Question 1

A liquidity trap is said to exist when a change in monetary policy has no effect on

Accepted Answer

A) the money supply. 
B) the natural level of employment. 
C) aggregate supply. 
D) interest rates. 
A) the money supply. 
B) the natural level of employment. 
C) aggregate supply. 
D) interest rates.

Question 2

Which of the following equations correctly describes the quantity equation in terms of percentage rate of change? ∆ means "change in."

Accepted Answer

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

Question 3

When the Fed buys 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 4

Use the following to answer questions 
Exhibit: The Bond Market  
-(Exhibit: The Bond Market)
Suppose the Fed takes action that shifts the demand curve from S to S′, as illustrated in Panel (b)
.What happens to the interest rate?

Accepted Answer

A) It increases. 
B) It decreases. 
C) It remains unchanged. 
D) Short-term interest rates will increase but long-term interest rates will decrease. 
A) It increases. 
B) It decreases. 
C) It remains unchanged. 
D) Short-term interest rates will increase but long-term interest rates will decrease.

Question 5

The time it takes to collect and process data is the biggest source of which lag?

Accepted Answer

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

Question 6

The demand for money can be stated as M = (P * Y)
/V.

Accepted Answer

A) True 
 B)False

Question 7

The equation of exchange can be stated as M = (V * P)
/Y.

Accepted Answer

A) True 
 B)False

Question 8

In order to move the federal funds rate to the level it desires, the Fed must

Accepted Answer

A) first change the discount rate to the desired federal funds rate. 
B) specify the interest rate on previously issued government bonds. 
C) adjust the money supply to achieve the target federal funds rate. 
D) limit the amount of bank lending activity. 
A) first change the discount rate to the desired federal funds rate. 
B) specify the interest rate on previously issued government bonds. 
C) adjust the money supply to achieve the target federal funds rate. 
D) limit the amount of bank lending activity.

Question 9

The impact lag is the time between putting a policy in place and when its effects are felt in the economy.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following statements is true if interest rates were zero?

Accepted Answer

A) The demand for bonds increases because bonds will be a more attractive alternative to money. 
B) People will hold their wealth in the form of money rather than in bonds. 
C) Bonds and money will become perfect substitutes since both are non-interest earning assets. 
D) The supply of bonds will increase. 
A) The demand for bonds increases because bonds will be a more attractive alternative to money. 
B) People will hold their wealth in the form of money rather than in bonds. 
C) Bonds and money will become perfect substitutes since both are non-interest earning assets. 
D) The supply of bonds will increase.

Question 11

Which of the following predictions can be made using the growth rates associated with the quantity equation, assuming velocity is stable?

Accepted Answer

A) If the money supply grows at a faster rate than real GDP, there will be inflation. 
B) If the money supply grows at a slower rate than real GDP, there will be inflation. 
C) If the money supply grows at the same rate as real GDP, the price level will be fall and there will be deflation. 
D) If the money supply grows at the same rate as real GDP, the price level will also increase at the same rate as real GDP. 
A) If the money supply grows at a faster rate than real GDP, there will be inflation. 
B) If the money supply grows at a slower rate than real GDP, there will be inflation. 
C) If the money supply grows at the same rate as real GDP, the price level will be fall and there will be deflation. 
D) If the money supply grows at the same rate as real GDP, the price level will also increase at the same rate as real GDP.

Question 12

The lag in realizing that a macroeconomic problem exists is called

Accepted Answer

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

Question 13

The rational expectations argument relies on

Accepted Answer

A) wages and prices being sticky so that changes in expectations about future economic activity and the price level will prevent the short-run aggregate supply curve from shifting quickly to restore long-run equilibrium. 
B) the ability of monetary policy authorities to identify and respond quickly to close output gaps and restore the economy to its long-run equilibrium. 
C) wages and prices being sufficiently flexible so that the change in expectations about future economic activity and the price level will allow the short-run aggregate supply curve to shift quickly to restore long-run equilibrium. 
D) wages and prices being sufficiently flexible so that changes in expectations about future economic activity and the price level will allow the aggregate demand curve to shift quickly to restore long-run equilibrium. 
A) wages and prices being sticky so that changes in expectations about future economic activity and the price level will prevent the short-run aggregate supply curve from shifting quickly to restore long-run equilibrium. 
B) the ability of monetary policy authorities to identify and respond quickly to close output gaps and restore the economy to its long-run equilibrium. 
C) wages and prices being sufficiently flexible so that the change in expectations about future economic activity and the price level will allow the short-run aggregate supply curve to shift quickly to restore long-run equilibrium. 
D) wages and prices being sufficiently flexible so that changes in expectations about future economic activity and the price level will allow the aggregate demand curve to shift quickly to restore long-run equilibrium.

Question 14

The Employment Act of 1946 was an outgrowth of the Great Depression.

