Question 1

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 will be

Accepted Answer

A) buying bonds in the open market which decreases the money supply. 
B) selling bonds in the open market which decreases the money supply. 
C) buying bonds in the open market which increases the money supply. 
D) selling bonds in the open market which increases the money supply. 
A) buying bonds in the open market which decreases the money supply. 
B) selling bonds in the open market which decreases the money supply. 
C) buying bonds in the open market which increases the money supply. 
D) selling bonds in the open market which increases the money supply.

Question 2

The equation of exchange determines the supply of money in the economy.

Accepted Answer

A) True 
 B)False

Question 3

If the Fed purchases federal government bonds on the open market, 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 4

The Case in Point titled "Velocity and the Confederacy" suggests that during the Civil War, the South faced

Accepted Answer

A) hyperinflation and rising velocity. 
B) hyperinflation and falling velocity. 
C) deflation and rising velocity. 
D) deflation and falling velocity. 
A) hyperinflation and rising velocity. 
B) hyperinflation and falling velocity. 
C) deflation and rising velocity. 
D) deflation and falling velocity.

Question 5

If nominal GDP = $900 billion and the public holds $300 billion in M2, then the velocity of the M2 money supply is

Accepted Answer

A) 1. 
B) 2. 
C) 3. 
D) 4. 
A) 1. 
B) 2. 
C) 3. 
D) 4.

Question 6

Historical actions indicate that the Fed's primary goal of monetary policy over the past 30 years has been to

Accepted Answer

A) maintain high interest rates. 
B) keep employment rates low. 
C) limit the availability of consumer credit. 
D) prevent high rates of inflation. 
A) maintain high interest rates. 
B) keep employment rates low. 
C) limit the availability of consumer credit. 
D) prevent high rates of inflation.

Question 7

Use the following to answer questions 
Exhibit: Effects of Monetary Policy  
-(Exhibit: Effects of Monetary Policy)
If a nonintervention policy were adopted in Panel (a)
,

Accepted Answer

A) the aggregate demand curve would have eventually shifted as shown. 
B) the short-run aggregate supply curve would have eventually shifted to the left and restored full employment. 
C) the short-run aggregate supply curve would have eventually shifted to the right and restored full employment. 
D) both the aggregate demand curve and the short-run aggregate supply curve would have eventually shifted to the left. 
A) the aggregate demand curve would have eventually shifted as shown. 
B) the short-run aggregate supply curve would have eventually shifted to the left and restored full employment. 
C) the short-run aggregate supply curve would have eventually shifted to the right and restored full employment. 
D) both the aggregate demand curve and the short-run aggregate supply curve would have eventually shifted to the left.

Question 8

All other thing unchanged, when the Fed sells government bonds, it aims to shift the aggregate demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 9

The major tools of monetary policy available to the Federal Reserve System are

Accepted Answer

A) reserve requirements, margin regulations, and moral suasion. 
B) reserve requirements, open-market operations, and the discount rate. 
C) open-market operations, margin regulations, and moral suasion. 
D) the discount rate, margin regulations, and moral suasion. 
A) reserve requirements, margin regulations, and moral suasion. 
B) reserve requirements, open-market operations, and the discount rate. 
C) open-market operations, margin regulations, and moral suasion. 
D) the discount rate, margin regulations, and moral suasion.

Question 10

Use the following to answer questions 
Exhibit: Monetary Policy and Rational Expectations  
-(Exhibit: Monetary Policy and Rational Expectations)
If rational expectations exist and the economy is initially operating at point d.If the Fed undertakes contractionary monetary policy the economy will

Accepted Answer

A) spend some time at c with a recessionary gap. 
B) spend no time at c and move directly to b. 
C) bypass c and move to a, because the short-run aggregate supply curve shifts to the left. 
D) bypass c and move to a, because the short-run aggregate supply curve shifts immediately to the right and the economy moves down the long-run aggregate supply curve. 
A) spend some time at c with a recessionary gap. 
B) spend no time at c and move directly to b. 
C) bypass c and move to a, because the short-run aggregate supply curve shifts to the left. 
D) bypass c and move to a, because the short-run aggregate supply curve shifts immediately to the right and the economy moves down the long-run aggregate supply curve.

Question 11

Suppose money supply (M)
= $500, real GDP (Y)
= $1,000, and nominal GDP = $5,000.Calculate the value of velocity and the price level.

