Question 1

The time it takes for the Fed or government policymakers to enact policies to correct unemployment or inflation problems is a source of which lag?

Accepted Answer

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

Question 2

When interest rates are near zero and traditional monetary policy is ineffective, the Fed or other central bank may resort to a strategy referred to as quantitative easing.What does this strategy involve?

Accepted Answer

A) allowing interest rates to rise slowly by providing substantial reserves for as long as is necessary to avoid inflation 
B) reducing the money supply to raise the interest rates slowly without discouraging spending 
C) keeping interest rates very low by providing substantial reserves for as long as is necessary to avoid deflation and encourage spending 
D) increasing the money supply and interest rates at a constant rate to stimulate economic activity 
A) allowing interest rates to rise slowly by providing substantial reserves for as long as is necessary to avoid inflation 
B) reducing the money supply to raise the interest rates slowly without discouraging spending 
C) keeping interest rates very low by providing substantial reserves for as long as is necessary to avoid deflation and encourage spending 
D) increasing the money supply and interest rates at a constant rate to stimulate economic activity C

Question 3

Which lag stems from the fact that it takes time for people and firms to react to a policy change, to acquire or reduce loans, and to change their level of consumption?

Accepted Answer

A) the implementation lag 
B) the recognition lag 
C) the market lag 
D) the impact lag 
A) the implementation lag 
B) the recognition lag 
C) the market lag 
D) the impact lag D

Question 4

The velocity of money is

Accepted Answer

A) independent of M, P, and Y. 
B) independent of M and Y. 
C) calculated from M, P, and Y. 
D) calculated from M and Y. 
A) independent of M, P, and Y. 
B) independent of M and Y. 
C) calculated from M, P, and Y. 
D) calculated from M and Y.

Question 5

Use the following to answer questions 
Exhibit: Monetary Policy and Long-Run Aggregate Demand and Aggregate Supply  
-(Exhibit: Monetary Policy and Long-Run Aggregate Demand and Aggregate Supply)
Short-run but not long-run equilibrium positions occur at points

Accepted Answer

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

Question 6

The federal funds rate is set directly by the Fed.

Accepted Answer

A) True 
 B)False

Question 7

Use the following to answer questions 
Exhibit: Monetary Policy 1  
-(Exhibit: Monetary Policy 1)
By shifting the demand curve from D1 to D2, the Fed is exercising

Accepted Answer

A) contractionary monetary policy to lower interest rates. 
B) expansionary monetary policy to lower interest rates. 
C) contractionary monetary policy to increase interest rates. 
D) expansionary monetary policy to increase interest rates. 
A) contractionary monetary policy to lower interest rates. 
B) expansionary monetary policy to lower interest rates. 
C) contractionary monetary policy to increase interest rates. 
D) expansionary monetary policy to increase interest rates.

Question 8

If inflation is a threat, then the Fed will conduct monetary policy aimed at

Accepted Answer

A) increasing the interest rate which then will shift aggregate demand to the right. 
B) decreasing the interest rate which then will shift aggregate demand to the right. 
C) decreasing the interest rate which then will shift aggregate demand to the left. 
D) increasing the interest rate which then will shift aggregate demand to theleft. 
A) increasing the interest rate which then will shift aggregate demand to the right. 
B) decreasing the interest rate which then will shift aggregate demand to the right. 
C) decreasing the interest rate which then will shift aggregate demand to the left. 
D) increasing the interest rate which then will shift aggregate demand to theleft.

Question 9

Which of the following is an important implication of the rational expectations argument?

Accepted Answer

A) Since people form their expectations using all available information, the use of monetary policies to eliminate output gaps will lead to inflation. 
B) Since any consistent set of monetary policies will be learned and anticipated by a population with rational expectations, policies designed to influence the economy to a level of production other than the potential real GDP will be ineffective. 
C) Although people may revise their expectations about the price level and future economic activity, they cannot act on these changes because in reality, wages and prices are sticky.Thus, policy intervention is necessary. 
D) Policymakers must constantly monitor economic activity and revise their economic policy goals to keep up with changing expectations of a population with rational expectations. 
A) Since people form their expectations using all available information, the use of monetary policies to eliminate output gaps will lead to inflation. 
B) Since any consistent set of monetary policies will be learned and anticipated by a population with rational expectations, policies designed to influence the economy to a level of production other than the potential real GDP will be ineffective. 
C) Although people may revise their expectations about the price level and future economic activity, they cannot act on these changes because in reality, wages and prices are sticky.Thus, policy intervention is necessary. 
D) Policymakers must constantly monitor economic activity and revise their economic policy goals to keep up with changing expectations of a population with rational expectations.

