Question 1

The equation of exchange can be stated as M = (V * P)/Y.

Accepted Answer

A) True 
 B)False

Question 2

Following the U.S.financial crisis in 2008, some observers assert that the policies of Fed Chairman Greenspan contributed to the crisis.Which of the following is a criticism of Greenspan's policies?
I.The very low interest rates used to fight the 2001 recession were maintained for too long, leading to the real estate bubble.
II.The Fed provided real estate developers with liquidity to encourage property development and offered tax breaks to first-time home buyers, which in turn fueled the real estate bubble.
III.The Fed did not promote appropriate regulations to deal with the new financial instruments that were created in the early 2000s.

Accepted Answer

A) I and II only. 
B) I and III only. 
C) II and III only. 
D) I, II, and III. 
A) I and II only. 
B) I and III only. 
C) II and III only. 
D) I, II, and III.

Question 3

Which of the following is a major problem with deflation?

Accepted Answer

A) Money loses value so rapidly that economic agents will be reluctant to hold money. 
B) Economic agents tend put off purchases in anticipation of lower prices for goods and services, leading to a downward spiral in economic activity. 
C) Low prices for goods and services tend to result in massive shortages in most markets. 
D) Money supply cannot keep pace with consumption spending. 
A) Money loses value so rapidly that economic agents will be reluctant to hold money. 
B) Economic agents tend put off purchases in anticipation of lower prices for goods and services, leading to a downward spiral in economic activity. 
C) Low prices for goods and services tend to result in massive shortages in most markets. 
D) Money supply cannot keep pace with consumption spending.

Question 4

Suppose the economy experiences a recessionary gap.Expansionary 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 5

Suppose the public holds $200 billion in M2 and the velocity of the M2 money supply is 5.What is the value of GDP?

Accepted Answer

A) $500. 
B) $1,000. 
C) $1,500. 
D) That information cannot be determined. 
A) $500. 
B) $1,000. 
C) $1,500. 
D) That information cannot be determined.

Question 6

If inflation is a threat, the Fed is likely to engage in a contractionary monetary policy.

Accepted Answer

A) True 
 B)False

Question 7

Toward the end of 2008, the U.S.economy was characterized by all of the following except

Accepted Answer

A) credit tightening by banks. 
B) rising inflation. 
C) falling real GDP. 
D) an unprecedented federal funds rate below 1%. 
A) credit tightening by banks. 
B) rising inflation. 
C) falling real GDP. 
D) an unprecedented federal funds rate below 1%.

Question 8

What is meant by the term "credit easing"?

Accepted Answer

A) It is a strategy which involves the extension of central bank lending to influence more broadly the proper functioning of credit markets and to improve liquidity. 
B) It is a strategy which involves keeping interest rates very low by providing substantial reserves for as long as is necessary to avoid deflation and encourage spending. 
C) It is a strategy which involves lowering the required reserve ratio and lowering the federal funds rate to encourage banks to increase loan creation. 
D) It is a strategy which involves allowing interest rates to rise slowly by providing substantial reserves for as long as is necessary to avoid inflation. 
A) It is a strategy which involves the extension of central bank lending to influence more broadly the proper functioning of credit markets and to improve liquidity. 
B) It is a strategy which involves keeping interest rates very low by providing substantial reserves for as long as is necessary to avoid deflation and encourage spending. 
C) It is a strategy which involves lowering the required reserve ratio and lowering the federal funds rate to encourage banks to increase loan creation. 
D) It is a strategy which involves allowing interest rates to rise slowly by providing substantial reserves for as long as is necessary to avoid inflation.

Question 9

Figure 11-4
  
-Refer to Figure 11-4.In Panel (b), assume that the price of bonds rises from P1 to P2.Now, in Panel (c), the higher price of bonds will _______ the demand for and _______ the supply of dollars and cause the exchange rate to ______.

Accepted Answer

A) reduce; increase; increase 
B) increase; increase; fall 
C) increase; reduce; increase 
D) reduce; increase; fall 
A) reduce; increase; increase 
B) increase; increase; fall 
C) increase; reduce; increase 
D) reduce; increase; fall

Question 10

According to the text, in many respects, the single most powerful economic policymaker in the United States is

Accepted Answer

A) Congress. 
B) the Federal Reserve. 
C) the President. 
D) the Supreme Court. 
A) Congress. 
B) the Federal Reserve. 
C) the President. 
D) the Supreme Court.

Question 11

In an economy experiencing hyperinflation, we expect to observe

Accepted Answer

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

Question 12

If the economy experiences an inflationary gap, a contractionary 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 13

When the Fed raises the target for federal funds, it

Accepted Answer

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

Question 14

The time between recognizing the existence of a problem and adopting a course of action to deal with the problem is called the

Accepted Answer

A) impact lag. 
B) recognition lag. 
C) implementation lag. 
D) theory lag. 
A) impact lag. 
B) recognition lag. 
C) implementation lag. 
D) theory lag.

Question 15

The time it takes to collect and process data is the biggest source of which lag?

Accepted Answer

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

Exam 26: Monetary Policy and the Fed

The equation of exchange can be stated as M = (V * P)/Y.

Which of the following is a major problem with deflation?

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

Suppose the public holds $200 billion in M2 and the velocity of the M2 money supply is 5.What is the value of GDP?

If inflation is a threat, the Fed is likely to engage in a contractionary monetary policy.

Toward the end of 2008, the U.S.economy was characterized by all of the following except

What is meant by the term "credit easing"?

Figure 11-4 -Refer to Figure 11-4.In Panel (b), assume that the price of bonds rises from P1 to P2.Now, in Panel (c), the higher price of bonds will _______ the demand for and _______ the supply of dollars and cause the exchange rate to ______.

According to the text, in many respects, the single most powerful economic policymaker in the United States is

In an economy experiencing hyperinflation, we expect to observe

If the economy experiences an inflationary gap, a contractionary monetary policy will _______ real GDP and _______ the price level.

When the Fed raises the target for federal funds, it

The time between recognizing the existence of a problem and adopting a course of action to deal with the problem is called the

The time it takes to collect and process data is the biggest source of which 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

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

Figure 11-4 -Refer to Figure 11-4.In Panel (b), assume that the price of bonds rises from P₁ to P₂.Now, in Panel (c), the higher price of bonds will ___ the demand for and _ the supply of dollars and cause the exchange rate to ____.

If the economy experiences an inflationary gap, a contractionary monetary policy will _ real GDP and _ the price level.