Panel (a)?

Accepted Answer

A)  selling government bonds in the open market 
B)  buying government bonds in the open market 
C)  increasing the discount rate 
D)  increasing the federal funds rate 
A)  selling government bonds in the open market 
B)  buying government bonds in the open market 
C)  increasing the discount rate 
D)  increasing the federal funds rate

Question 3

Which of the following equations correctly describes the quantity equation in terms of percentage rate of change? ∆ means "change in."

Accepted Answer

A)  % ∆M ÷ % ∆V = % ∆P * % ∆Y 
B)  % ∆M + % ∆V = % ∆P + % ∆Y 
C)  % ∆M ÷ % ∆V = % ∆Y ÷ % ∆P 
D)  % ∆M * % ∆V = % ∆P * % ∆Y 
A)  % ∆M ÷ % ∆V = % ∆P * % ∆Y 
B)  % ∆M + % ∆V = % ∆P + % ∆Y 
C)  % ∆M ÷ % ∆V = % ∆Y ÷ % ∆P 
D)  % ∆M * % ∆V = % ∆P * % ∆Y

Question 4

The shortest time lag for monetary policy is the implementation lag.

Accepted Answer

A) True 
 B)False

Question 5

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 6

Which of the following explains why the monetary policy implementation lag is relatively short?
I. The FOMC meets several times a year and policymakers are easily able to confer in between meetings.
II. Open market operations, one of the Fed's policy instruments can be put into effect
Immediately.
III. The Chairman of the Fed works in close collaboration with the President.
IV. Most financial institutions are member banks and will not hesitate to put into effect any new monetary policy.

Accepted Answer

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

Question 7

Which of the following statements about the structure of the Fed is an advantage from the perspective of conducting monetary policy?

Accepted Answer

A)  The two policymaking bodies of the Fed are deliberately large to allow for different viewpoints and they work very closely with other political institutions. 
B)  The two policymaking bodies of the Fed are deliberately large to allow for different viewpoints and they work relatively independently of other political institutions. 
C)  The two policymaking bodies of the Fed are small to allow deliberations in private and they work relatively independently of other political institutions. 
D)  The two policymaking bodies of the Fed are small to allow members to work closely with other political institutions. 
A)  The two policymaking bodies of the Fed are deliberately large to allow for different viewpoints and they work very closely with other political institutions. 
B)  The two policymaking bodies of the Fed are deliberately large to allow for different viewpoints and they work relatively independently of other political institutions. 
C)  The two policymaking bodies of the Fed are small to allow deliberations in private and they work relatively independently of other political institutions. 
D)  The two policymaking bodies of the Fed are small to allow members to work closely with other political institutions.

Question 8

In order to move the federal funds rate to the level it desires, the Fed must

Accepted Answer

A)  first change the discount rate to the desired federal funds rate. 
B)  specify the interest rate on previously issued government bonds. 
C)  adjust the money supply to achieve the target federal funds rate. 
D)  limit the amount of bank lending activity. 
A)  first change the discount rate to the desired federal funds rate. 
B)  specify the interest rate on previously issued government bonds. 
C)  adjust the money supply to achieve the target federal funds rate. 
D)  limit the amount of bank lending activity.

Question 9

All other things unchanged, we expect that a reduction 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 10

Use the following to answer questions .
Exhibit: Effects of Monetary Policy  
-(Exhibit: Effects of Monetary Policy) Suppose the economy is initially at Y1 in Panel (a). It is experiencing

Accepted Answer

A)  an inflationary gap. 
B)  a recessionary gap. 
C)  an actual unemployment rate that is less than the natural unemployment rate. 
D)  a situation that warrants a decrease in the money supply. 
A)  an inflationary gap. 
B)  a recessionary gap. 
C)  an actual unemployment rate that is less than the natural unemployment rate. 
D)  a situation that warrants a decrease in the money supply.

Question 11

Suppose velocity = 5, money supply = $200, and price = 2. What is the value of real GDP?

Accepted Answer

A)  $10 
B)  $40 
C)  $400 
D)  $500 
A)  $10 
B)  $40 
C)  $400 
D)  $500

Question 12

What is velocity of money?

Accepted Answer

A)  It is the number of times households convert bonds to money to facilitate economic transactions. 
B)  It is the rate at which money supply is spent to obtain the goods and services that make up GDP during a particular time period. 
C)  It is the rate at which money supply can grow while keeping the price level stable. 
D)  It is the number of times the money supply is spent to obtain the goods and services that make up GDP during a particular time period. 
A)  It is the number of times households convert bonds to money to facilitate economic transactions. 
B)  It is the rate at which money supply is spent to obtain the goods and services that make up GDP during a particular time period. 
C)  It is the rate at which money supply can grow while keeping the price level stable. 
D)  It is the number of times the money supply is spent to obtain the goods and services that make up GDP during a particular time period.

