Question 1

Studies in the 1980s and early 1990s showed that, in general, greater central bank independence

Accepted Answer

A) was associated with lower average inflation. 
B) was associated with lower average inflation and higher average real GDP growth. 
C) was associated with lower average inflation and higher unemployment. 
D) was associated with higher average inflation and higher average real GDP growth. 
A) was associated with lower average inflation. 
B) was associated with lower average inflation and higher average real GDP growth. 
C) was associated with lower average inflation and higher unemployment. 
D) was associated with higher average inflation and higher average real GDP growth.

Question 2

The federal funds rate is never targeted by the Fed.

Accepted Answer

A) True 
 B)False

Question 3

Suppose money supply (M)
= $4,000, real GDP (Y)
= $30,000, and nominal GDP = $60,000.Calculate the value of velocity and the price level.

Accepted Answer

A) V = 7.5; P = 2 
B) V = 15; P = 2 
C) V = 7.5; P = 0.5 
D) V = 15; P = 15 
A) V = 7.5; P = 2 
B) V = 15; P = 2 
C) V = 7.5; P = 0.5 
D) V = 15; P = 15

Question 4

The time between recognizing the existence of a problem and adopting a course of action to deal with the problem is called the

Accepted Answer

A) impact lag. 
B) recognition lag. 
C) implementation lag. 
D) theory lag. 
A) impact lag. 
B) recognition lag. 
C) implementation lag. 
D) theory lag.

Question 5

What are the three types of monetary policy lags?

Accepted Answer

A) the recognition lag, the identification lag, and the implementation lag 
B) the recognition lag, the inflation lag, and the impact lag 
C) the recognition lag, the implementation lag, and the government lag 
D) the recognition lag, the implementation lag, and the impact lag 
A) the recognition lag, the identification lag, and the implementation lag 
B) the recognition lag, the inflation lag, and the impact lag 
C) the recognition lag, the implementation lag, and the government lag 
D) the recognition lag, the implementation lag, and the impact lag

Question 6

Which of the following is a tool used by the Fed in the conduct of monetary policy?

Accepted Answer

A) changes in the prime rate 
B) issuing new government bonds and retiring old ones 
C) buying and selling corporate bonds 
D) buying and selling federal government bonds 
A) changes in the prime rate 
B) issuing new government bonds and retiring old ones 
C) buying and selling corporate bonds 
D) buying and selling federal government bonds

Question 7

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, the Federal Reserve can close the output gap

Accepted Answer

A) by pursuing an expansionary monetary policy to raise the interest rate and increase short-run aggregate supply. 
B) by pursuing a contractionary monetary policy to drive down the interest rate and increase aggregate demand. 
C) by pursuing an expansionary monetary policy to drive down the interest rate and increase aggregate demand. 
D) by pursuing a contractionary monetary policy to raise the interest rate and short-run aggregate supply. 
A) by pursuing an expansionary monetary policy to raise the interest rate and increase short-run aggregate supply. 
B) by pursuing a contractionary monetary policy to drive down the interest rate and increase aggregate demand. 
C) by pursuing an expansionary monetary policy to drive down the interest rate and increase aggregate demand. 
D) by pursuing a contractionary monetary policy to raise the interest rate and short-run aggregate supply.

Question 8

Which of the following explains why the monetary policy implementation lag is relatively short?
I.The FOMC meets several times a year and policymakers are easily able to confer in between meetings.
II.Open market operations, one of the Fed's policy instruments can be put into effect
Immediately.
III.The Chairman of the Fed works in close collaboration with the President.
IV.Most financial institutions are member banks and will not hesitate to put into effect any new monetary policy.

