Question 1

The Fed can raise the target for the federal funds rate by selling government bonds in the open market.

Accepted Answer

A) True 
 B)False

Question 2

Suppose the economy experiences a recessionary gap.Expansionary 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 3

What is meant by the term "credit easing"?

Accepted Answer

A) It is a strategy which involves the extension of central bank lending to influence more broadly the proper functioning of credit markets and to improve liquidity. 
B) It is a strategy which involves keeping interest rates very low by providing substantial reserves for as long as is necessary to avoid deflation and encourage spending. 
C) It is a strategy which involves lowering the required reserve ratio and lowering the federal funds rate to encourage banks to increase loan creation. 
D) It is a strategy which involves allowing interest rates to rise slowly by providing substantial reserves for as long as is necessary to avoid inflation. 
A) It is a strategy which involves the extension of central bank lending to influence more broadly the proper functioning of credit markets and to improve liquidity. 
B) It is a strategy which involves keeping interest rates very low by providing substantial reserves for as long as is necessary to avoid deflation and encourage spending. 
C) It is a strategy which involves lowering the required reserve ratio and lowering the federal funds rate to encourage banks to increase loan creation. 
D) It is a strategy which involves allowing interest rates to rise slowly by providing substantial reserves for as long as is necessary to avoid inflation.

Question 4

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,

Accepted Answer

A) the unemployment rate is negative. 
B) the unemployment rate is zero. 
C) the level of employment is greater than the natural level of employment. 
D) it is at the natural level of employment. 
A) the unemployment rate is negative. 
B) the unemployment rate is zero. 
C) the level of employment is greater than the natural level of employment. 
D) it is at the natural level of employment.

Question 5

Use the following to answer questions 
Exhibit: Effects of Monetary Policy  
-(Exhibit: Effects of Monetary Policy)
The shift in the demand for bonds from D1 to D2, in Panel (b)
Will result in a

Accepted Answer

A) lower interest rate and no change in investment. 
B) higher interest rate and lower investment. 
C) lower interest rate and higher investment. 
D) higher interest rate and higher investment. 
A) lower interest rate and no change in investment. 
B) higher interest rate and lower investment. 
C) lower interest rate and higher investment. 
D) higher interest rate and higher investment.

Question 6

In the short-run velocity is not constant.Which of the following variables can be affected by a change in money supply?
I.real GDP
II.nominal GDP
III.the price level

Accepted Answer

A) III only 
B) II and III 
C) I, II, and III 
D) If velocity is not constant, then none of the variables is affected. 
A) III only 
B) II and III 
C) I, II, and III 
D) If velocity is not constant, then none of the variables is affected.

Question 7

Suppose at present people hold a quantity of money equal to 85% of nominal GDP.What happens to velocity if people wish to increase their money holdings to 80% of nominal GDP?

Accepted Answer

A) Velocity can increase or decrease depending on people's tastes and preferences toward money. 
B) Velocity is unaffected. 
C) Velocity increases. 
D) Velocity decreases. 
A) Velocity can increase or decrease depending on people's tastes and preferences toward money. 
B) Velocity is unaffected. 
C) Velocity increases. 
D) Velocity decreases.

Question 8

Which of the following is perhaps the greatest obstacle facing the Fed in discharging monetary policy?

Accepted Answer

A) the difficulties involved in regulating the complex structure of financial institutions 
B) the problem of monetary policy lags 
C) the problem of identifying a monetary measure that is closely linked to real GDP 
D) the problem of coordinating monetary and fiscal policy 
A) the difficulties involved in regulating the complex structure of financial institutions 
B) the problem of monetary policy lags 
C) the problem of identifying a monetary measure that is closely linked to real GDP 
D) the problem of coordinating monetary and fiscal policy

Question 9

The delay between the time a policy is enacted and the time the policy has its effect on the economy is called

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 10

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)
Long-run equilibrium positions occur at points

Accepted Answer

A) a and d. 
B) a and b. 
C) c and d. 
D) b and d. 
A) a and d. 
B) a and b. 
C) c and d. 
D) b and d.

Question 11

The lag between the time at which a policy is put in place and the time that policy affects the economy is called

Accepted Answer

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

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 by selling 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 13

In an economy experiencing hyperinflation, we expect to observe

Accepted Answer

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

The Fed can raise the target for the federal funds rate by selling government bonds in the open market.

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

What is meant by the term "credit easing"?

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,

Use the following to answer questions Exhibit: Effects of Monetary Policy -(Exhibit: Effects of Monetary Policy) The shift in the demand for bonds from D₁ to D₂, in Panel (b) Will result in a

In the short-run velocity is not constant.Which of the following variables can be affected by a change in money supply? I.real GDP II.nominal GDP III.the price level

Suppose at present people hold a quantity of money equal to 85% of nominal GDP.What happens to velocity if people wish to increase their money holdings to 80% of nominal GDP?

Which of the following is perhaps the greatest obstacle facing the Fed in discharging monetary policy?

The delay between the time a policy is enacted and the time the policy has its effect on the economy is called

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) Long-run equilibrium positions occur at points

The lag between the time at which a policy is put in place and the time that policy affects the economy is called

In an economy experiencing hyperinflation, we expect to observe

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 can raise the target for the federal funds rate by selling government bonds in the open market.

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

What is meant by the term "credit easing"?

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,

Use the following to answer questions Exhibit: Effects of Monetary Policy -(Exhibit: Effects of Monetary Policy) The shift in the demand for bonds from D1 to D2, in Panel (b) Will result in a

In the short-run velocity is not constant.Which of the following variables can be affected by a change in money supply? I.real GDP II.nominal GDP III.the price level

Suppose at present people hold a quantity of money equal to 85% of nominal GDP.What happens to velocity if people wish to increase their money holdings to 80% of nominal GDP?

Which of the following is perhaps the greatest obstacle facing the Fed in discharging monetary policy?

The delay between the time a policy is enacted and the time the policy has its effect on the economy is called

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) Long-run equilibrium positions occur at points

The lag between the time at which a policy is put in place and the time that policy affects the economy is called

In an economy experiencing hyperinflation, we expect to observe

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) The shift in the demand for bonds from D₁ to D₂, in Panel (b) Will result in a