Question 1

Figure 11-2
  
-Refer to Figure 11-2.To shift the demand curve from D1 to D2, 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

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

Accepted Answer

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

Question 3

When the Fed lowers the target rate of interest for federal funds, it

Accepted Answer

A) buys government bonds. 
B) lowers the discount rate. 
C) sells government bonds. 
D) lowers the required reserve ratio. 
A) buys government bonds. 
B) lowers the discount rate. 
C) sells government bonds. 
D) lowers the required reserve ratio.

Question 4

The major tools of monetary policy available to the Federal Reserve System are

Accepted Answer

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

Question 5

Figure 11-6
  
-Refer to Figure 11-6.Suppose the economy is operating at "a" and that individuals have rational expectations.They calculate that expansionary monetary policy

Accepted Answer

A) will raise the price level to Pd; and they adjust their expectations and wage demands shifting the short-run aggregate supply curve to AS2.  
B) will raise the price level to Pc; and they adjust their expectations and wage demands shifting the short-run aggregate supply curve to AS2. 
C) will raise the price level to Pb; and they adjust their expectations and wage demands shifting the short-run aggregate supply curve to AS1. 
D) will keep the price level at Pa; and the short-run aggregate supply curve at AS1. 
A) will raise the price level to Pd; and they adjust their expectations and wage demands shifting the short-run aggregate supply curve to AS2.  
B) will raise the price level to Pc; and they adjust their expectations and wage demands shifting the short-run aggregate supply curve to AS2. 
C) will raise the price level to Pb; and they adjust their expectations and wage demands shifting the short-run aggregate supply curve to AS1. 
D) will keep the price level at Pa; and the short-run aggregate supply curve at AS1.

Question 6

The federal funds rate is never targeted by the Fed.

Accepted Answer

A) True 
 B)False

Question 7

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 8

Suppose money supply (M)= $4,000, real GDP (Y)= $30,000, and nominal GDP = $60,000.Calculate the value of velocity and the price level.

Accepted Answer

A) V = 7.5; P = 2 
B) V = 15; P = 2 
C) V = 7.5; P = 0.5 
D) V = 15; P = 15 
A) V = 7.5; P = 2 
B) V = 15; P = 2 
C) V = 7.5; P = 0.5 
D) V = 15; P = 15

Question 9

Which of the following statements is true about velocity?

Accepted Answer

A) In the short run, velocity varies but in the long run, velocity is relatively constant. 
B) In the short run, velocity is relatively constant but in the long run, velocity varies. 
C) Velocity is relatively constant in the short run and in the long run. 
D) Velocity fluctuates with fluctuations in economic activity and changes in the growth rate of money supply. 
A) In the short run, velocity varies but in the long run, velocity is relatively constant. 
B) In the short run, velocity is relatively constant but in the long run, velocity varies. 
C) Velocity is relatively constant in the short run and in the long run. 
D) Velocity fluctuates with fluctuations in economic activity and changes in the growth rate of money supply.

Question 10

Using the equation of exchange, if the nominal GDP is $8,000 billion and the money supply is $1,600 billion, then

Accepted Answer

A) the price level is 5. 
B) the price level is 0.2. 
C) velocity is 5. 
D) velocity is 0.2. 
A) the price level is 5. 
B) the price level is 0.2. 
C) velocity is 5. 
D) velocity is 0.2.

Question 11

If the Fed's primary goal is price stability which macroeconomic variable should it target?

Accepted Answer

A) the price level itself or a particular rate of change in the price level 
B) the growth rate of money supply 
C) the real money supply 
D) real GDP 
A) the price level itself or a particular rate of change in the price level 
B) the growth rate of money supply 
C) the real money supply 
D) real GDP

Question 12

Which of the following result from a change in the money supply brought about by an open market sale?

