Question 1

The federal funds rate is determined by demand and supply of bank reserves.

Accepted Answer

A) True 
 B)False

Question 2

The Fed is structured as an agency of the executive branch, with the Chairman of the Fed answering directly to the President.

Accepted Answer

A) True 
 B)False

Question 3

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 4

Contractionary monetary policy by the Fed could include

Accepted Answer

A) lowering the discount rate. 
B) decreasing government transfer payments. 
C) decreasing reserve requirements. 
D) selling government securities in the open market. 
A) lowering the discount rate. 
B) decreasing government transfer payments. 
C) decreasing reserve requirements. 
D) selling government securities in the open market.

Question 5

If the velocity of money is constant, then nominal GDP can change only if there is a change in the money supply.

Accepted Answer

A) True 
 B)False

Question 6

Let M = money supply; P = price level; V = velocity; Y = real GDP.The equation of exchange is given by:

Accepted Answer

A) M * P = V * Y. 
B) M * V = P *Y. 
C) M* Y = P * V. 
D) M * V = (1/ P)* Y. 
A) M * P = V * Y. 
B) M * V = P *Y. 
C) M* Y = P * V. 
D) M * V = (1/ P)* Y.

Question 7

If velocity is constant in the long run, which of the following results flow from the quantity theory of money?

Accepted Answer

A) A change in the money supply changes real GDP by an equal percentage. 
B) A change in the money supply changes nominal GDP by an equal percentage. 
C) A change in the money supply changes real interest rates by an equal percentage. 
D) A change in the money supply changes consumer lending by an equal percentage. 
A) A change in the money supply changes real GDP by an equal percentage. 
B) A change in the money supply changes nominal GDP by an equal percentage. 
C) A change in the money supply changes real interest rates by an equal percentage. 
D) A change in the money supply changes consumer lending by an equal percentage.

Question 8

Assume that velocity is constant in the long run.Which of the following equations correctly describes the quantity equation in terms of percentage rate of change? ∆ means "change in."

Accepted Answer

A) % ∆M ÷ % ∆P = % ∆Y 
B) % ∆M +- ∆P = % ∆Y 
C) % ∆M -% ∆Y = % ∆P 
D) % ∆M*% ∆Y = % ∆P 
A) % ∆M ÷ % ∆P = % ∆Y 
B) % ∆M +- ∆P = % ∆Y 
C) % ∆M -% ∆Y = % ∆P 
D) % ∆M*% ∆Y = % ∆P

Question 9

When the Fed sells bonds in the open market, in the product market (the aggregate demand- aggregate supply model)
,

Accepted Answer

A) real GDP will fall and the price level will rise. 
B) real GDP and the price level will rise. 
C) real GDP and the price level will fall. 
D) real GDP will rise and the price level will fall. 
A) real GDP will fall and the price level will rise. 
B) real GDP and the price level will rise. 
C) real GDP and the price level will fall. 
D) real GDP will rise and the price level will fall.

Question 10

In December 2008, the Federal Reserve announced that it would take extraordinary measures to address the financial crisis in the economy.These measures include all of the following except

Accepted Answer

A) buying mortgage-backed securities. 
B) buying long-term Treasury bills. 
C) creating other new credit facilities to make credit more easily available to households and small businesses. 
D) lowering the reserve requirement to encourage banks to create loans. 
A) buying mortgage-backed securities. 
B) buying long-term Treasury bills. 
C) creating other new credit facilities to make credit more easily available to households and small businesses. 
D) lowering the reserve requirement to encourage banks to create loans.

Question 11

Possible targets for monetary policy include all of the following except

Accepted Answer

A) the government's budget deficit or surplus. 
B) money growth rate. 
C) expected changes in the price level. 
D) the interest rate. 
A) the government's budget deficit or surplus. 
B) money growth rate. 
C) expected changes in the price level. 
D) the interest rate.

Question 12

What are the two policy-making bodies of the Federal Reserve?