Question 13

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

Accepted Answer

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

Question 14

The congressional act that established the U.S. central banking system in 1913 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

If the velocity of money is constant, then

Accepted Answer

A)  a change in nominal GDP can be caused only by a change in the money supply. 
B)  a change in the money supply can be caused only by a change in the price level. 
C)  a change in the money supply is negatively related to a change in nominal GDP. 
D)  a change in the money supply would result in no change in nominal GDP. 
A)  a change in nominal GDP can be caused only by a change in the money supply. 
B)  a change in the money supply can be caused only by a change in the price level. 
C)  a change in the money supply is negatively related to a change in nominal GDP. 
D)  a change in the money supply would result in no change in nominal GDP.

Question 16

Use the following to answer questions .
Exhibit: Monetary Policy 1  
-(Exhibit: Monetary Policy 1) 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.

Question 17

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 b,

Accepted Answer

A)  the unemployment rate is negative. 
B)  the unemployment rate is zero. 
C)  the level of employment is greater than the natural level of employment. 
D)  it is at the natural level of employment. 
A)  the unemployment rate is negative. 
B)  the unemployment rate is zero. 
C)  the level of employment is greater than the natural level of employment. 
D)  it is at the natural level of employment.

Question 18

The problem of lags suggests that monetary policy should

Accepted Answer

A)  respond swiftly to statistical reports of economic conditions in the recent past. 
B)  respond to conditions expected to exist in the future. 
C)  stagger its implementation of policies so that there will be an ongoing effect on the economy. 
D)  not respond to changing economic conditions in the economy but instead rely on the economy's self correcting mechanism. 
A)  respond swiftly to statistical reports of economic conditions in the recent past. 
B)  respond to conditions expected to exist in the future. 
C)  stagger its implementation of policies so that there will be an ongoing effect on the economy. 
D)  not respond to changing economic conditions in the economy but instead rely on the economy's self correcting mechanism.

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

Use the following to answer questions . Exhibit: Effects of Monetary Policy -(Exhibit: Effects of Monetary Policy) Which of the following actions by the Fed could have caused the movement from AD₁ to AD₂ in Panel (a)?

Which of the following equations correctly describes the quantity equation in terms of percentage rate of change? ∆ means "change in."

The shortest time lag for monetary policy is the implementation lag.

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

Which of the following statements about the structure of the Fed is an advantage from the perspective of conducting monetary policy?

In order to move the federal funds rate to the level it desires, the Fed must

All other things unchanged, we expect that a reduction in interest rates will tend to

Use the following to answer questions . Exhibit: Effects of Monetary Policy -(Exhibit: Effects of Monetary Policy) Suppose the economy is initially at Y₁ in Panel (a). It is experiencing

Suppose velocity = 5, money supply = $200, and price = 2. What is the value of real GDP?

What is velocity of money?

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

The congressional act that established the U.S. central banking system in 1913 was the

If the velocity of money is constant, then

Use the following to answer questions . Exhibit: Monetary Policy 1 -(Exhibit: Monetary Policy 1) To shift the demand curve from D₁ to D₂, the Fed will be

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 b,

The problem of lags suggests that monetary policy should

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

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

Use the following to answer questions . Exhibit: Effects of Monetary Policy -(Exhibit: Effects of Monetary Policy) Which of the following actions by the Fed could have caused the movement from AD1 to AD2 in Panel (a)?

Which of the following equations correctly describes the quantity equation in terms of percentage rate of change? ∆ means "change in."

The shortest time lag for monetary policy is the implementation lag.

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

Which of the following statements about the structure of the Fed is an advantage from the perspective of conducting monetary policy?

In order to move the federal funds rate to the level it desires, the Fed must

All other things unchanged, we expect that a reduction in interest rates will tend to

Use the following to answer questions . Exhibit: Effects of Monetary Policy -(Exhibit: Effects of Monetary Policy) Suppose the economy is initially at Y1 in Panel (a). It is experiencing

Suppose velocity = 5, money supply = $200, and price = 2. What is the value of real GDP?

What is velocity of money?

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

The congressional act that established the U.S. central banking system in 1913 was the

If the velocity of money is constant, then

Use the following to answer questions . Exhibit: Monetary Policy 1 -(Exhibit: Monetary Policy 1) To shift the demand curve from D1 to D2, the Fed will be

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 b,

The problem of lags suggests that monetary policy should

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: Effects of Monetary Policy -(Exhibit: Effects of Monetary Policy) Which of the following actions by the Fed could have caused the movement from AD₁ to AD₂ in Panel (a)?

Use the following to answer questions . Exhibit: Effects of Monetary Policy -(Exhibit: Effects of Monetary Policy) Suppose the economy is initially at Y₁ in Panel (a). It is experiencing

Use the following to answer questions . Exhibit: Monetary Policy 1 -(Exhibit: Monetary Policy 1) To shift the demand curve from D₁ to D₂, the Fed will be