Question 1

The Fed changes the federal funds rate using open-market operations.

Accepted Answer

A) True 
 B)False

Question 2

At the end of 2008, the federal funds rate in the United States was close to zero.Which of the
Following is a major concern associated with such a low rate?

Accepted Answer

A) That traditional monetary policy will have no impact on the economy. 
B) Such a low rate spurs excessive consumption and investment spending which may lead to inflation. 
C) Such a low rate spurs excessive consumption and investment spending which may lead to deflation. 
D) Economic agents might be unwilling to borrow in anticipation of even lower interest rates. 
A) That traditional monetary policy will have no impact on the economy. 
B) Such a low rate spurs excessive consumption and investment spending which may lead to inflation. 
C) Such a low rate spurs excessive consumption and investment spending which may lead to deflation. 
D) Economic agents might be unwilling to borrow in anticipation of even lower interest rates.

Question 3

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)
If the economy is at point c,

Accepted Answer

A) it is in a recessionary gap. 
B) it is at natural level of employment. 
C) the level of employment is greater than the natural level of employment. 
D) the unemployment rate is negative. 
A) it is in a recessionary gap. 
B) it is at natural level of employment. 
C) the level of employment is greater than the natural level of employment. 
D) the unemployment rate is negative.

Question 4

Holding all else constant, higher interest rates in the United States would

Accepted Answer

A) decrease the demand for U.S.dollars in the foreign exchange market.In turn, this will lead to a decrease in the exchange rate, and subsequently, U.S.net exports would rise. 
B) increase the demand for U.S.dollars in the foreign exchange market.In turn, this will lead to an increase in the exchange rate, and subsequently, U.S.net exports would fall. 
C) increase the demand for U.S.dollars in the foreign exchange market.In turn, this will lead to a decrease in the exchange rate, and subsequently, U.S.net exports would rise. 
D) decrease the demand for U.S.dollars in the foreign exchange market.In turn, this will lead to an increase in the exchange rate, and subsequently, U.S.net exports would fall. 
A) decrease the demand for U.S.dollars in the foreign exchange market.In turn, this will lead to a decrease in the exchange rate, and subsequently, U.S.net exports would rise. 
B) increase the demand for U.S.dollars in the foreign exchange market.In turn, this will lead to an increase in the exchange rate, and subsequently, U.S.net exports would fall. 
C) increase the demand for U.S.dollars in the foreign exchange market.In turn, this will lead to a decrease in the exchange rate, and subsequently, U.S.net exports would rise. 
D) decrease the demand for U.S.dollars in the foreign exchange market.In turn, this will lead to an increase in the exchange rate, and subsequently, U.S.net exports would fall.

Question 5

If the economy experiences an inflationary gap, a contractionary monetary policy will

Accepted Answer

A) increase interest rates and increase the bond prices. 
B) increase interest rates and decrease the bond prices. 
C) decrease interest rates and increase the bond prices. 
D) decrease interest rates and decrease the bond prices. 
A) increase interest rates and increase the bond prices. 
B) increase interest rates and decrease the bond prices. 
C) decrease interest rates and increase the bond prices. 
D) decrease interest rates and decrease the bond prices.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

If the Fed sells government bonds, bank reserves will

Accepted Answer

A) decrease leading to a decrease in the money supply. 
B) increase leading to a decrease in the money supply. 
C) increase leading to an increase in the money supply. 
D) decrease leading to an increase in the money supply. 
A) decrease leading to a decrease in the money supply. 
B) increase leading to a decrease in the money supply. 
C) increase leading to an increase in the money supply. 
D) decrease leading to an increase in the money supply.

Question 8

Which of the following are monetary policy goals?
I.maintain high interest rates
II.keep unemployment rates low
III.reduce the size of the banking sector
IV.prevent high rates of inflation

Accepted Answer

A) I, II, III, and IV 
B) I, II, and III 
C) II, III, and IV 
D) II and IV 
A) I, II, III, and IV 
B) I, II, and III 
C) II, III, and IV 
D) II and IV

Question 9

What is velocity of money?

