Question 1

For the past 40 years, the Federal Reserve has expressed policy in terms of a target value for:

Accepted Answer

A) bank reserves. 
B) the Federal Reserve discount rate. 
C) the federal funds rate. 
D) open market operations. 
A) bank reserves. 
B) the Federal Reserve discount rate. 
C) the federal funds rate. 
D) open market operations.

Question 2

Refer to the figure below.Based on the diagram, if potential output equals 8,000 and the real interest rate is 4%, then there is ______ gap and the Fed must ______ the real interest rate so that output will equal potential output.

Accepted Answer

A) a recessionary; raise 
B) a recessionary; lower 
C) no output; not change 
D) an expansionary; raise 
A) a recessionary; raise 
B) a recessionary; lower 
C) no output; not change 
D) an expansionary; raise

Question 3

Based on the information in the table, what quantity of reserves did the Federal Reserve inject into the economy in 1932?

Accepted Answer

A) $0.30 billion 
B) $0.23 billion 
C) $0.16 billion 
D) $0.07 billion 
A) $0.30 billion 
B) $0.23 billion 
C) $0.16 billion 
D) $0.07 billion

Question 4

The federal funds rate is the interest rate on short-term loans made by:

Accepted Answer

A) the Federal Reserve to commercial banks. 
B) the federal government to the Federal Reserve. 
C) the Federal Reserve to the federal government. 
D) commercial banks to other commercial banks. 
A) the Federal Reserve to commercial banks. 
B) the federal government to the Federal Reserve. 
C) the Federal Reserve to the federal government. 
D) commercial banks to other commercial banks.

Question 5

If the income-expenditure multiplier equals 4, and a 1 percent increase in the real interest rate reduces autonomous spending by 100 units, then a 1,000 unit recessionary gap can be eliminated by ______ the real interest rate by ______ percent.

Accepted Answer

A) increasing; 10.0 
B) increasing; 4.0 
C) increasing; 2.5 
D) decreasing; 2.5 
A) increasing; 10.0 
B) increasing; 4.0 
C) increasing; 2.5 
D) decreasing; 2.5

Question 6

Higher nominal interest rates ______ the amount of money demanded and a higher price level ______ the amount of money demanded.

Accepted Answer

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

Question 7

Refer to the figure below.Based on the diagram, if potential output equals 5,000 and the real interest rate is 3%, then there is ______ gap and the Fed must ______ the real interest rate so that output will equal potential output.

Accepted Answer

A) a recessionary; raise 
B) a recessionary; reduce 
C) no output; not change 
D) an expansionary; raise 
A) a recessionary; raise 
B) a recessionary; reduce 
C) no output; not change 
D) an expansionary; raise

Question 8

Refer to the figure below.Based on the diagram, if potential output equals 8,000 and the real interest rate is 6%, then there is ______ gap and the Fed must ______ the real interest rate so that output will equal potential output.

Accepted Answer

A) a recessionary; raise 
B) a recessionary; reduce 
C) no output; not change 
D) an expansionary; raise 
A) a recessionary; raise 
B) a recessionary; reduce 
C) no output; not change 
D) an expansionary; raise

Question 9

In a certain economy, the components of planned spending are given by: C = 500 + 0.8(Y - T) - 300r
Ip = 200 - 400r
G = 200
NX = 10
T = 150
Given the information about the economy above, which expression below gives induced expenditures?

Accepted Answer

A) [910 - 700r] 
B) [790 - 700r] 
C) 0.8Y 
D) 0.2Y 
A) [910 - 700r] 
B) [790 - 700r] 
C) 0.8Y 
D) 0.2Y

Question 10

The Federal Reserve System first began operations in:

Accepted Answer

A) 1789. 
B) 1865. 
C) 1914. 
D) 1934 
A) 1789. 
B) 1865. 
C) 1914. 
D) 1934

Question 11

The two main responsibilities of the Federal Reserve System are to ______ and to ______.

