Question 1

Which statement was NOT a criticism of the Federal Reserve's response to the 2007-2009 financial crisis in the United States?

Accepted Answer

A)  It might lead to inflation in the future. 
B)  It may have fed a housing bubble by keeping interest rates low. 
C)  It did things outside its authority by buying troubled assets. 
D)  It took minimal rather than drastic action. 
A)  It might lead to inflation in the future. 
B)  It may have fed a housing bubble by keeping interest rates low. 
C)  It did things outside its authority by buying troubled assets. 
D)  It took minimal rather than drastic action. D

Question 2

Describe the classical theory that explains the effect of a change in the money supply on the price level in an economy.

Accepted Answer

The equation of exchange (M × V = P × Q) suggests that the process is quite direct; any change in M will be felt directly in P, since V and Q are assumed to be fixed.

Question 3

One of the causes of the 2007-2009 financial crisis was a lack of faith in the ability of the U.S. Treasury to pay on government bonds.

Accepted Answer

A) True 
 B)False  False

Question 4

Which policy would cause a reduction in both excess bank reserves and aggregate demand?

Accepted Answer

A)  a reduction in the discount rate 
B)  the Federal Reserve purchasing government securities in the open market 
C)  a reduction in taxes 
D)  an increase in the reserve requirement 
A)  a reduction in the discount rate 
B)  the Federal Reserve purchasing government securities in the open market 
C)  a reduction in taxes 
D)  an increase in the reserve requirement

Question 5

The velocity of money is the average number of times money is spent in a year.

Accepted Answer

A) True 
 B)False

Question 6

In September 2012, Norway's central bank said it would delay plans to tighten monetary policy. When the Norges Bank pursues tighter monetary policy, what is likely to happen to the Norwegian krone and Norway's imports from other countries?

Accepted Answer

When the Norges Bank raises in

Question 7

If the Federal Reserve tries to target inflation near 2%, the inflation rate is 3%, and output is 3% below potential GDP, then the target federal funds rate according to the Taylor rule is

Accepted Answer

A)  3%. 
B)  4%. 
C)  5%. 
D)  6%. 
A)  3%. 
B)  4%. 
C)  5%. 
D)  6%.

Question 8

If the Federal Reserve adheres strictly to the Taylor rule, it will

Accepted Answer

A)  lower the target federal funds rate when the economy starts to overheat. 
B)  keep the target federal funds rate constant, regardless of evolving economic conditions. 
C)  increase the target federal funds rate when there is concern about inflation and lower it when there is concern about recessions. 
D)  decrease the target federal funds rate when the government runs an expansionary fiscal policy. 
A)  lower the target federal funds rate when the economy starts to overheat. 
B)  keep the target federal funds rate constant, regardless of evolving economic conditions. 
C)  increase the target federal funds rate when there is concern about inflation and lower it when there is concern about recessions. 
D)  decrease the target federal funds rate when the government runs an expansionary fiscal policy.

Question 9

Supply shocks are NOT caused by

Accepted Answer

A)  a rise in resource prices. 
B)  changes in inflationary expectations. 
C)  changes in technology. 
D)  changes in money supply. 
A)  a rise in resource prices. 
B)  changes in inflationary expectations. 
C)  changes in technology. 
D)  changes in money supply.

Question 10

What measures did the European Central Bank take to prevent financial crises in individual countries from collapsing the Eurozone?

Accepted Answer

It provided loans to banks, bought gover

Question 11

Monetary targeting tends to keep aggregate demand relatively stable.

Accepted Answer

A) True 
 B)False

Question 12

Which action is the Federal Reserve MOST likely to take to curb inflation?

Accepted Answer

A)  lower the discount rate 
B)  lower reserve requirements 
C)  raise taxes 
D)  sell securities in the open market 
A)  lower the discount rate 
B)  lower reserve requirements 
C)  raise taxes 
D)  sell securities in the open market

Question 13

Federal Reserve Chairman Ben Bernanke was not happy about bailing out institutions that had gotten themselves into trouble by taking on too much risk. So, why did the Fed do it?

Accepted Answer

A)  Rescuing floundering banks is part of the Fed's mandate as set forth in the Federal Reserve Act of 1913. 
B)  The Fed bailed out some institutions to curry political favor. 
C)  Powerful members of Congress forced the Fed to bail out constituents in their districts. 
D)  The Fed feared that failures of very large institutions threatened the stability of the entire financial system. 
A)  Rescuing floundering banks is part of the Fed's mandate as set forth in the Federal Reserve Act of 1913. 
B)  The Fed bailed out some institutions to curry political favor. 
C)  Powerful members of Congress forced the Fed to bail out constituents in their districts. 
D)  The Fed feared that failures of very large institutions threatened the stability of the entire financial system.

Question 14

Most economists think the Federal Reserve should target

Accepted Answer

A)  income and output in the long run. 
B)  price stability in the long run. 
C)  price stability in the short run. 
D)  the federal funds rate. 
A)  income and output in the long run. 
B)  price stability in the long run. 
C)  price stability in the short run. 
D)  the federal funds rate.

Question 15

A policy of transparency in the Federal Reserve

Accepted Answer

A)  allows investors to sit in on Federal Reserve Board meetings. 
B)  requires the Fed to act in specific ways in specific situations. 
C)  requires the Fed to explain why it acted or chose not to act in a specific situation. 
D)  allows Wall Street to audit the Fed's books. 
A)  allows investors to sit in on Federal Reserve Board meetings. 
B)  requires the Fed to act in specific ways in specific situations. 
C)  requires the Fed to explain why it acted or chose not to act in a specific situation. 
D)  allows Wall Street to audit the Fed's books.