Accepted Answer

A) It is the number of times households convert bonds to money to facilitate economic transactions. 
B) It is the rate at which money supply is spent to obtain the goods and services that make up GDP during a particular time period. 
C) It is the rate at which money supply can grow while keeping the price level stable. 
D) It is the number of times the money supply is spent to obtain the goods and services that make up GDP during a particular time period. 
A) It is the number of times households convert bonds to money to facilitate economic transactions. 
B) It is the rate at which money supply is spent to obtain the goods and services that make up GDP during a particular time period. 
C) It is the rate at which money supply can grow while keeping the price level stable. 
D) It is the number of times the money supply is spent to obtain the goods and services that make up GDP during a particular time period.

Question 10

If you earn and spend $300 per week and maintain an average cash balance of $100 per week, your velocity of money is

Accepted Answer

A) $100. 
B) $200. 
C) 3. 
D) 2. 
A) $100. 
B) $200. 
C) 3. 
D) 2.

Question 11

Expansionary monetary policy, by increasing the money supply, also increases interest rates and recessionary gaps.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) bond prices and interest rates to fall. 
B) bond prices to rise and interest rates to fall. 
C) bond prices to fall and interest rates to rise. 
D) bond prices and interest rates to rise. 
A) bond prices and interest rates to fall. 
B) bond prices to rise and interest rates to fall. 
C) bond prices to fall and interest rates to rise. 
D) bond prices and interest rates to rise.

Question 13

If inflation is a threat, then the Fed will be expected to engage in

Accepted Answer

A) expansionary monetary policy. 
B) contractionary monetary policy. 
C) policies to increase the money supply. 
D) policies to lower the rate of interest. 
A) expansionary monetary policy. 
B) contractionary monetary policy. 
C) policies to increase the money supply. 
D) policies to lower the rate of interest.

Question 14

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)
Assume that the economy is at point b.A decrease in the money supply would cause

Accepted Answer

A) a shift of the aggregate demand curve from AD1 to AD2. 
B) a shift of the aggregate demand curve from AD2 to AD1. 
C) a shift of the short-run aggregate supply curve from AS1 to AS2. 
D) a shift of the short-run aggregate supply curve from AS2 to AS1. 
A) a shift of the aggregate demand curve from AD1 to AD2. 
B) a shift of the aggregate demand curve from AD2 to AD1. 
C) a shift of the short-run aggregate supply curve from AS1 to AS2. 
D) a shift of the short-run aggregate supply curve from AS2 to AS1.

Question 15

Adjusting monetary growth based on previous changes in nominal GDP

Accepted Answer

A) is relatively easy for the Fed to undertake because the implementation lag is quitelong. 
B) could be destabilizing because of the uncertainty of the length of impact lags. 
C) is an effective policy because it allows the Fed to influence future macroeconomic performance. 
D) raises the price level proportionately. 
A) is relatively easy for the Fed to undertake because the implementation lag is quitelong. 
B) could be destabilizing because of the uncertainty of the length of impact lags. 
C) is an effective policy because it allows the Fed to influence future macroeconomic performance. 
D) raises the price level proportionately.

Question 16

Use the following to answer questions 
Exhibit: Effects of Monetary Policy  
-(Exhibit: Effects of Monetary Policy)
Which of the following actions by the Fed could have caused the movement from AD1 to AD2 in Panel (a)
?

Accepted Answer

A) selling government bonds in the open market 
B) buying government bonds in the open market 
C) increasing the discount rate 
D) increasing the federal funds rate 
A) selling government bonds in the open market 
B) buying government bonds in the open market 
C) increasing the discount rate 
D) increasing the federal funds rate

Question 17

If you earn and spend $2,000 per month and maintain an average cash balance of $500 per month, your velocity of money is

Accepted Answer

A) $1,250. 
B) 2. 
C) 4. 
D) $1,500. 
A) $1,250. 
B) 2. 
C) 4. 
D) $1,500.

