Question 1

Which of the following is a good example of the net export or open economy effect of monetary policy?

Accepted Answer

A)  An expansionary monetary policy causes net exports to rise, which helps to decrease unemployment. 
B)  An expansionary monetary policy causes net exports to fall, which helps to decrease inflationary pressures. 
C)  A contractionary monetary policy causes net exports to rise, which helps to decrease inflationary pressures. 
D)  A contractionary monetary policy causes net exports to fall, which helps to reduce unemployment. 
A)  An expansionary monetary policy causes net exports to rise, which helps to decrease unemployment. 
B)  An expansionary monetary policy causes net exports to fall, which helps to decrease inflationary pressures. 
C)  A contractionary monetary policy causes net exports to rise, which helps to decrease inflationary pressures. 
D)  A contractionary monetary policy causes net exports to fall, which helps to reduce unemployment.

Question 2

Most people evaluate current monetary policy by looking at:

Accepted Answer

A)  the price level. 
B)  interest rates. 
C)  shifts in the money demand curve. 
D)  movements along the money supply curve. 
A)  the price level. 
B)  interest rates. 
C)  shifts in the money demand curve. 
D)  movements along the money supply curve.

Question 3

In the market for money, the _____ rate is the price because it:

Accepted Answer

A)  interest; is the opportunity cost of holding money. 
B)  interest; varies in response to monetary policy. 
C)  foreign exchange; impacts net exports. 
D)  foreign exchange; affects the desirability of holding cash balances. 
A)  interest; is the opportunity cost of holding money. 
B)  interest; varies in response to monetary policy. 
C)  foreign exchange; impacts net exports. 
D)  foreign exchange; affects the desirability of holding cash balances.

Question 4

An increase in the money supply will cause interest rates to _____, which causes _____ to:

Accepted Answer

A)  increase; government spending; fall. 
B)  increase; consumer and investment spending; fall. 
C)  decrease; government spending; rise. 
D)  decrease; consumer and investment spending; rise. 
A)  increase; government spending; fall. 
B)  increase; consumer and investment spending; fall. 
C)  decrease; government spending; rise. 
D)  decrease; consumer and investment spending; rise.

Question 5

Changes in a nation's money supply affect _____ in the short run but affect _____ in the long run.

Accepted Answer

A)  both price level and output level; only output level 
B)  both price level and output level; only price level 
C)  only output level; both price level and output level 
D)  only price level; both price level and output level 
A)  both price level and output level; only output level 
B)  both price level and output level; only price level 
C)  only output level; both price level and output level 
D)  only price level; both price level and output level

Question 6

Summarize four ways that monetary policy affects aggregate demand.

Accepted Answer

Four ways that monetary policy affects a

Question 7

In the short run, after a decrease in the money supply, employment _____, and the price level:

Accepted Answer

A)  rises; rises. 
B)  rises; falls. 
C)  falls; rises. 
D)  falls; falls. 
A)  rises; rises. 
B)  rises; falls. 
C)  falls; rises. 
D)  falls; falls.

Question 8

Maka's Bouncing Ball Company is deciding whether to manufacture balls in its home country of Econia or in the neighboring country of Macroland. Maka expects the central bank of Econia to adopt a tight money policy over the next few years. Because of this expectation, Maka's would be more likely to produce in ______ because:

Accepted Answer

A)  Macroland; Econia's currency is likely to appreciate. 
B)  Macroland; Econia's currency is likely to depreciate. 
C)  Econia; Econia is more likely to experience rising prices. 
D)  Econia; Econia is more likely to experience strong growth. 
A)  Macroland; Econia's currency is likely to appreciate. 
B)  Macroland; Econia's currency is likely to depreciate. 
C)  Econia; Econia is more likely to experience rising prices. 
D)  Econia; Econia is more likely to experience strong growth.

Question 9

Changes in the money supply and interest rates that are initiated by the central bank with a goal of stabilizing the economy are referred to as:

Accepted Answer

A)  stabilization initiatives. 
B)  fiscal policy. 
C)  currency policy. 
D)  monetary policy. 
A)  stabilization initiatives. 
B)  fiscal policy. 
C)  currency policy. 
D)  monetary policy.

Question 10

Which of the following is NOT an outcome of higher interest rates?

Accepted Answer

A)  Fewer investment opportunities appear profitable to businesses. 
B)  Households cannot afford to borrow as much toward a home purchase. 
C)  Savers face higher buying costs in the loanable funds markets. 
D)  It is more expensive for business firms to borrow money. 
A)  Fewer investment opportunities appear profitable to businesses. 
B)  Households cannot afford to borrow as much toward a home purchase. 
C)  Savers face higher buying costs in the loanable funds markets. 
D)  It is more expensive for business firms to borrow money.

Question 11

The new Keynesian perspective focuses on targeting:

Accepted Answer

A)  short-term interest rates. 
B)  long-term interest rates. 
C)  money supply growth. 
D)  government spending. 
A)  short-term interest rates. 
B)  long-term interest rates. 
C)  money supply growth. 
D)  government spending.

Question 12

Describe the monetary policy challenge that central bankers face when trying to reduce or eliminate stagflation.