Question 16

The Federal Reserve is responsible for, among other things, promoting economic growth with low inflation.

Accepted Answer

A) True 
 B)False

Question 17

According to _____, in the long run, changes in the money supply will NOT change output.

Accepted Answer

A)  classical economists, Keynesians, and monetarists 
B)  classical economists only 
C)  Keynesian monetary theory 
D)  monetarists only 
A)  classical economists, Keynesians, and monetarists 
B)  classical economists only 
C)  Keynesian monetary theory 
D)  monetarists only

Question 18

According to monetarist theory, an increase in the money supply will change aggregate spending because people and firms rebalance their portfolios.

Accepted Answer

A) True 
 B)False

Question 19

The Taylor rule is the official tool used by the Fed to adjust interest rates.

Accepted Answer

A) True 
 B)False

Question 20

No Federal Reserve chairman has had to deal with deflation since 1978.

Accepted Answer

A) True 
 B)False

Which statement was NOT a criticism of the Federal Reserve's response to the 2007-2009 financial crisis in the United States?

Describe the classical theory that explains the effect of a change in the money supply on the price level in an economy.

One of the causes of the 2007-2009 financial crisis was a lack of faith in the ability of the U.S. Treasury to pay on government bonds.

Which policy would cause a reduction in both excess bank reserves and aggregate demand?

The velocity of money is the average number of times money is spent in a year.

In September 2012, Norway's central bank said it would delay plans to tighten monetary policy. When the Norges Bank pursues tighter monetary policy, what is likely to happen to the Norwegian krone and Norway's imports from other countries?

If the Federal Reserve tries to target inflation near 2%, the inflation rate is 3%, and output is 3% below potential GDP, then the target federal funds rate according to the Taylor rule is

If the Federal Reserve adheres strictly to the Taylor rule, it will

Supply shocks are NOT caused by

What measures did the European Central Bank take to prevent financial crises in individual countries from collapsing the Eurozone?

Monetary targeting tends to keep aggregate demand relatively stable.

Which action is the Federal Reserve MOST likely to take to curb inflation?

Federal Reserve Chairman Ben Bernanke was not happy about bailing out institutions that had gotten themselves into trouble by taking on too much risk. So, why did the Fed do it?

Most economists think the Federal Reserve should target

A policy of transparency in the Federal Reserve

The Federal Reserve is responsible for, among other things, promoting economic growth with low inflation.

According to _____, in the long run, changes in the money supply will NOT change output.

According to monetarist theory, an increase in the money supply will change aggregate spending because people and firms rebalance their portfolios.

The Taylor rule is the official tool used by the Fed to adjust interest rates.

No Federal Reserve chairman has had to deal with deflation since 1978.

Exploring Economics

Production, Economic Growth, and Trade

Supply and Demand

Markets and Government

Introduction to Macroeconomics

Measuring Inflation and Unemployment

Economic Growth

Aggregate Expenditures

Aggregate Demand and Supply

Fiscal Policy and Debt

Saving, Investment, and the Financial System

Money Creation and the Federal Reserve

Macroeconomic Policy: Challenges in a Global Economy

International Trade

Open Economy Macroeconomics

Filters

Exam 13: Monetary Policy

Which statement was NOT a criticism of the Federal Reserve's response to the 2007-2009 financial crisis in the United States?

Describe the classical theory that explains the effect of a change in the money supply on the price level in an economy.

One of the causes of the 2007-2009 financial crisis was a lack of faith in the ability of the U.S. Treasury to pay on government bonds.

Which policy would cause a reduction in both excess bank reserves and aggregate demand?

The velocity of money is the average number of times money is spent in a year.

In September 2012, Norway's central bank said it would delay plans to tighten monetary policy. When the Norges Bank pursues tighter monetary policy, what is likely to happen to the Norwegian krone and Norway's imports from other countries?

If the Federal Reserve tries to target inflation near 2%, the inflation rate is 3%, and output is 3% below potential GDP, then the target federal funds rate according to the Taylor rule is

If the Federal Reserve adheres strictly to the Taylor rule, it will

Supply shocks are NOT caused by

What measures did the European Central Bank take to prevent financial crises in individual countries from collapsing the Eurozone?

Monetary targeting tends to keep aggregate demand relatively stable.

Which action is the Federal Reserve MOST likely to take to curb inflation?

Federal Reserve Chairman Ben Bernanke was not happy about bailing out institutions that had gotten themselves into trouble by taking on too much risk. So, why did the Fed do it?

Most economists think the Federal Reserve should target

A policy of transparency in the Federal Reserve

The Federal Reserve is responsible for, among other things, promoting economic growth with low inflation.

According to _____, in the long run, changes in the money supply will NOT change output.

According to monetarist theory, an increase in the money supply will change aggregate spending because people and firms rebalance their portfolios.

The Taylor rule is the official tool used by the Fed to adjust interest rates.

No Federal Reserve chairman has had to deal with deflation since 1978.

Exploring Economics

Production, Economic Growth, and Trade

Supply and Demand

Markets and Government

Introduction to Macroeconomics

Measuring Inflation and Unemployment

Economic Growth

Aggregate Expenditures

Aggregate Demand and Supply

Fiscal Policy and Debt

Saving, Investment, and the Financial System

Money Creation and the Federal Reserve

Macroeconomic Policy: Challenges in a Global Economy

International Trade

Open Economy Macroeconomics

Filters