Accepted Answer

A) lower interest rate, higher exchange rate, decreased demand for investment and net exports 
B) higher interest rate, higher exchange rate, decreased demand for investment and decreased demand for net exports 
C) lower interest rate, lower exchange rate, increased demand for investment and net exports 
D) higher interest rate, lower exchange rate, decreased demand for investment and increased demand for net exports 
A) lower interest rate, higher exchange rate, decreased demand for investment and net exports 
B) higher interest rate, higher exchange rate, decreased demand for investment and decreased demand for net exports 
C) lower interest rate, lower exchange rate, increased demand for investment and net exports 
D) higher interest rate, lower exchange rate, decreased demand for investment and increased demand for net exports

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

Figure 11-5
  
-Refer to Figure 11-5.Long-run equilibrium positions occur at points

Accepted Answer

A) a and d. 
B) a and b. 
C) c and d. 
D) b and d. 
A) a and d. 
B) a and b. 
C) c and d. 
D) b and d.

Question 15

Mary Chestnut reported in her diary that, during the Civil War, she became much less willing to hold "'Confederates," currency issued by the Confederate State of America.Assuming that this change in preferences was widespread in the South, it suggests

Accepted Answer

A) a reduction in the demand for money and a reduction in velocity. 
B) a reduction in the demand for money and an increase in velocity. 
C) an increase in the demand for money and a reduction in velocity. 
D) an increase in the demand for money and an increase in velocity. 
A) a reduction in the demand for money and a reduction in velocity. 
B) a reduction in the demand for money and an increase in velocity. 
C) an increase in the demand for money and a reduction in velocity. 
D) an increase in the demand for money and an increase in velocity.

Question 16

The delay between the time at which a problem is recognized and the time at which a policy to deal with it is enacted is called

Accepted Answer

A) the impact lag. 
B) the implementation lag. 
C) the government lag. 
D) the recognition lag. 
A) the impact lag. 
B) the implementation lag. 
C) the government lag. 
D) the recognition lag.

Question 17

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.

Question 18

Which of the following is perhaps the greatest obstacle facing the Fed in discharging monetary policy?

Accepted Answer

A) the difficulties involved in regulating the complex structure of financial institutions 
B) the problem of monetary policy lags 
C) the problem of identifying a monetary measure that is closely linked to real GDP 
D) the problem of coordinating monetary and fiscal policy 
A) the difficulties involved in regulating the complex structure of financial institutions 
B) the problem of monetary policy lags 
C) the problem of identifying a monetary measure that is closely linked to real GDP 
D) the problem of coordinating monetary and fiscal policy

Question 19

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 20

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

Accepted Answer

A) True 
 B)False

Exam 26: Monetary Policy and the Fed

Figure 11-2 -Refer to Figure 11-2.To shift the demand curve from D1 to D2, the Fed _______ bonds in the open market which _______ the money supply.

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

When the Fed lowers the target rate of interest for federal funds, it

The major tools of monetary policy available to the Federal Reserve System are

Figure 11-6 -Refer to Figure 11-6.Suppose the economy is operating at "a" and that individuals have rational expectations.They calculate that expansionary monetary policy

The federal funds rate is never targeted by the Fed.

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

Suppose money supply (M)= $4,000, real GDP (Y)= $30,000, and nominal GDP = $60,000.Calculate the value of velocity and the price level.

Which of the following statements is true about velocity?

Using the equation of exchange, if the nominal GDP is $8,000 billion and the money supply is $1,600 billion, then

If the Fed's primary goal is price stability which macroeconomic variable should it target?

Which of the following result from a change in the money supply brought about by an open market sale?

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

Figure 11-5 -Refer to Figure 11-5.Long-run equilibrium positions occur at points

Mary Chestnut reported in her diary that, during the Civil War, she became much less willing to hold "'Confederates," currency issued by the Confederate State of America.Assuming that this change in preferences was widespread in the South, it suggests

The delay between the time at which a problem is recognized and the time at which a policy to deal with it is enacted is called

The problem of lags suggests that monetary policy should

Which of the following is perhaps the greatest obstacle facing the Fed in discharging monetary policy?

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

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

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 11-2 -Refer to Figure 11-2.To shift the demand curve from D₁ to D₂, the Fed _ bonds in the open market which _ the money supply.