Accepted Answer

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

Question 9

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, the Federal Reserve can close the output gap by buying bonds.In the bond market,

Accepted Answer

A) the supply curve shifts right, leading to a decrease in bond prices and an increase in interest rates. 
B) the demand curve shifts right, leading to an increase in bond prices and a decrease in interest rates. 
C) the supply curve shifts left, leading to an increase in bond prices and an increase in interest rates. 
D) the demand curve shifts left, leading to a decrease in bond prices and an increase in interest rates. 
A) the supply curve shifts right, leading to a decrease in bond prices and an increase in interest rates. 
B) the demand curve shifts right, leading to an increase in bond prices and a decrease in interest rates. 
C) the supply curve shifts left, leading to an increase in bond prices and an increase in interest rates. 
D) the demand curve shifts left, leading to a decrease in bond prices and an increase in interest rates.

Question 10

All other things unchanged, we expect that a reduction 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 11

All other things unchanged, the velocity of money will

Accepted Answer

A) increase if the quantity of money demanded decreases. 
B) increase if the quantity of money demanded increases. 
C) decrease if the quantity of money demanded decreases. 
D) fall to zero if the quantity of money demanded increases. 
A) increase if the quantity of money demanded decreases. 
B) increase if the quantity of money demanded increases. 
C) decrease if the quantity of money demanded decreases. 
D) fall to zero if the quantity of money demanded increases.

Question 12

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 b, the Federal Reserve can close the output gap

Accepted Answer

A) by pursuing an expansionary monetary policy to raise the interest rate and decrease short-run aggregate supply. 
B) by pursuing a contractionary monetary policy to drive down the interest rate and decrease aggregate demand. 
C) by pursuing an expansionary monetary policy to drive down the interest rate and decrease short-run aggregate supply. 
D) by pursuing a contractionary monetary policy to raise the interest rate and reduce aggregate demand. 
A) by pursuing an expansionary monetary policy to raise the interest rate and decrease short-run aggregate supply. 
B) by pursuing a contractionary monetary policy to drive down the interest rate and decrease aggregate demand. 
C) by pursuing an expansionary monetary policy to drive down the interest rate and decrease short-run aggregate supply. 
D) by pursuing a contractionary monetary policy to raise the interest rate and reduce aggregate demand.

Question 13

The first official statement of goals for macroeconomic performance in the United States came with the passage of the

Accepted Answer

A) Federal Reserve Act of 1913. 
B) Employment Act of 1946. 
C) Great Depression Act of 1933. 
D) Full Employment and Balanced Growth Act of 1978. 
A) Federal Reserve Act of 1913. 
B) Employment Act of 1946. 
C) Great Depression Act of 1933. 
D) Full Employment and Balanced Growth Act of 1978.

Question 14

Use the following to answer questions 
Exhibit: Monetary Policy 2  
-(Exhibit: Monetary Policy 2)
By shifting the supply curve from S1 to S2, the Fed is attempting to

Accepted Answer

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

Question 15

Suppose the public holds $200 billion in M2 and the velocity of the M2 money supply is 5.What is the value of nominal GDP?

Accepted Answer

A) $500. 
B) $1,000. 
C) $1,500. 
D) That information cannot be determined. 
A) $500. 
B) $1,000. 
C) $1,500. 
D) That information cannot be determined.

Question 16

Which of the following factors may cause velocity to fluctuate?
I.changes in interest rates
II.changes in expectations about inflation
III.changes in expectations about bond prices
IV.an increase in the number of financial products that affects the demand for money

Accepted Answer

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

Question 17

When the Fed buys 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 18

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 and the aggregate demand curve shifts to the left and d becomes the new equilibrium point. 
B) b.They rationally adjust their behavior and the aggregate demand curve shifts to the left and b becomes the new equilibrium point. 
C) d.They rationally adjust their behavior and the short-run aggregate supply curve shifts to the left and d becomes the new equilibrium point. 
D) c.They rationally adjust their behavior and the short-run aggregate supply curve shifts to the left and d becomes the new equilibrium point. 
A) d.They rationally adjust their behavior and the aggregate demand curve shifts to the left and d becomes the new equilibrium point. 
B) b.They rationally adjust their behavior and the aggregate demand curve shifts to the left and b becomes the new equilibrium point. 
C) d.They rationally adjust their behavior and the short-run aggregate supply curve shifts to the left and d becomes the new equilibrium point. 
D) c.They rationally adjust their behavior and the short-run aggregate supply curve shifts to the left and d becomes the new equilibrium point.

