Question 1

When the housing bubble collapsed, the Federal Reserve dramatically increased interest rates to stimulate employment.

Accepted Answer

A) True 
 B)False  False

Question 2

Which of these was NOT one of the monetary criteria for potential members to be able to enter the Eurozone?

Accepted Answer

A)  have had no major currency devaluations in the previous two years 
B)  maintain annual deficits of less than 3% of GDP 
C)  maintain low inflation rates 
D)  maintain high long-term interest rates 
A)  have had no major currency devaluations in the previous two years 
B)  maintain annual deficits of less than 3% of GDP 
C)  maintain low inflation rates 
D)  maintain high long-term interest rates D

Question 3

During the 2007-2009 financial crisis, both the Federal Reserve and the European Central Bank bought bad debt in order to stabilize banks.

Accepted Answer

A) True 
 B)False  True

Question 4

Which action is the Federal Reserve MOST likely to take to curb inflation?

Accepted Answer

A)  lower the discount rate 
B)  lower reserve requirements 
C)  raise taxes 
D)  sell securities in the open market 
A)  lower the discount rate 
B)  lower reserve requirements 
C)  raise taxes 
D)  sell securities in the open market

Question 5

One of the causes of the 2007-2009 financial crisis was a lack of faith in the ability of the U.S. Treasury to pay on government bonds.

Accepted Answer

A) True 
 B)False

Question 6

Keynes defined the liquidity trap as a situation in which, once interest rates decrease, individuals spend their money rather than holding onto it.

Accepted Answer

A) True 
 B)False

Question 7

Suppose an economy faces a current federal funds rate = 2%; inflation rate = 3%; inflation rate target = 2%; current GDP is 3% higher than full-employment GDP. According to the Taylor rule, which policy approach should this country be using?

Accepted Answer

A)  accommodative monetary policy 
B)  quantitative easing 
C)  tight money 
D)  No change in monetary policy is needed since the federal funds rate is at the desired level. 
A)  accommodative monetary policy 
B)  quantitative easing 
C)  tight money 
D)  No change in monetary policy is needed since the federal funds rate is at the desired level.

Question 8

Suppose a news article reports, "Dismal jobs report suggests the Federal Reserve will lower interest rates." If the Fed does lower interest rates, the dollar will _____ against foreign currencies, and U.S. goods will become _____ for foreigners.

Accepted Answer

A)  rise; more expensive 
B)  rise; cheaper 
C)  fall; more expensive 
D)  fall; cheaper 
A)  rise; more expensive 
B)  rise; cheaper 
C)  fall; more expensive 
D)  fall; cheaper

Question 9

In the equation of exchange, the term P × Q is the same as:

Accepted Answer

A)  real GDP. 
B)  nominal GDP. 
C)  the money supply. 
D)  national income. 
A)  real GDP. 
B)  nominal GDP. 
C)  the money supply. 
D)  national income.

Question 10

The idea that a change in the money supply would affect prices but not real GDP is associated with the:

Accepted Answer

A)  monetary equivalence theory. 
B)  law of unintended consequences. 
C)  classical monetary transmission mechanism. 
D)  GDP impossibility rule. 
A)  monetary equivalence theory. 
B)  law of unintended consequences. 
C)  classical monetary transmission mechanism. 
D)  GDP impossibility rule.

Question 11

Agricultural output is a large part of Econland's GDP. Particularly bad weather one year leads to an output that is smaller than normal, causing a shock to Econland's economy. Which of these correctly describes, from a Keynesian perspective, the impact of expansionary or contractionary monetary policy taken to address the situation?

Accepted Answer

A)  Increase M1 to reduce inflation while having no impact on unemployment, or decrease M1 to reduce unemployment while having no impact on inflation. 
B)  Increase M1 to reduce both inflation and unemployment, or reduce M1 to increase both inflation and unemployment. 
C)  Increase M1 to reduce inflation while adding to unemployment, or decrease M1 to reduce unemployment while adding to inflation. 
D)  Increase M1 to reduce unemployment but adding to inflation, or decrease M1 to reduce the inflation while adding to unemployment. 
A)  Increase M1 to reduce inflation while having no impact on unemployment, or decrease M1 to reduce unemployment while having no impact on inflation. 
B)  Increase M1 to reduce both inflation and unemployment, or reduce M1 to increase both inflation and unemployment. 
C)  Increase M1 to reduce inflation while adding to unemployment, or decrease M1 to reduce unemployment while adding to inflation. 
D)  Increase M1 to reduce unemployment but adding to inflation, or decrease M1 to reduce the inflation while adding to unemployment.