Accepted Answer

A) V = 2; P = 1 
B) V = 4; P = 5 
C) V = 10; P = 5 
D) V = 10; P = 1 
A) V = 2; P = 1 
B) V = 4; P = 5 
C) V = 10; P = 5 
D) V = 10; P = 1

Question 12

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

Accepted Answer

A) investment and net exports to rise. 
B) investment will rise and net exports to fall. 
C) investment will fall and net exports to rise. 
D) investment and net exports fall. 
A) investment and net exports to rise. 
B) investment will rise and net exports to fall. 
C) investment will fall and net exports to rise. 
D) investment and net exports fall.

Question 13

Mary Chestnut reported in her diary that, during the Civil War, she became much less willing to hold "'Confederates," currency issued by the Confederate State of America.Assuming that this change in preferences was widespread in the South, it suggests

Accepted Answer

A) a reduction in the demand for money and a reduction in velocity. 
B) a reduction in the demand for money and an increase in velocity. 
C) an increase in the demand for money and a reduction in velocity. 
D) an increase in the demand for money and an increase in velocity. 
A) a reduction in the demand for money and a reduction in velocity. 
B) a reduction in the demand for money and an increase in velocity. 
C) an increase in the demand for money and a reduction in velocity. 
D) an increase in the demand for money and an increase in velocity.

Question 14

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 and that individuals have rational expectations.They calculate that expansionary monetary policy

Accepted Answer

A) will raise the price level to Pd; and they adjust their expectations and wage demands shifting the short-run aggregate supply curve to AS2.  
B) will raise the price level to Pc; and they adjust their expectations and wage demands shifting the short-run aggregate supply curve to AS2. 
C) will raise the price level to Pb; and they adjust their expectations and wage demands shifting the short-run aggregate supply curve to AS1. 
D) will keep the price level at Pa; and the short-run aggregate supply curve at AS1. 
A) will raise the price level to Pd; and they adjust their expectations and wage demands shifting the short-run aggregate supply curve to AS2.  
B) will raise the price level to Pc; and they adjust their expectations and wage demands shifting the short-run aggregate supply curve to AS2. 
C) will raise the price level to Pb; and they adjust their expectations and wage demands shifting the short-run aggregate supply curve to AS1. 
D) will keep the price level at Pa; and the short-run aggregate supply curve at AS1.

Question 15

The monetary policy tool that involves the buying and selling of government bonds is

Accepted Answer

A) moral suasion. 
B) reserve requirements. 
C) the discount rate. 
D) open-market operations. 
A) moral suasion. 
B) reserve requirements. 
C) the discount rate. 
D) open-market operations.

Question 16

Use the following to answer questions 
Exhibit: Effects of Monetary Policy  
-(Exhibit: Effects of Monetary Policy)
In Panel (b)
, assume that the price of bonds rises from P1 to P2.Now, in Panel (c)
, the higher price of bonds will

Accepted Answer

A) reduce the demand for and increase the supply of dollars and cause the exchange rate to increase. 
B) reduce the demand for and increase the supply of dollars and cause the exchange rate to rise. 
C) increase the demand for and reduce the supply of dollars and cause the exchange rate to increase. 
D) reduce the demand for and increase the supply of dollars and cause the exchange rate to fall. 
A) reduce the demand for and increase the supply of dollars and cause the exchange rate to increase. 
B) reduce the demand for and increase the supply of dollars and cause the exchange rate to rise. 
C) increase the demand for and reduce the supply of dollars and cause the exchange rate to increase. 
D) reduce the demand for and increase the supply of dollars and cause the exchange rate to fall.

Question 17

Open-market operations are such a powerful tool of monetary policy that they are seldom used.

Accepted Answer

A) True 
 B)False

Question 18

Suppose the interest rate is zero and the public expects the price level to fall by 2%.Which of the following statement is true?

Accepted Answer

A) The value of money falls by 2%. 
B) Money becomes an interest earning asset; it earns a nominal interest rate of 2%. 
C) Money becomes an interest earning asset; it earns a real interest rate of 2%. 
D) Bonds and money will become perfect substitutes since both are non-interest earning assets. 
A) The value of money falls by 2%. 
B) Money becomes an interest earning asset; it earns a nominal interest rate of 2%. 
C) Money becomes an interest earning asset; it earns a real interest rate of 2%. 
D) Bonds and money will become perfect substitutes since both are non-interest earning assets.