Accepted Answer

Stagflation is the existence of higher t

Question 13

According to economists, short-term interest rates apply to loans and savings _____, and long-term interest rates apply to loans and savings:

Accepted Answer

A)  when product markets are not at equilibrium; when product markets are at equilibrium. 
B)  when all market adjustments have occurred; when markets have not yet completed all adjustments. 
C)  for less than one year; for more than one year. 
D)  when credit markets are at equilibrium; when credit markets have not yet adjusted to equilibriums. 
A)  when product markets are not at equilibrium; when product markets are at equilibrium. 
B)  when all market adjustments have occurred; when markets have not yet completed all adjustments. 
C)  for less than one year; for more than one year. 
D)  when credit markets are at equilibrium; when credit markets have not yet adjusted to equilibriums.

Question 14

When the Federal Reserve engages in expansionary monetary policy, which of the following will NOT be a result?

Accepted Answer

A)  The money supply increases. 
B)  Aggregate demand rises. 
C)  The Fed makes open market purchases. 
D)  The federal funds rate target is raised. 
A)  The money supply increases. 
B)  Aggregate demand rises. 
C)  The Fed makes open market purchases. 
D)  The federal funds rate target is raised.

Question 15

The target interest rate for monetary policy in the United States is decided by:

Accepted Answer

A)  the board of governors of the U.S. Federal Reserve. 
B)  the members of the Federal Open Market Committee. 
C)  the U.S. Congress. 
D)  the U.S. president. 
A)  the board of governors of the U.S. Federal Reserve. 
B)  the members of the Federal Open Market Committee. 
C)  the U.S. Congress. 
D)  the U.S. president.

Question 16

Which of the following inflation rates do policymakers view as consistent with the Federal Reserve's mandate to achieve stable prices?

Accepted Answer

A)  2% 
B)  0% 
C)  -2% 
D)  5% 
A)  2% 
B)  0% 
C)  -2% 
D)  5%

Question 17

In the market for money, the _____ is the cost of holding money.

Accepted Answer

A)  average price level for goods and services 
B)  GDP deflator 
C)  foreign exchange rate 
D)  interest rate 
A)  average price level for goods and services 
B)  GDP deflator 
C)  foreign exchange rate 
D)  interest rate

Question 18

What two goals are the dual mandate of the U.S. Federal Reserve System?

Accepted Answer

A)  Maximize employment, and keep price level stable. 
B)  Maintain money value, and reduce national deficit. 
C)  Keep the price level stable, and maintain foreign exchange value. 
D)  Keep unemployment low, and keep national deficit low. 
A)  Maximize employment, and keep price level stable. 
B)  Maintain money value, and reduce national deficit. 
C)  Keep the price level stable, and maintain foreign exchange value. 
D)  Keep unemployment low, and keep national deficit low.

Question 19

What is the dual mandate of the U.S. Federal Reserve System?

Accepted Answer

The U.S. Federal Reserve has two main re

Question 20

When an economy has too much unemployment, then the Federal Reserve will _____ the target interest rate in order to _____ aggregate demand.

Accepted Answer

A)  increase; reduce 
B)  increase; increase 
C)  reduce; reduce 
D)  reduce; increase 
A)  increase; reduce 
B)  increase; increase 
C)  reduce; reduce 
D)  reduce; increase

Exam 27: Monetary Policy and Interest Rates

Which of the following is a good example of the net export or open economy effect of monetary policy?

Most people evaluate current monetary policy by looking at:

In the market for money, the _____ rate is the price because it:

An increase in the money supply will cause interest rates to _____, which causes _____ to:

Changes in a nation's money supply affect _____ in the short run but affect _____ in the long run.

Summarize four ways that monetary policy affects aggregate demand.

In the short run, after a decrease in the money supply, employment _____, and the price level:

Changes in the money supply and interest rates that are initiated by the central bank with a goal of stabilizing the economy are referred to as:

Which of the following is NOT an outcome of higher interest rates?

The new Keynesian perspective focuses on targeting:

Describe the monetary policy challenge that central bankers face when trying to reduce or eliminate stagflation.

According to economists, short-term interest rates apply to loans and savings _____, and long-term interest rates apply to loans and savings:

When the Federal Reserve engages in expansionary monetary policy, which of the following will NOT be a result?

The target interest rate for monetary policy in the United States is decided by:

Which of the following inflation rates do policymakers view as consistent with the Federal Reserve's mandate to achieve stable prices?

In the market for money, the _____ is the cost of holding money.

What two goals are the dual mandate of the U.S. Federal Reserve System?

What is the dual mandate of the U.S. Federal Reserve System?

When an economy has too much unemployment, then the Federal Reserve will _____ the target interest rate in order to _____ aggregate demand.

The Basics of Economics

Why We Trade

The Supply and Demand Model

Elasticity

Consumer Choice

The Economic Efficiency of Markets

Taxation: An Economic Analysis

Externalities, the Environment, and Public Goods

Organizing a Business

Stocks and Bonds

The Cost of Doing Business

Perfect Competition

Monopoly and Antitrust Laws

Monopolistic Competition and Price Discrimination

Oligopoly

Behavioral Economics and Strategy

Labor and Other Resources

The Distribution of Income

Information and Health Economics

GDP and the Price Level

Unemployment and the Business Cycle

Long Run Economic Growth

Saving, Investment, and the Federal Budget Deficit

The Monetary System

Money and the Price Level in the Long Run

Aggregate Supply and Aggregate Demand

Fiscal Policy and the Business Cycle

The Aggregate Expenditure Model

Inflation Expectations and Stabilization Policies

International Trade

Foreign Exchange Markets

International Finance

Filters

An increase in the money supply will cause interest rates to _, which causes _ to:

Changes in a nation's money supply affect _ in the short run but affect _ in the long run.

When an economy has too much unemployment, then the Federal Reserve will _ the target interest rate in order to _ aggregate demand.