Question 12

Some analysts blame the last economic crisis on Federal Reserve policy. They argue that:

Accepted Answer

A)  a restrictive policy lowered aggregate demand and GDP. 
B)  low interest rates encouraged excessive mortgage borrowing, leading to the housing bubble. 
C)  the Fed securitized the mortgages into collateralized debt obligations and encouraged excessive risk taking. 
D)  the Fed did not adequately regulate the mortgage market's credit standards for issuing loans as required by the Federal Reserve Act. 
A)  a restrictive policy lowered aggregate demand and GDP. 
B)  low interest rates encouraged excessive mortgage borrowing, leading to the housing bubble. 
C)  the Fed securitized the mortgages into collateralized debt obligations and encouraged excessive risk taking. 
D)  the Fed did not adequately regulate the mortgage market's credit standards for issuing loans as required by the Federal Reserve Act.

Question 13

Which economists believe that fiscal policy is ineffective, while monetary policy is effective?

Accepted Answer

A)  monetarists 
B)  Keynesians 
C)  classical economists 
D)  Fisherites 
A)  monetarists 
B)  Keynesians 
C)  classical economists 
D)  Fisherites

Question 14

Friedman believed that monetary policy was important but had less power to influence the economy than fiscal policy.

Accepted Answer

A) True 
 B)False

Question 15

If the Federal Reserve pursues expansionary monetary policy, the dollar is likely to fall against foreign currencies, all other things being equal.

Accepted Answer

A) True 
 B)False

Question 16

_____ keeps the growth of money stocks, such as M1 and M2, on a steady path, following the equation of exchange.

Accepted Answer

A)  Inflation targeting 
B)  The Friedman rule 
C)  The Taylor rule 
D)  A monetary rule 
A)  Inflation targeting 
B)  The Friedman rule 
C)  The Taylor rule 
D)  A monetary rule

Question 17

Suppose an economy faces a current federal funds rate = 4%; inflation rate = 3%; inflation rate target = 2%; current GDP is 3% higher than full-employment GDP. According to the Taylor rule, which policy approach should this country be using?

Accepted Answer

A)  accommodative monetary policy 
B)  quantitative easing 
C)  tight money 
D)  No change in monetary policy is needed since the federal funds rate is at the desired level. 
A)  accommodative monetary policy 
B)  quantitative easing 
C)  tight money 
D)  No change in monetary policy is needed since the federal funds rate is at the desired level.

Question 18

Friedman advocated a steady growth in the supply of money.

Accepted Answer

A) True 
 B)False

Question 19

The Federal Reserve is responsible for, among other things, promoting economic growth with low inflation.

Accepted Answer

A) True 
 B)False

Question 20

The Federal Reserve's inflation target is typically 2%.

Accepted Answer

A) True 
 B)False

When the housing bubble collapsed, the Federal Reserve dramatically increased interest rates to stimulate employment.

Which of these was NOT one of the monetary criteria for potential members to be able to enter the Eurozone?

During the 2007-2009 financial crisis, both the Federal Reserve and the European Central Bank bought bad debt in order to stabilize banks.

Which action is the Federal Reserve MOST likely to take to curb inflation?

One of the causes of the 2007-2009 financial crisis was a lack of faith in the ability of the U.S. Treasury to pay on government bonds.

Keynes defined the liquidity trap as a situation in which, once interest rates decrease, individuals spend their money rather than holding onto it.

Suppose an economy faces a current federal funds rate = 2%; inflation rate = 3%; inflation rate target = 2%; current GDP is 3% higher than full-employment GDP. According to the Taylor rule, which policy approach should this country be using?

Suppose a news article reports, "Dismal jobs report suggests the Federal Reserve will lower interest rates." If the Fed does lower interest rates, the dollar will _ against foreign currencies, and U.S. goods will become _ for foreigners.