Accepted Answer

A) apprehend counterfeiters; regulate the stock market 
B) enable banks to make affordable mortgages; control the exchange rate of the U.S.dollar 
C) insure bank deposits; print currency 
D) conduct monetary policy; oversee financial markets 
A) apprehend counterfeiters; regulate the stock market 
B) enable banks to make affordable mortgages; control the exchange rate of the U.S.dollar 
C) insure bank deposits; print currency 
D) conduct monetary policy; oversee financial markets

Question 12

Prior to January 2000, the demand for money increased as people anticipated Y2K problems.To offset this increase in money demand, the Fed would have had to ______ the money supply, which would have put ______ pressure on nominal interest rates.

Accepted Answer

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

Question 13

Which of the following would be expected to increase the demand for money in the U.S.?

Accepted Answer

A) Financial investors become concerned about increasing riskiness of stocks. 
B) The economy enters a recession. 
C) Political instability decreases dramatically in developing nations. 
D) On-line banking allows customers to transfer funds between checking and stock mutual funds 24 hours a day. 
A) Financial investors become concerned about increasing riskiness of stocks. 
B) The economy enters a recession. 
C) Political instability decreases dramatically in developing nations. 
D) On-line banking allows customers to transfer funds between checking and stock mutual funds 24 hours a day.

Question 14

Based on the information in the table, the total amount of bank deposits decreased from ______ to ______ over the course of 1932.

Accepted Answer

A) $37.3 billion; $32.7 billion 
B) $32.7 billion; $29.2 billion 
C) $34.2 billion; $30.8 billion 
D) $37.3 billion; $34.0 billion 
A) $37.3 billion; $32.7 billion 
B) $32.7 billion; $29.2 billion 
C) $34.2 billion; $30.8 billion 
D) $37.3 billion; $34.0 billion

Question 15

The Federal Open Market Committee makes decisions about ______ policy.

Accepted Answer

A) monetary 
B) fiscal 
C) banking 
D) deposit insurance 
A) monetary 
B) fiscal 
C) banking 
D) deposit insurance

Question 16

In an economy where planned aggregate spending is given by PAE = 5,500 + 0.6Y - 20,000r, the interest rate is currently 5 percent (0.05).If potential output equals 11,750, the central bank must ______ the interest rate to close the ____________ gap.

Accepted Answer

A) reduce; expansionary 
B) reduce; recessionary 
C) raise; recessionary 
D) raise; expansionary 
A) reduce; expansionary 
B) reduce; recessionary 
C) raise; recessionary 
D) raise; expansionary

Question 17

The money demand curve will shift to the left if:

Accepted Answer

A) the nominal interest rate increases. 
B) the nominal interest rate decreases. 
C) the price level increases. 
D) real income decreases. 
A) the nominal interest rate increases. 
B) the nominal interest rate decreases. 
C) the price level increases. 
D) real income decreases.

Question 18

Refer to the figure below.Based on the diagram, if potential output equals 8,000 and the real interest rate is 2%, then there is ______ gap and the Fed must ______ the real interest rate so that output will equal potential output.

Accepted Answer

A) a recessionary; raise 
B) an expansionary; reduce 
C) no output; not change 
D) an expansionary; raise 
A) a recessionary; raise 
B) an expansionary; reduce 
C) no output; not change 
D) an expansionary; raise

Question 19

Refer to the figure below.If the Federal Reserve wants to set the nominal interest rate at 9%, it must conduct open market ______ to set the money supply at _____.

Accepted Answer

A) purchases; 100 
B) sales; 100 
C) purchases; 900 
D) sales; 900 
A) purchases; 100 
B) sales; 100 
C) purchases; 900 
D) sales; 900

Question 20

If the Fed wishes to increase nominal interest rates, it must engage in an open market ______ of bonds that ______ the money supply.