Question 18

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

Accepted Answer

A) exchange rate to rise and interest rates to fall. 
B) exchange rate and interest rates to rise. 
C) exchange rate to fall and interest rates to rise. 
D) exchange rate and interest rates to fall. 
A) exchange rate to rise and interest rates to fall. 
B) exchange rate and interest rates to rise. 
C) exchange rate to fall and interest rates to rise. 
D) exchange rate and interest rates to fall.

Question 19

Suppose money supply (M)
= $500, price level (P)
= 2, and real GDP (Y)
= $1,000.Calculate the value of velocity using the equation of exchange.

Accepted Answer

A) 1 
B) 2 
C) 4 
D) 5 
A) 1 
B) 2 
C) 4 
D) 5

Question 20

When the Fed buys bonds in the open market, it pursues an expansionary monetary policy.

Accepted Answer

A) True 
 B)False

The Fed changes the federal funds rate using open-market operations.

At the end of 2008, the federal funds rate in the United States was close to zero.Which of the Following is a major concern associated with such a low rate?

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) If the economy is at point c,

Holding all else constant, higher interest rates in the United States would

If the economy experiences an inflationary gap, a contractionary monetary policy will

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

If the Fed sells government bonds, bank reserves will

Which of the following are monetary policy goals? I.maintain high interest rates II.keep unemployment rates low III.reduce the size of the banking sector IV.prevent high rates of inflation

What is velocity of money?

If you earn and spend $300 per week and maintain an average cash balance of $100 per week, your velocity of money is

Expansionary monetary policy, by increasing the money supply, also increases interest rates and recessionary gaps.

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

If inflation is a threat, then the Fed will be expected to engage in

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) Assume that the economy is at point b.A decrease in the money supply would cause

Adjusting monetary growth based on previous changes in nominal GDP

Use the following to answer questions Exhibit: Effects of Monetary Policy -(Exhibit: Effects of Monetary Policy) Which of the following actions by the Fed could have caused the movement from AD₁ to AD₂ in Panel (a) ?

If you earn and spend $2,000 per month and maintain an average cash balance of $500 per month, your velocity of money is

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

Suppose money supply (M) = $500, price level (P) = 2, and real GDP (Y) = $1,000.Calculate the value of velocity using the equation of exchange.

When the Fed buys bonds in the open market, it pursues an expansionary monetary policy.

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 Fed changes the federal funds rate using open-market operations.

At the end of 2008, the federal funds rate in the United States was close to zero.Which of the Following is a major concern associated with such a low rate?

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) If the economy is at point c,

Holding all else constant, higher interest rates in the United States would

If the economy experiences an inflationary gap, a contractionary monetary policy will

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

If the Fed sells government bonds, bank reserves will

Which of the following are monetary policy goals? I.maintain high interest rates II.keep unemployment rates low III.reduce the size of the banking sector IV.prevent high rates of inflation

What is velocity of money?

If you earn and spend $300 per week and maintain an average cash balance of $100 per week, your velocity of money is

Expansionary monetary policy, by increasing the money supply, also increases interest rates and recessionary gaps.

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

If inflation is a threat, then the Fed will be expected to engage in

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) Assume that the economy is at point b.A decrease in the money supply would cause

Adjusting monetary growth based on previous changes in nominal GDP

Use the following to answer questions Exhibit: Effects of Monetary Policy -(Exhibit: Effects of Monetary Policy) Which of the following actions by the Fed could have caused the movement from AD1 to AD2 in Panel (a) ?

If you earn and spend $2,000 per month and maintain an average cash balance of $500 per month, your velocity of money is

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

Suppose money supply (M) = $500, price level (P) = 2, and real GDP (Y) = $1,000.Calculate the value of velocity using the equation of exchange.

When the Fed buys bonds in the open market, it pursues an expansionary monetary policy.

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: Effects of Monetary Policy -(Exhibit: Effects of Monetary Policy) Which of the following actions by the Fed could have caused the movement from AD₁ to AD₂ in Panel (a) ?