Question 1

The Fed changes the federal funds rate using open-market operations.

Accepted Answer

A) True 
 B)False

Question 2

Figure 11-1
  
-Refer to Figure 11-1.If the Fed wants to achieve the results shown in Panel (b), it should

Accepted Answer

A) lower the discount rate. 
B) decrease margin requirements. 
C) decrease reserve requirements. 
D) sell government bonds in the open market. 
A) lower the discount rate. 
B) decrease margin requirements. 
C) decrease reserve requirements. 
D) sell government bonds in the open market.

Question 3

The federal funds rate is determined by demand and supply of bank reserves.

Accepted Answer

A) True 
 B)False

Question 4

When the Fed buys government bonds, bank reserves fall.

Accepted Answer

A) True 
 B)False

Question 5

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.

Question 6

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 7

Figure 11-5
  
-Refer to Figure 11-5.Assume that the economy is at point b.A decrease in the money supply would cause

Accepted Answer

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

Question 8

Figure 11-1
  
-Refer to Figure 11-1.If the Fed wants to achieve the results shown in Panel (a), it should

Accepted Answer

A) raise the discount rate. 
B) increase reserve requirements. 
C) sell government bonds in the open market. 
D) buy government bonds in the open market. 
A) raise the discount rate. 
B) increase reserve requirements. 
C) sell government bonds in the open market. 
D) buy government bonds in the open market.

Question 9

Suppose the economy experiences a recessionary gap.Expansionary monetary policy will _______ investment and _______ interest rates.

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 10

If you earn and spend $300 per week and maintain an average cash balance of $100 per week, your velocity of money is

Accepted Answer

A) $100. 
B) $200. 
C) 3. 
D) 2. 
A) $100. 
B) $200. 
C) 3. 
D) 2.

Question 11

Suppose the economy experiences a recessionary gap.Expansionary monetary policy will _______ real GDP and _______ the price level.

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

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 13

If GDP = $900 billion and the public holds $300 billion in M2, then the velocity of the M2 money supply is

Accepted Answer

A) 1. 
B) 2. 
C) 3. 
D) 4. 
A) 1. 
B) 2. 
C) 3. 
D) 4.

Question 14

All of the following are sources of the impact lag except

Accepted Answer

A) it takes some time for the deposit multiplier process to work itself out. 
B) firms need some time to respond to the monetary policy with respect to their investment plans. 
C) it takes time for the Fed to formulate a policy that best addresses a problem in the economy. 
D) a monetary change is likely to affect the exchange rate, but that translates into a change in net exports only after some delay. 
A) it takes some time for the deposit multiplier process to work itself out. 
B) firms need some time to respond to the monetary policy with respect to their investment plans. 
C) it takes time for the Fed to formulate a policy that best addresses a problem in the economy. 
D) a monetary change is likely to affect the exchange rate, but that translates into a change in net exports only after some delay.

Question 15

Figure 11-5
  
-Refer to Figure 11-5.If the economy is at point c, the Federal Reserve can close the output gap

Accepted Answer

A) by pursuing an expansionary monetary policy to raise the interest rate and increase short-run aggregate supply. 
B) by pursuing a contractionary monetary policy to drive down the interest rate and increase aggregate demand. 
C) by pursuing an expansionary monetary policy to drive down the interest rate and increase aggregate demand. 
D) by pursuing a contractionary monetary policy to raise the interest rate and short-run aggregate supply. 
A) by pursuing an expansionary monetary policy to raise the interest rate and increase short-run aggregate supply. 
B) by pursuing a contractionary monetary policy to drive down the interest rate and increase aggregate demand. 
C) by pursuing an expansionary monetary policy to drive down the interest rate and increase aggregate demand. 
D) by pursuing a contractionary monetary policy to raise the interest rate and short-run aggregate supply.

Question 16

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 17

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 18

The equation of exchange always holds because

Accepted Answer

A) the quantity of money is determined by the amount of spending on goods and services. 
B) the quantity of money dictates the size of nominal GDP, since money is a social usage. 
C) the number of times money is spent to obtain goods and services measures total spending on GDP. 
D) MV measures total spending on GDP and PY also measures of total spending on GDP. 
A) the quantity of money is determined by the amount of spending on goods and services. 
B) the quantity of money dictates the size of nominal GDP, since money is a social usage. 
C) the number of times money is spent to obtain goods and services measures total spending on GDP. 
D) MV measures total spending on GDP and PY also measures of total spending on GDP.

Question 19

Figure 11-6
  
-Refer to Figure 11-6.If the economy is initially operating at "a" and there are no rational expectations, an expansionary monetary policy would move the short-run equilibrium from

Accepted Answer

A) a to c. 
B) b to c. 
C) b to a. 
D) c to a. 
A) a to c. 
B) b to c. 
C) b to a. 
D) c to a.

Question 20

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

Exam 26: Monetary Policy and the Fed

The Fed changes the federal funds rate using open-market operations.

Figure 11-1 -Refer to Figure 11-1.If the Fed wants to achieve the results shown in Panel (b), it should

The federal funds rate is determined by demand and supply of bank reserves.

When the Fed buys government bonds, bank reserves fall.

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

If the velocity of money is constant, then

Figure 11-5 -Refer to Figure 11-5.Assume that the economy is at point b.A decrease in the money supply would cause

Figure 11-1 -Refer to Figure 11-1.If the Fed wants to achieve the results shown in Panel (a), it should

Suppose the economy experiences a recessionary gap.Expansionary monetary policy will _______ investment and _______ interest rates.

If you earn and spend $300 per week and maintain an average cash balance of $100 per week, your velocity of money is

Suppose the economy experiences a recessionary gap.Expansionary monetary policy will _______ real GDP and _______ the price level.

If GDP = $900 billion and the public holds $300 billion in M2, then the velocity of the M2 money supply is

All of the following are sources of the impact lag except

Figure 11-5 -Refer to Figure 11-5.If the economy is at point c, the Federal Reserve can close the output gap

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

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

The equation of exchange always holds because

Figure 11-6 -Refer to Figure 11-6.If the economy is initially operating at "a" and there are no rational expectations, an expansionary monetary policy would move the short-run equilibrium from

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

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

Suppose the economy experiences a recessionary gap.Expansionary monetary policy will _ investment and _ interest rates.

Suppose the economy experiences a recessionary gap.Expansionary monetary policy will _ real GDP and _ the price level.