Question 1

Figure 11-3
  
-Refer to Figure 11-3.By shifting the supply curve from S1 to S2, the Fed ______ bonds in the open market which _______ the money supply.

Accepted Answer

A) buying; decreases 
B) selling; decreases 
C) buying; increases 
D) selling; increases 
A) buying; decreases 
B) selling; decreases 
C) buying; increases 
D) selling; increases

Question 2

If the velocity of money is constant, then nominal GDP can change only if there is a change in the money supply.

Accepted Answer

A) True 
 B)False

Question 3

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.

Question 4

Figure 11-4
  
-Refer to Figure 11-4.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 5

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 6

Holding all else constant, higher interest rates in the United States would ________ the demand for U.S.dollars in the foreign exchange market.In turn, this will lead to a(n)_______ in the exchange rate, and subsequently, U.S.net exports would _______.

Accepted Answer

A) decrease; decrease; rise 
B) increase; increase; fall 
C) increase; decrease; rise 
D) decrease; increase; fall 
A) decrease; decrease; rise 
B) increase; increase; fall 
C) increase; decrease; rise 
D) decrease; increase; fall

Question 7

The recognition lag is the length of time it takes between recognizing a problem and adopting a policy to address that problem.

Accepted Answer

A) True 
 B)False

Question 8

Figure 11-3
  
-Refer to Figure 11-3.By shifting the supply curve from S1 to S2, the Fed is exercising _______ monetary policy in order to _______ interest rates.

Accepted Answer

A) expansionary; lower 
B) expansionary; increase 
C) contractionary; increase 
D) contractionary; lower 
A) expansionary; lower 
B) expansionary; increase 
C) contractionary; increase 
D) contractionary; lower

Question 9

If you earn and spend $2,000 per month and maintain an average cash balance of $500 per month, your velocity of money is

Accepted Answer

A) $1,250. 
B) 2. 
C) 4. 
D) $1,500. 
A) $1,250. 
B) 2. 
C) 4. 
D) $1,500.

Question 10

Figure 11-5
  
-Refer to Figure 11-5.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 11

If the economy experiences an inflationary gap, a contractionary monetary policy will _______ interest rates and _______ the bond prices.

Accepted Answer

A) increase; increase 
B) increase; decrease 
C) decrease; increase 
D) decrease; decrease 
A) increase; increase 
B) increase; decrease 
C) decrease; increase 
D) decrease; decrease

Question 12

A liquidity trap is said to exist when a change in monetary policy has no effect on

Accepted Answer

A) the money supply. 
B) the natural level of employment. 
C) aggregate supply. 
D) interest rates. 
A) the money supply. 
B) the natural level of employment. 
C) aggregate supply. 
D) interest rates.

Question 13

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 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

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 16

Figure 11-4
  
-Refer to Figure 11-4.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 17

In the short-run velocity is not constant.Which of the following variables will be affected by a change in money supply?
I.real GDP
II.nominal GDP
III.the price level

Accepted Answer

A) III only 
B) II and III 
C) I, II, and III 
D) If velocity is not constant, then none of the variables is affected. 
A) III only 
B) II and III 
C) I, II, and III 
D) If velocity is not constant, then none of the variables is affected.

Question 18

Figure 11-5
  
-Refer to Figure 11-5.If the economy is at point b, the Federal Reserve can close the output gap by selling bonds.In the bond market,

Accepted Answer

A) the supply curve shifts right, leading to a decrease in bond prices and an increase in interest rates. 
B) the demand curve shifts right, leading to an increase in bond prices and a decrease in interest rates. 
C) the supply curve shifts left, leading to an increase in bond prices and an increase in interest rates. 
D) the demand curve shifts left, leading to a decrease in bond prices and an increase in interest rates. 
A) the supply curve shifts right, leading to a decrease in bond prices and an increase in interest rates. 
B) the demand curve shifts right, leading to an increase in bond prices and a decrease in interest rates. 
C) the supply curve shifts left, leading to an increase in bond prices and an increase in interest rates. 
D) the demand curve shifts left, leading to a decrease in bond prices and an increase in interest rates.

Question 19

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 20

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.

Exam 26: Monetary Policy and the Fed

Figure 11-3 -Refer to Figure 11-3.By shifting the supply curve from S1 to S2, the Fed ______ bonds in the open market which _______ the money supply.

If the velocity of money is constant, then nominal GDP can change only if there is a change in the money supply.

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

Figure 11-4 -Refer to Figure 11-4.If a nonintervention policy were adopted in Panel (a),

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

Holding all else constant, higher interest rates in the United States would ________ the demand for U.S.dollars in the foreign exchange market.In turn, this will lead to a(n)_______ in the exchange rate, and subsequently, U.S.net exports would _______.

The recognition lag is the length of time it takes between recognizing a problem and adopting a policy to address that problem.

Figure 11-3 -Refer to Figure 11-3.By shifting the supply curve from S1 to S2, the Fed is exercising _______ monetary policy in order to _______ interest rates.

If you earn and spend $2,000 per month and maintain an average cash balance of $500 per month, your velocity of money is

Figure 11-5 -Refer to Figure 11-5.If the economy is at point a,

If the economy experiences an inflationary gap, a contractionary monetary policy will _______ interest rates and _______ the bond prices.

A liquidity trap is said to exist when a change in monetary policy has no effect on

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

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

The congressional act passed in 1946 that contained the first official statement of goals for economic performance in the United States was the

Figure 11-4 -Refer to Figure 11-4.Which of the following actions by the Fed could have caused the movement from AD1 to AD2 in Panel (a)?

In the short-run velocity is not constant.Which of the following variables will be affected by a change in money supply? I.real GDP II.nominal GDP III.the price level

Figure 11-5 -Refer to Figure 11-5.If the economy is at point b, the Federal Reserve can close the output gap by selling bonds.In the bond market,

The rational expectations hypothesis suggests that

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

Economics: the Study of Choice

Confronting Scarcity: Choices in Production

Demand and Supply

Applications of Demand and Supply

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Monopoly

The World of Imperfect Competition

Wages and Employment in Perfect Competition

Interest Rates and the Markets for Capital and Natural Resources

Imperfectly Competitive Markets for Factors of Production

Public Finance and Public Choice

Inflation and Unemployment

International Trade

The Economics of the Environment

Inequality, Poverty, and Discrimination

Macroeconomics: the Big Picture

Measuring Total Income and Output

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

Macro Inflation and Unemployment

Macro a Brief History of Macroeconomic Thought and Policy

Economic Development

Socialist Economies in Transition

Filters

Figure 11-3 -Refer to Figure 11-3.By shifting the supply curve from S₁ to S₂, the Fed bonds in the open market which _ the money supply.

Holding all else constant, higher interest rates in the United States would ____ the demand for U.S.dollars in the foreign exchange market.In turn, this will lead to a(n)_ in the exchange rate, and subsequently, U.S.net exports would _____.

Figure 11-3 -Refer to Figure 11-3.By shifting the supply curve from S₁ to S₂, the Fed is exercising _ monetary policy in order to _ interest rates.

If the economy experiences an inflationary gap, a contractionary monetary policy will _ interest rates and _ the bond prices.

Figure 11-4 -Refer to Figure 11-4.Which of the following actions by the Fed could have caused the movement from AD₁ to AD₂ in Panel (a)?