Accepted Answer

A) True 
 B)False

Question 15

Use the following to answer questions 
Exhibit: Monetary Policy and Rational Expectations  
-(Exhibit: Monetary Policy and Rational Expectations)
Suppose the economy is operating at point a.Some people observe that an expansionary monetary policy will increase the money supply and ultimately drive the price level to the equilibrium at

Accepted Answer

A) d.They rationally adjust their behavior, bypassing the short-run equilibrium at c. 
B) d.They rationally adjust their behavior, bypassing the short-run equilibrium at b 
C) b.They rationally adjust their behavior, bypassing the long-run equilibrium at d 
D) a .They rationally adjust their behavior, bypassing the short-run equilibrium at b 
A) d.They rationally adjust their behavior, bypassing the short-run equilibrium at c. 
B) d.They rationally adjust their behavior, bypassing the short-run equilibrium at b 
C) b.They rationally adjust their behavior, bypassing the long-run equilibrium at d 
D) a .They rationally adjust their behavior, bypassing the short-run equilibrium at b

Question 16

If inflation is a threat, the Fed is likely to engage in a contractionary monetary policy.

Accepted Answer

A) True 
 B)False

Question 17

The shortest of the three lags for monetary policy is

Accepted Answer

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

Question 18

Use the following to answer questions 
Exhibit: The Bond Market  
-(Exhibit: The Bond Market)
Suppose the Fed takes action that shifts the demand curve from D to D′, as illustrated in Panel (a)
.What happens to the interest rate?

Accepted Answer

A) It will increase. 
B) It will decrease. 
C) It remains unchanged. 
D) Short-term interest rates will decrease but long-term interest rates will increase. 
A) It will increase. 
B) It will decrease. 
C) It remains unchanged. 
D) Short-term interest rates will decrease but long-term interest rates will increase.

Question 19

When the Fed buys government bonds, bank reserves fall.

Accepted Answer

A) True 
 B)False

Question 20

Use the following to answer questions 
Exhibit: Effects of Monetary Policy  
-(Exhibit: Effects of Monetary Policy)
Suppose the economy is initially at Y1 in Panel (a)
.It is experiencing

Accepted Answer

A) an inflationary gap. 
B) a recessionary gap. 
C) an actual unemployment rate that is less than the natural unemployment rate. 
D) a situation that warrants a decrease in the money supply. 
A) an inflationary gap. 
B) a recessionary gap. 
C) an actual unemployment rate that is less than the natural unemployment rate. 
D) a situation that warrants a decrease in the money supply.

A liquidity trap is said to exist when a change in monetary policy has no effect on

Which of the following equations correctly describes the quantity equation in terms of percentage rate of change? ∆ means "change in."

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

Use the following to answer questions Exhibit: The Bond Market -(Exhibit: The Bond Market) Suppose the Fed takes action that shifts the demand curve from S to S′, as illustrated in Panel (b) .What happens to the interest rate?

The time it takes to collect and process data is the biggest source of which lag?

The demand for money can be stated as M = (P * Y) /V.

The equation of exchange can be stated as M = (V * P) /Y.

In order to move the federal funds rate to the level it desires, the Fed must

The impact lag is the time between putting a policy in place and when its effects are felt in the economy.

Which of the following statements is true if interest rates were zero?

Which of the following predictions can be made using the growth rates associated with the quantity equation, assuming velocity is stable?

The lag in realizing that a macroeconomic problem exists is called

The rational expectations argument relies on

The Employment Act of 1946 was an outgrowth of the Great Depression.

If inflation is a threat, the Fed is likely to engage in a contractionary monetary policy.

The shortest of the three lags for monetary policy is

Use the following to answer questions Exhibit: The Bond Market -(Exhibit: The Bond Market) Suppose the Fed takes action that shifts the demand curve from D to D′, as illustrated in Panel (a) .What happens to the interest rate?

When the Fed buys government bonds, bank reserves fall.

Use the following to answer questions Exhibit: Effects of Monetary Policy -(Exhibit: Effects of Monetary Policy) Suppose the economy is initially at Y₁ in Panel (a) .It is experiencing

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

A liquidity trap is said to exist when a change in monetary policy has no effect on

Which of the following equations correctly describes the quantity equation in terms of percentage rate of change? ∆ means "change in."

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

Use the following to answer questions Exhibit: The Bond Market -(Exhibit: The Bond Market) Suppose the Fed takes action that shifts the demand curve from S to S′, as illustrated in Panel (b) .What happens to the interest rate?

The time it takes to collect and process data is the biggest source of which lag?

The demand for money can be stated as M = (P * Y) /V.

The equation of exchange can be stated as M = (V * P) /Y.

In order to move the federal funds rate to the level it desires, the Fed must

The impact lag is the time between putting a policy in place and when its effects are felt in the economy.

Which of the following statements is true if interest rates were zero?

Which of the following predictions can be made using the growth rates associated with the quantity equation, assuming velocity is stable?

The lag in realizing that a macroeconomic problem exists is called

The rational expectations argument relies on

The Employment Act of 1946 was an outgrowth of the Great Depression.

If inflation is a threat, the Fed is likely to engage in a contractionary monetary policy.

The shortest of the three lags for monetary policy is

Use the following to answer questions Exhibit: The Bond Market -(Exhibit: The Bond Market) Suppose the Fed takes action that shifts the demand curve from D to D′, as illustrated in Panel (a) .What happens to the interest rate?

When the Fed buys government bonds, bank reserves fall.

Use the following to answer questions Exhibit: Effects of Monetary Policy -(Exhibit: Effects of Monetary Policy) Suppose the economy is initially at Y1 in Panel (a) .It is experiencing

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) Suppose the economy is initially at Y₁ in Panel (a) .It is experiencing