Question 10

Suppose velocity = 5, money supply = $200, and price = 2.What is the value of real GDP?

Accepted Answer

A) $10 
B) $40 
C) $400 
D) $500 
A) $10 
B) $40 
C) $400 
D) $500

Question 11

Use the following to answer questions 
Exhibit: The Bond Market  
-(Exhibit: The Bond Market)
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 12

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 13

Suppose the economy experiences a recessionary gap.Expansionary monetary policy will

Accepted Answer

A) increase investment and increase interest rates. 
B) increase investment and decrease interest rates. 
C) decrease investment and increase interest rates. 
D) decrease investment and decrease interest rates. 
A) increase investment and increase interest rates. 
B) increase investment and decrease interest rates. 
C) decrease investment and increase interest rates. 
D) decrease investment and decrease interest rates.

Question 14

On October 12, 1987, the Dow Jones Industrial Average plunged 508 points, wiping out more than $500 billion in a few hours.How did the Fed respond to this drastic fall in the stock market index?

Accepted Answer

A) The Fed responded precisely as it did when faced with a similar situation in 1929, that is, it deemed that no action was necessary. 
B) To encourage the business community to invest in the stock market, the Fed announced that it will sell federal securities to raise the interest rate. 
C) In an attempt to ward off a recession, the Fed announced that it will provide adequate liquidity, by buying federal securities. 
D) The Fed provided long-term loans to those corporations that experienced significant decreases in their stock value. 
A) The Fed responded precisely as it did when faced with a similar situation in 1929, that is, it deemed that no action was necessary. 
B) To encourage the business community to invest in the stock market, the Fed announced that it will sell federal securities to raise the interest rate. 
C) In an attempt to ward off a recession, the Fed announced that it will provide adequate liquidity, by buying federal securities. 
D) The Fed provided long-term loans to those corporations that experienced significant decreases in their stock value.

Question 15

The congressional act passed in 1946 that contained the first official statement of goals for economic performance in the United States was the

Accepted Answer

A) Federal Reserve Act. 
B) Gramm-Rudman Act. 
C) Employment Act. 
D) Humphrey-Hawkins Act. 
A) Federal Reserve Act. 
B) Gramm-Rudman Act. 
C) Employment Act. 
D) Humphrey-Hawkins Act.

Question 16

Use the following to answer questions 
Exhibit: Monetary Policy 1  
-(Exhibit: Monetary Policy 1)
By shifting the demand curve from D1 to D2, the Fed is attempting to

Accepted Answer

A) contract the economy by increasing interest rates. 
B) expand the economy by increasing interest rates. 
C) contract the economy by decreasing interest rates. 
D) expand the economy by decreasing interest rates. 
A) contract the economy by increasing interest rates. 
B) expand the economy by increasing interest rates. 
C) contract the economy by decreasing interest rates. 
D) expand the economy by decreasing interest rates.

Question 17

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

Accepted Answer

A) lower interest rate, higher exchange rate, decreased demand for investment and net exports 
B) higher interest rate, higher exchange rate, increased 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, increased 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 18

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 19

All other things unchanged, we expect that an increase 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

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.

The time it takes for the Fed or government policymakers to enact policies to correct unemployment or inflation problems is a source of which lag?

When interest rates are near zero and traditional monetary policy is ineffective, the Fed or other central bank may resort to a strategy referred to as quantitative easing.What does this strategy involve?

Which lag stems from the fact that it takes time for people and firms to react to a policy change, to acquire or reduce loans, and to change their level of consumption?

The velocity of money is

Use the following to answer questions Exhibit: Monetary Policy and Long-Run Aggregate Demand and Aggregate Supply -(Exhibit: Monetary Policy and Long-Run Aggregate Demand and Aggregate Supply) Short-run but not long-run equilibrium positions occur at points

The federal funds rate is set directly by the Fed.