In the equation of exchange, the term P × Q is the same as:

The idea that a change in the money supply would affect prices but not real GDP is associated with the:

Some analysts blame the last economic crisis on Federal Reserve policy. They argue that:

Which economists believe that fiscal policy is ineffective, while monetary policy is effective?

Friedman believed that monetary policy was important but had less power to influence the economy than fiscal policy.

If the Federal Reserve pursues expansionary monetary policy, the dollar is likely to fall against foreign currencies, all other things being equal.

_____ keeps the growth of money stocks, such as M1 and M2, on a steady path, following the equation of exchange.

Suppose an economy faces a current federal funds rate = 4%; inflation rate = 3%; inflation rate target = 2%; current GDP is 3% higher than full-employment GDP. According to the Taylor rule, which policy approach should this country be using?

Friedman advocated a steady growth in the supply of money.

The Federal Reserve is responsible for, among other things, promoting economic growth with low inflation.

The Federal Reserve's inflation target is typically 2%.

Exploring Economics

Production, Economic Growth, and Trade

Supply and Demand

Markets and Government

Introduction to Macroeconomics

Measuring Inflation and Unemployment

Economic Growth

Aggregate Expenditures

Aggregate Demand and Supply

Fiscal Policy and Debt

Saving, Investment, and the Financial System

Money Creation and the Federal Reserve

Macroeconomic Policy: Challenges in a Global Economy

International Trade

Open Economy Macroeconomics

Filters

Exam 13: Monetary Policy

When the housing bubble collapsed, the Federal Reserve dramatically increased interest rates to stimulate employment.

Which of these was NOT one of the monetary criteria for potential members to be able to enter the Eurozone?

During the 2007-2009 financial crisis, both the Federal Reserve and the European Central Bank bought bad debt in order to stabilize banks.

Which action is the Federal Reserve MOST likely to take to curb inflation?

One of the causes of the 2007-2009 financial crisis was a lack of faith in the ability of the U.S. Treasury to pay on government bonds.

Keynes defined the liquidity trap as a situation in which, once interest rates decrease, individuals spend their money rather than holding onto it.

Suppose an economy faces a current federal funds rate = 2%; inflation rate = 3%; inflation rate target = 2%; current GDP is 3% higher than full-employment GDP. According to the Taylor rule, which policy approach should this country be using?

Suppose a news article reports, "Dismal jobs report suggests the Federal Reserve will lower interest rates." If the Fed does lower interest rates, the dollar will _____ against foreign currencies, and U.S. goods will become _____ for foreigners.

In the equation of exchange, the term P × Q is the same as:

The idea that a change in the money supply would affect prices but not real GDP is associated with the:

Some analysts blame the last economic crisis on Federal Reserve policy. They argue that:

Which economists believe that fiscal policy is ineffective, while monetary policy is effective?

Friedman believed that monetary policy was important but had less power to influence the economy than fiscal policy.

If the Federal Reserve pursues expansionary monetary policy, the dollar is likely to fall against foreign currencies, all other things being equal.

_____ keeps the growth of money stocks, such as M1 and M2, on a steady path, following the equation of exchange.

Suppose an economy faces a current federal funds rate = 4%; inflation rate = 3%; inflation rate target = 2%; current GDP is 3% higher than full-employment GDP. According to the Taylor rule, which policy approach should this country be using?

Friedman advocated a steady growth in the supply of money.

The Federal Reserve is responsible for, among other things, promoting economic growth with low inflation.

The Federal Reserve's inflation target is typically 2%.

Exploring Economics

Production, Economic Growth, and Trade

Supply and Demand

Markets and Government

Introduction to Macroeconomics

Measuring Inflation and Unemployment

Economic Growth

Aggregate Expenditures

Aggregate Demand and Supply

Fiscal Policy and Debt

Saving, Investment, and the Financial System

Money Creation and the Federal Reserve

Macroeconomic Policy: Challenges in a Global Economy

International Trade

Open Economy Macroeconomics

Filters

Suppose a news article reports, "Dismal jobs report suggests the Federal Reserve will lower interest rates." If the Fed does lower interest rates, the dollar will _ against foreign currencies, and U.S. goods will become _ for foreigners.