Question 1

Most Keynesians suggest that the Fed

Accepted Answer

A) use discretion in setting monetary policy. 
B) use fiscal policy to combat unemployment in the short run. 
C) follow a rule, such as keeping the money growth rate at 3%, regardless of the state of the economy. 
D) use fiscal policy to combat inflation in the long run. 
A) use discretion in setting monetary policy. 
B) use fiscal policy to combat unemployment in the short run. 
C) follow a rule, such as keeping the money growth rate at 3%, regardless of the state of the economy. 
D) use fiscal policy to combat inflation in the long run. A

Question 2

Policymakers may be uncertain about the structure of the economy because

Accepted Answer

A) initial releases of data may be less accurate than later data releases. 
B) they don't know the predominant source of shocks to the economy. 
C) they don't know how shocks affect people's expectations. 
D) they are not aware of modern macroeconomic modeling techniques. 
A) initial releases of data may be less accurate than later data releases. 
B) they don't know the predominant source of shocks to the economy. 
C) they don't know how shocks affect people's expectations. 
D) they are not aware of modern macroeconomic modeling techniques. B

Question 3

Changes in reserve requirements directly and immediately affect

Accepted Answer

A) the monetary base. 
B) banks' holdings of securities. 
C) the Fed's holdings of foreign exchange. 
D) the money multiplier. 
A) the monetary base. 
B) banks' holdings of securities. 
C) the Fed's holdings of foreign exchange. 
D) the money multiplier. D

Question 4

In response to an unanticipated tightening of monetary policy,the price level ________ at first,then ________ after a year.

Accepted Answer

A) rises; returns most of the way to its original value 
B) falls; returns most of the way to its original value 
C) remains roughly unchanged; begins to rise 
D) remains roughly unchanged; begins to fall 
A) rises; returns most of the way to its original value 
B) falls; returns most of the way to its original value 
C) remains roughly unchanged; begins to rise 
D) remains roughly unchanged; begins to fall

Question 5

The Fed can reduce the money supply by reducing

Accepted Answer

A) the currency-deposit ratio. 
B) the monetary base. 
C) reserve requirements. 
D) the discount rate. 
A) the currency-deposit ratio. 
B) the monetary base. 
C) reserve requirements. 
D) the discount rate.

Question 6

The Taylor rule relates

Accepted Answer

A) the nominal Fed funds rate to inflation over the past year and the deviation of output from full-employment output. 
B) the growth rate of the monetary base to the growth rate of nominal GDP and the change in velocity over the past year. 
C) the nominal Fed funds rate to the growth rate of nominal GDP and the change in velocity over the past year. 
D) the growth rate of the monetary base to inflation over the past year and the deviation of output from full-employment output. 
A) the nominal Fed funds rate to inflation over the past year and the deviation of output from full-employment output. 
B) the growth rate of the monetary base to the growth rate of nominal GDP and the change in velocity over the past year. 
C) the nominal Fed funds rate to the growth rate of nominal GDP and the change in velocity over the past year. 
D) the growth rate of the monetary base to inflation over the past year and the deviation of output from full-employment output.

Question 7

Monetarists suggest doing which of the following?

Accepted Answer

A) Maintain a steady growth rate of the money supply. 
B) Use fiscal policy to combat unemployment in the short run. 
C) Use monetary policy to combat unemployment in the long run. 
D) Use fiscal policy to combat inflation in the long run. 
A) Maintain a steady growth rate of the money supply. 
B) Use fiscal policy to combat unemployment in the short run. 
C) Use monetary policy to combat unemployment in the long run. 
D) Use fiscal policy to combat inflation in the long run.

Question 8

Vault cash is equal to $8 million,deposits by depository institutions at the central bank are $2 million,the monetary base is $40 million,and bank deposits are $90 million.The money multiplier is equal to

Accepted Answer

A) 2)5. 
B) 3)0. 
C) 4)0. 
D) 5)0. 
A) 2)5. 
B) 3)0. 
C) 4)0. 
D) 5)0.