Question 19

The congressional act that established the U.S.central banking system in 1913 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 20

In the equation of exchange, the variable whose value must be computed from the other variables is the

Accepted Answer

A) price level. 
B) quantity of output. 
C) quantity of money. 
D) velocity of money. 
A) price level. 
B) quantity of output. 
C) quantity of money. 
D) velocity of money.

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 will be

The equation of exchange determines the supply of money in the economy.

If the Fed purchases federal government bonds on the open market, bank reserves will

The Case in Point titled "Velocity and the Confederacy" suggests that during the Civil War, the South faced

If nominal GDP = $900 billion and the public holds $300 billion in M2, then the velocity of the M2 money supply is

Historical actions indicate that the Fed's primary goal of monetary policy over the past 30 years has been to

Use the following to answer questions Exhibit: Effects of Monetary Policy -(Exhibit: Effects of Monetary Policy) If a nonintervention policy were adopted in Panel (a) ,

All other thing unchanged, when the Fed sells government bonds, it aims to shift the aggregate demand curve to the right.

The major tools of monetary policy available to the Federal Reserve System are

Use the following to answer questions Exhibit: Monetary Policy and Rational Expectations -(Exhibit: Monetary Policy and Rational Expectations) If rational expectations exist and the economy is initially operating at point d.If the Fed undertakes contractionary monetary policy the economy will

Suppose money supply (M) = $500, real GDP (Y) = $1,000, and nominal GDP = $5,000.Calculate the value of velocity and the price level.

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

Mary Chestnut reported in her diary that, during the Civil War, she became much less willing to hold "'Confederates," currency issued by the Confederate State of America.Assuming that this change in preferences was widespread in the South, it suggests

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 and that individuals have rational expectations.They calculate that expansionary monetary policy

The monetary policy tool that involves the buying and selling of government bonds is

Use the following to answer questions Exhibit: Effects of Monetary Policy -(Exhibit: Effects of Monetary Policy) In Panel (b) , assume that the price of bonds rises from P₁ to P₂.Now, in Panel (c) , the higher price of bonds will

Open-market operations are such a powerful tool of monetary policy that they are seldom used.

Suppose the interest rate is zero and the public expects the price level to fall by 2%.Which of the following statement is true?

The congressional act that established the U.S.central banking system in 1913 was the

In the equation of exchange, the variable whose value must be computed from the other variables is the

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

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 will be

The equation of exchange determines the supply of money in the economy.

If the Fed purchases federal government bonds on the open market, bank reserves will

The Case in Point titled "Velocity and the Confederacy" suggests that during the Civil War, the South faced

If nominal GDP = $900 billion and the public holds $300 billion in M2, then the velocity of the M2 money supply is

Historical actions indicate that the Fed's primary goal of monetary policy over the past 30 years has been to

Use the following to answer questions Exhibit: Effects of Monetary Policy -(Exhibit: Effects of Monetary Policy) If a nonintervention policy were adopted in Panel (a) ,

All other thing unchanged, when the Fed sells government bonds, it aims to shift the aggregate demand curve to the right.

The major tools of monetary policy available to the Federal Reserve System are

Use the following to answer questions Exhibit: Monetary Policy and Rational Expectations -(Exhibit: Monetary Policy and Rational Expectations) If rational expectations exist and the economy is initially operating at point d.If the Fed undertakes contractionary monetary policy the economy will

Suppose money supply (M) = $500, real GDP (Y) = $1,000, and nominal GDP = $5,000.Calculate the value of velocity and the price level.

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

Mary Chestnut reported in her diary that, during the Civil War, she became much less willing to hold "'Confederates," currency issued by the Confederate State of America.Assuming that this change in preferences was widespread in the South, it suggests

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 and that individuals have rational expectations.They calculate that expansionary monetary policy

The monetary policy tool that involves the buying and selling of government bonds is

Use the following to answer questions Exhibit: Effects of Monetary Policy -(Exhibit: Effects of Monetary Policy) In Panel (b) , assume that the price of bonds rises from P1 to P2.Now, in Panel (c) , the higher price of bonds will

Open-market operations are such a powerful tool of monetary policy that they are seldom used.

Suppose the interest rate is zero and the public expects the price level to fall by 2%.Which of the following statement is true?

The congressional act that established the U.S.central banking system in 1913 was the

In the equation of exchange, the variable whose value must be computed from the other variables is the

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 will be

Use the following to answer questions Exhibit: Effects of Monetary Policy -(Exhibit: Effects of Monetary Policy) In Panel (b) , assume that the price of bonds rises from P₁ to P₂.Now, in Panel (c) , the higher price of bonds will