Question 19

Contractionary monetary policy, achieved by selling bonds in the open market, tends to discourage investment.

Accepted Answer

A) True 
 B)False

Question 20

If nominal GDP is $5,000 billion and the velocity of the M2 money supply is 5, what is the amount of the public's holding in the form of M2?

Accepted Answer

A) $500 billion 
B) $1,000 billion 
C) $1,500 billion 
D) $2,000 billion 
A) $500 billion 
B) $1,000 billion 
C) $1,500 billion 
D) $2,000 billion

Studies in the 1980s and early 1990s showed that, in general, greater central bank independence

The federal funds rate is never targeted by the Fed.

Suppose money supply (M) = $4,000, real GDP (Y) = $30,000, and nominal GDP = $60,000.Calculate the value of velocity and the price level.

The time between recognizing the existence of a problem and adopting a course of action to deal with the problem is called the

What are the three types of monetary policy lags?

Which of the following is a tool used by the Fed in the conduct of monetary policy?

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, the Federal Reserve can close the output gap

All other things unchanged, we expect that a reduction in interest rates will tend to

All other things unchanged, the velocity of money will

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 b, the Federal Reserve can close the output gap

The first official statement of goals for macroeconomic performance in the United States came with the passage of the

Use the following to answer questions Exhibit: Monetary Policy 2 -(Exhibit: Monetary Policy 2) By shifting the supply curve from S₁ to S₂, the Fed is attempting to

Suppose the public holds $200 billion in M2 and the velocity of the M2 money supply is 5.What is the value of nominal GDP?

Which of the following factors may cause velocity to fluctuate? I.changes in interest rates II.changes in expectations about inflation III.changes in expectations about bond prices IV.an increase in the number of financial products that affects the demand for money

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

Contractionary monetary policy, achieved by selling bonds in the open market, tends to discourage investment.

If nominal GDP is $5,000 billion and the velocity of the M2 money supply is 5, what is the amount of the public's holding in the form of M2?

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

Studies in the 1980s and early 1990s showed that, in general, greater central bank independence

The federal funds rate is never targeted by the Fed.

Suppose money supply (M) = $4,000, real GDP (Y) = $30,000, and nominal GDP = $60,000.Calculate the value of velocity and the price level.

The time between recognizing the existence of a problem and adopting a course of action to deal with the problem is called the

What are the three types of monetary policy lags?

Which of the following is a tool used by the Fed in the conduct of monetary policy?

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, the Federal Reserve can close the output gap

All other things unchanged, we expect that a reduction in interest rates will tend to

All other things unchanged, the velocity of money will

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 b, the Federal Reserve can close the output gap

The first official statement of goals for macroeconomic performance in the United States came with the passage of the

Use the following to answer questions Exhibit: Monetary Policy 2 -(Exhibit: Monetary Policy 2) By shifting the supply curve from S1 to S2, the Fed is attempting to

Suppose the public holds $200 billion in M2 and the velocity of the M2 money supply is 5.What is the value of nominal GDP?

Which of the following factors may cause velocity to fluctuate? I.changes in interest rates II.changes in expectations about inflation III.changes in expectations about bond prices IV.an increase in the number of financial products that affects the demand for money

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

Contractionary monetary policy, achieved by selling bonds in the open market, tends to discourage investment.

If nominal GDP is $5,000 billion and the velocity of the M2 money supply is 5, what is the amount of the public's holding in the form of M2?

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 2 -(Exhibit: Monetary Policy 2) By shifting the supply curve from S₁ to S₂, the Fed is attempting to