Question 9

Last year,the currency-deposit ratio was 0.2 and the reserve-deposit ratio was 0.2.Over the past year,the public changed its currency-deposit ratio,to which the Fed responded by reducing the reserve-deposit ratio to 0.15,to keep the money supply from changing and keeping the same monetary base.Calculate the new currency-deposit ratio.Show your work.

Accepted Answer

Because neither the money supply nor the

Question 10

Which of the following is the Federal Reserve most likely to use to change the nation's money supply?

Accepted Answer

A) Open-market operations 
B) Reserve requirements 
C) Discount lending 
D) Credit controls 
A) Open-market operations 
B) Reserve requirements 
C) Discount lending 
D) Credit controls

Question 11

Intermediate targets are

Accepted Answer

A) identical to instruments. 
B) macroeconomic variables that the Fed can influence that are related to the Fed's goals. 
C) also known as the Fed's tools. 
D) macroeconomic variables that never get revised. 
A) identical to instruments. 
B) macroeconomic variables that the Fed can influence that are related to the Fed's goals. 
C) also known as the Fed's tools. 
D) macroeconomic variables that never get revised.

Question 12

Suppose the Fed cares only about keeping the economy close to full-employment output.The Fed can target the real money supply (thus keeping the LM curve fixed)or it can target the real interest rate,changing the money supply and shifting the LM curve however is necessary to prevent a change in the real interest rate.
(a)Which is the best policy if the main shocks to the economy are shocks to the IS curve? Explain why.Illustrate with a diagram.
(b)Which is the best policy if the main shocks to the economy are shocks to real money demand? Explain why.Illustrate with a diagram.

Accepted Answer

(a)Target the real money suppl

Question 13

The money supply is $12.5 million,currency held by the nonbank public is $2.5 million,and the reserve-deposit ratio is 0.25.
(a)What is the quantity of bank deposits?
(b)What is the quantity of bank reserves?
(c)What is the quantity of the monetary base?
(d)What is the money multiplier (give a number)?

Accepted Answer

(a)Since M = C + D,D = $10 mil

Question 14

In the Keynesian model,suppose the Fed sets a target for the real interest rate.If the IS curve shifts to the left,and the Fed wants to keep output unchanged

Accepted Answer

A) taxes will increase. 
B) the money supply will decline. 
C) the real interest rate will decrease. 
D) taxes will decrease. 
A) taxes will increase. 
B) the money supply will decline. 
C) the real interest rate will decrease. 
D) taxes will decrease.

Question 15

Who determines the open-market operations of the Federal Reserve System?

Accepted Answer

A) Board of Governors 
B) FDIC 
C) FHLBB 
D) FOMC 
A) Board of Governors 
B) FDIC 
C) FHLBB 
D) FOMC

Question 16

Open-market operations,changes in reserve requirements,changes in the discount rate,and changes in the interest rate on reserves are known as

Accepted Answer

A) goals. 
B) intermediate targets. 
C) instruments. 
D) derivatives. 
A) goals. 
B) intermediate targets. 
C) instruments. 
D) derivatives.

Question 17

Was the money multiplier stable during the Great Recession? Why would an unstable money multiplier pose a problem for monetary policy?

Accepted Answer

The money multiplier was not stable duri

Question 18

Vault cash is equal to $2 million,deposits by depository institutions at the central bank are $1 million,the monetary base is $15 million,and bank deposits are $30 million.Bank reserves are equal to

Accepted Answer

A) $2 million. 
B) $3 million. 
C) $5 million. 
D) $10 million. 
A) $2 million. 
B) $3 million. 
C) $5 million. 
D) $10 million.

Question 19

What types of rules for monetary policy may be sensible for policymakers to consider? What is the advantage of using rules over discretion? What problems might there be with rules?