Accepted Answer

A) sale; increases 
B) sale; decreases 
C) sale; does not change 
D) purchase; increases 
A) sale; increases 
B) sale; decreases 
C) sale; does not change 
D) purchase; increases

For the past 40 years, the Federal Reserve has expressed policy in terms of a target value for:

Refer to the figure below.Based on the diagram, if potential output equals 8,000 and the real interest rate is 4%, then there is gap and the Fed must the real interest rate so that output will equal potential output.

Based on the information in the table, what quantity of reserves did the Federal Reserve inject into the economy in 1932?

The federal funds rate is the interest rate on short-term loans made by:

If the income-expenditure multiplier equals 4, and a 1 percent increase in the real interest rate reduces autonomous spending by 100 units, then a 1,000 unit recessionary gap can be eliminated by the real interest rate by percent.

Higher nominal interest rates the amount of money demanded and a higher price level the amount of money demanded.

Refer to the figure below.Based on the diagram, if potential output equals 5,000 and the real interest rate is 3%, then there is gap and the Fed must the real interest rate so that output will equal potential output.

Refer to the figure below.Based on the diagram, if potential output equals 8,000 and the real interest rate is 6%, then there is gap and the Fed must the real interest rate so that output will equal potential output.

In a certain economy, the components of planned spending are given by: C = 500 + 0.8(Y - T) - 300r Ip = 200 - 400r G = 200 NX = 10 T = 150 Given the information about the economy above, which expression below gives induced expenditures?

The Federal Reserve System first began operations in:

The two main responsibilities of the Federal Reserve System are to and to .

Prior to January 2000, the demand for money increased as people anticipated Y2K problems.To offset this increase in money demand, the Fed would have had to the money supply, which would have put pressure on nominal interest rates.

Which of the following would be expected to increase the demand for money in the U.S.?

Based on the information in the table, the total amount of bank deposits decreased from to over the course of 1932.

The Federal Open Market Committee makes decisions about ______ policy.

In an economy where planned aggregate spending is given by PAE = 5,500 + 0.6Y - 20,000r, the interest rate is currently 5 percent (0.05).If potential output equals 11,750, the central bank must the interest rate to close the ______ gap.

The money demand curve will shift to the left if:

Refer to the figure below.Based on the diagram, if potential output equals 8,000 and the real interest rate is 2%, then there is gap and the Fed must the real interest rate so that output will equal potential output.

Refer to the figure below.If the Federal Reserve wants to set the nominal interest rate at 9%, it must conduct open market __ to set the money supply at _.

If the Fed wishes to increase nominal interest rates, it must engage in an open market of bonds that the money supply.

Thinking Like an Economist

Comparative Advantage

Spending, Income, and GDP

Inflation and the Price Level

Wages and Unemployment

Economic Growth

Saving, Capital Formation, and Financial Markets

Money, Prices, and the Financial System

Short-Term Economic Fluctuations

Spending, Output, and Fiscal Policy

Aggregate Demand, Aggregate Supply, and Business Cycles

Macroeconomic Policy

Exchange Rates, International Trade, and Capital Flows

Filters

Exam 12: Monetary Policy and the Federal Reserve

For the past 40 years, the Federal Reserve has expressed policy in terms of a target value for:

Refer to the figure below.Based on the diagram, if potential output equals 8,000 and the real interest rate is 4%, then there is ______ gap and the Fed must ______ the real interest rate so that output will equal potential output.

Based on the information in the table, what quantity of reserves did the Federal Reserve inject into the economy in 1932?

The federal funds rate is the interest rate on short-term loans made by:

If the income-expenditure multiplier equals 4, and a 1 percent increase in the real interest rate reduces autonomous spending by 100 units, then a 1,000 unit recessionary gap can be eliminated by ______ the real interest rate by ______ percent.

Higher nominal interest rates ______ the amount of money demanded and a higher price level ______ the amount of money demanded.

Refer to the figure below.Based on the diagram, if potential output equals 5,000 and the real interest rate is 3%, then there is ______ gap and the Fed must ______ the real interest rate so that output will equal potential output.