Use the following to answer questions Exhibit: Monetary Policy 1 -(Exhibit: Monetary Policy 1) By shifting the demand curve from D₁ to D₂, the Fed is exercising

If inflation is a threat, then the Fed will conduct monetary policy aimed at

Which of the following is an important implication of the rational expectations argument?

Suppose velocity = 5, money supply = $200, and price = 2.What is the value of real GDP?

Use the following to answer questions Exhibit: The Bond Market -(Exhibit: The Bond Market) If the Fed wants to achieve the results shown in Panel (a) , it should

The problem of lags suggests that monetary policy should

Suppose the economy experiences a recessionary gap.Expansionary monetary policy will

On October 12, 1987, the Dow Jones Industrial Average plunged 508 points, wiping out more than $500 billion in a few hours.How did the Fed respond to this drastic fall in the stock market index?

The congressional act passed in 1946 that contained the first official statement of goals for economic performance in the United States was the

Use the following to answer questions Exhibit: Monetary Policy 1 -(Exhibit: Monetary Policy 1) By shifting the demand curve from D₁ to D₂, the Fed is attempting to

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

All of the following are sources of the impact lag except

All other things unchanged, we expect that an increase in interest rates will tend to

When the Fed raises the target for federal funds, it

Economics: the Study of Choice

Confronting Scarcity: Choices in Production

Demand and Supply

Applications of Supply and Demand

Macroeconomics: the Big Picture

Measuring Total Output and Income

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

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Filters

Exam 11: Monetary Policy and the Fed

The time it takes for the Fed or government policymakers to enact policies to correct unemployment or inflation problems is a source of which lag?

When interest rates are near zero and traditional monetary policy is ineffective, the Fed or other central bank may resort to a strategy referred to as quantitative easing.What does this strategy involve?

Which lag stems from the fact that it takes time for people and firms to react to a policy change, to acquire or reduce loans, and to change their level of consumption?

The velocity of money is

Use the following to answer questions Exhibit: Monetary Policy and Long-Run Aggregate Demand and Aggregate Supply -(Exhibit: Monetary Policy and Long-Run Aggregate Demand and Aggregate Supply) Short-run but not long-run equilibrium positions occur at points

The federal funds rate is set directly by the Fed.

Use the following to answer questions Exhibit: Monetary Policy 1 -(Exhibit: Monetary Policy 1) By shifting the demand curve from D1 to D2, the Fed is exercising

If inflation is a threat, then the Fed will conduct monetary policy aimed at

Which of the following is an important implication of the rational expectations argument?

Suppose velocity = 5, money supply = $200, and price = 2.What is the value of real GDP?

Use the following to answer questions Exhibit: The Bond Market -(Exhibit: The Bond Market) If the Fed wants to achieve the results shown in Panel (a) , it should

The problem of lags suggests that monetary policy should

Suppose the economy experiences a recessionary gap.Expansionary monetary policy will

On October 12, 1987, the Dow Jones Industrial Average plunged 508 points, wiping out more than $500 billion in a few hours.How did the Fed respond to this drastic fall in the stock market index?

The congressional act passed in 1946 that contained the first official statement of goals for economic performance in the United States was the

Use the following to answer questions Exhibit: Monetary Policy 1 -(Exhibit: Monetary Policy 1) By shifting the demand curve from D1 to D2, the Fed is attempting to

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

All of the following are sources of the impact lag except

All other things unchanged, we expect that an increase in interest rates will tend to

When the Fed raises the target for federal funds, it

Economics: the Study of Choice

Confronting Scarcity: Choices in Production

Demand and Supply

Applications of Supply and Demand

Macroeconomics: the Big Picture

Measuring Total Output and Income

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

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Filters

Use the following to answer questions Exhibit: Monetary Policy 1 -(Exhibit: Monetary Policy 1) By shifting the demand curve from D₁ to D₂, the Fed is exercising

Use the following to answer questions Exhibit: Monetary Policy 1 -(Exhibit: Monetary Policy 1) By shifting the demand curve from D₁ to D₂, the Fed is attempting to