Accepted Answer

A) the Board of Governors and the U.S.Congress 
B) the Board of Governors and the Federal Open Market Committee 
C) the Board of Governors and the Presidents' office 
D) the Federal Open Market Committee and the U.S.Congress 
A) the Board of Governors and the U.S.Congress 
B) the Board of Governors and the Federal Open Market Committee 
C) the Board of Governors and the Presidents' office 
D) the Federal Open Market Committee and the U.S.Congress

Question 13

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 a,

Accepted Answer

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

Question 14

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

Accepted Answer

A) increase real GDP and increase the price level. 
B) increase real GDP and decrease the price level. 
C) decrease real GDP and increase the price level. 
D) decrease real GDP and decrease the price level. 
A) increase real GDP and increase the price level. 
B) increase real GDP and decrease the price level. 
C) decrease real GDP and increase the price level. 
D) decrease real GDP and decrease the price level.

Question 15

Which of the following is an interest rate that the Fed has targeted in the last several years?

Accepted Answer

A) the prime rate 
B) the discount rate 
C) the government bond rate 
D) the federal funds rate 
A) the prime rate 
B) the discount rate 
C) the government bond rate 
D) the federal funds rate

Question 16

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 to 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 to 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 17

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, an open market purchase would cause

Accepted Answer

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

Question 18

If the Fed's primary goal is price stability which macroeconomic variable should it target?

Accepted Answer

A) the price level itself or a particular rate of change in the price level 
B) the growth rate of money supply 
C) the real money supply 
D) real GDP 
A) the price level itself or a particular rate of change in the price level 
B) the growth rate of money supply 
C) the real money supply 
D) real GDP

Question 19

If the Fed buys government bonds through open-market operations, it will

Accepted Answer

A) increase the demand for bonds in the bond market. 
B) decrease the demand for bonds in the bond market. 
C) increase the supply of bonds in the bond market. 
D) decrease the supply of bonds in the bond market. 
A) increase the demand for bonds in the bond market. 
B) decrease the demand for bonds in the bond market. 
C) increase the supply of bonds in the bond market. 
D) decrease the supply of bonds in the bond market.

Question 20

When the Fed lowers the target rate of interest for federal funds, it

Accepted Answer

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

The federal funds rate is determined by demand and supply of bank reserves.

The Fed is structured as an agency of the executive branch, with the Chairman of the Fed answering directly to the President.

Contractionary monetary policy by the Fed could include

If the velocity of money is constant, then nominal GDP can change only if there is a change in the money supply.

Let M = money supply; P = price level; V = velocity; Y = real GDP.The equation of exchange is given by:

If velocity is constant in the long run, which of the following results flow from the quantity theory of money?

Assume that velocity is constant in the long run.Which of the following equations correctly describes the quantity equation in terms of percentage rate of change? ∆ means "change in."

When the Fed sells bonds in the open market, in the product market (the aggregate demand- aggregate supply model) ,

In December 2008, the Federal Reserve announced that it would take extraordinary measures to address the financial crisis in the economy.These measures include all of the following except

Possible targets for monetary policy include all of the following except

What are the two policy-making bodies of the Federal Reserve?

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 a,

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

Which of the following is an interest rate that the Fed has targeted in the last several years?

Which of the following is a major problem with deflation?

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, an open market purchase would cause

If the Fed's primary goal is price stability which macroeconomic variable should it target?

If the Fed buys government bonds through open-market operations, it will

When the Fed lowers the target rate of interest 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 federal funds rate is determined by demand and supply of bank reserves.

The Fed is structured as an agency of the executive branch, with the Chairman of the Fed answering directly to the President.

Contractionary monetary policy by the Fed could include

If the velocity of money is constant, then nominal GDP can change only if there is a change in the money supply.

Let M = money supply; P = price level; V = velocity; Y = real GDP.The equation of exchange is given by:

If velocity is constant in the long run, which of the following results flow from the quantity theory of money?

Assume that velocity is constant in the long run.Which of the following equations correctly describes the quantity equation in terms of percentage rate of change? ∆ means "change in."

When the Fed sells bonds in the open market, in the product market (the aggregate demand- aggregate supply model) ,

In December 2008, the Federal Reserve announced that it would take extraordinary measures to address the financial crisis in the economy.These measures include all of the following except

Possible targets for monetary policy include all of the following except

What are the two policy-making bodies of the Federal Reserve?

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 a,

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

Which of the following is an interest rate that the Fed has targeted in the last several years?

Which of the following is a major problem with deflation?

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, an open market purchase would cause

If the Fed's primary goal is price stability which macroeconomic variable should it target?

If the Fed buys government bonds through open-market operations, it will

When the Fed lowers the target rate of interest 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