Refer to the figure below.Based on the diagram, if potential output equals 8,000 and the real interest rate is 6%, then there is ______ gap and the Fed must ______ the real interest rate so that output will equal potential output.

In a certain economy, the components of planned spending are given by: C = 500 + 0.8(Y - T) - 300r Ip = 200 - 400r G = 200 NX = 10 T = 150 Given the information about the economy above, which expression below gives induced expenditures?

The Federal Reserve System first began operations in:

The two main responsibilities of the Federal Reserve System are to ______ and to ______.

Prior to January 2000, the demand for money increased as people anticipated Y2K problems.To offset this increase in money demand, the Fed would have had to ______ the money supply, which would have put ______ pressure on nominal interest rates.

Which of the following would be expected to increase the demand for money in the U.S.?

Based on the information in the table, the total amount of bank deposits decreased from ______ to ______ over the course of 1932.

The Federal Open Market Committee makes decisions about ______ policy.

In an economy where planned aggregate spending is given by PAE = 5,500 + 0.6Y - 20,000r, the interest rate is currently 5 percent (0.05).If potential output equals 11,750, the central bank must ______ the interest rate to close the ____________ gap.

The money demand curve will shift to the left if:

Refer to the figure below.Based on the diagram, if potential output equals 8,000 and the real interest rate is 2%, then there is ______ gap and the Fed must ______ the real interest rate so that output will equal potential output.

Refer to the figure below.If the Federal Reserve wants to set the nominal interest rate at 9%, it must conduct open market ______ to set the money supply at _____.

If the Fed wishes to increase nominal interest rates, it must engage in an open market ______ of bonds that ______ the money supply.

Thinking Like an Economist

Comparative Advantage

Spending, Income, and GDP

Inflation and the Price Level

Wages and Unemployment

Economic Growth

Saving, Capital Formation, and Financial Markets

Money, Prices, and the Financial System

Short-Term Economic Fluctuations

Spending, Output, and Fiscal Policy

Aggregate Demand, Aggregate Supply, and Business Cycles

Macroeconomic Policy

Exchange Rates, International Trade, and Capital Flows

Filters

Refer to the figure below.Based on the diagram, if potential output equals 8,000 and the real interest rate is 4%, then there is gap and the Fed must the real interest rate so that output will equal potential output.

If the income-expenditure multiplier equals 4, and a 1 percent increase in the real interest rate reduces autonomous spending by 100 units, then a 1,000 unit recessionary gap can be eliminated by the real interest rate by percent.

Higher nominal interest rates the amount of money demanded and a higher price level the amount of money demanded.

Refer to the figure below.Based on the diagram, if potential output equals 5,000 and the real interest rate is 3%, then there is gap and the Fed must the real interest rate so that output will equal potential output.

Refer to the figure below.Based on the diagram, if potential output equals 8,000 and the real interest rate is 6%, then there is gap and the Fed must the real interest rate so that output will equal potential output.

The two main responsibilities of the Federal Reserve System are to and to .

Prior to January 2000, the demand for money increased as people anticipated Y2K problems.To offset this increase in money demand, the Fed would have had to the money supply, which would have put pressure on nominal interest rates.

Based on the information in the table, the total amount of bank deposits decreased from to over the course of 1932.

In an economy where planned aggregate spending is given by PAE = 5,500 + 0.6Y - 20,000r, the interest rate is currently 5 percent (0.05).If potential output equals 11,750, the central bank must the interest rate to close the ______ gap.

Refer to the figure below.Based on the diagram, if potential output equals 8,000 and the real interest rate is 2%, then there is gap and the Fed must the real interest rate so that output will equal potential output.

Refer to the figure below.If the Federal Reserve wants to set the nominal interest rate at 9%, it must conduct open market __ to set the money supply at _.

If the Fed wishes to increase nominal interest rates, it must engage in an open market of bonds that the money supply.