Accepted Answer

One possible rule is a constant money gr

Question 20

The money supply is $10 million,currency held by the nonbank public is $2 million,and the reserve-deposit ratio is 0.2.Bank deposits are equal to

Accepted Answer

A) $1.6 million. 
B) $2 million. 
C) $4 million. 
D) $8 million. 
A) $1.6 million. 
B) $2 million. 
C) $4 million. 
D) $8 million.

Most Keynesians suggest that the Fed

Policymakers may be uncertain about the structure of the economy because

Changes in reserve requirements directly and immediately affect

In response to an unanticipated tightening of monetary policy,the price level at first,then after a year.

The Fed can reduce the money supply by reducing

The Taylor rule relates

Monetarists suggest doing which of the following?

Vault cash is equal to $8 million,deposits by depository institutions at the central bank are $2 million,the monetary base is $40 million,and bank deposits are $90 million.The money multiplier is equal to

Which of the following is the Federal Reserve most likely to use to change the nation's money supply?

Intermediate targets are

In the Keynesian model,suppose the Fed sets a target for the real interest rate.If the IS curve shifts to the left,and the Fed wants to keep output unchanged

Who determines the open-market operations of the Federal Reserve System?

Open-market operations,changes in reserve requirements,changes in the discount rate,and changes in the interest rate on reserves are known as

Was the money multiplier stable during the Great Recession? Why would an unstable money multiplier pose a problem for monetary policy?

Vault cash is equal to $2 million,deposits by depository institutions at the central bank are $1 million,the monetary base is $15 million,and bank deposits are $30 million.Bank reserves are equal to

What types of rules for monetary policy may be sensible for policymakers to consider? What is the advantage of using rules over discretion? What problems might there be with rules?

The money supply is $10 million,currency held by the nonbank public is $2 million,and the reserve-deposit ratio is 0.2.Bank deposits are equal to

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, output, and Employment

Consumption, saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, money, and Prices

Business Cycles

The Is-Lmad-As Model

Classical Business Cycle Analysis

Keynesianism: the Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Exchange Rates, business Cycles, and Macroeconomic Policy in the Open Economy

Government Spending and Its Financing

Filters

Exam 14: Monetary Policy and the Federal Reserve System

Most Keynesians suggest that the Fed

Policymakers may be uncertain about the structure of the economy because

Changes in reserve requirements directly and immediately affect

In response to an unanticipated tightening of monetary policy,the price level ________ at first,then ________ after a year.

The Fed can reduce the money supply by reducing

The Taylor rule relates

Monetarists suggest doing which of the following?

Vault cash is equal to $8 million,deposits by depository institutions at the central bank are $2 million,the monetary base is $40 million,and bank deposits are $90 million.The money multiplier is equal to

Which of the following is the Federal Reserve most likely to use to change the nation's money supply?

Intermediate targets are

In the Keynesian model,suppose the Fed sets a target for the real interest rate.If the IS curve shifts to the left,and the Fed wants to keep output unchanged

Who determines the open-market operations of the Federal Reserve System?

Open-market operations,changes in reserve requirements,changes in the discount rate,and changes in the interest rate on reserves are known as

Was the money multiplier stable during the Great Recession? Why would an unstable money multiplier pose a problem for monetary policy?

Vault cash is equal to $2 million,deposits by depository institutions at the central bank are $1 million,the monetary base is $15 million,and bank deposits are $30 million.Bank reserves are equal to

What types of rules for monetary policy may be sensible for policymakers to consider? What is the advantage of using rules over discretion? What problems might there be with rules?

The money supply is $10 million,currency held by the nonbank public is $2 million,and the reserve-deposit ratio is 0.2.Bank deposits are equal to

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, output, and Employment

Consumption, saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, money, and Prices

Business Cycles

The Is-Lmad-As Model

Classical Business Cycle Analysis

Keynesianism: the Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Exchange Rates, business Cycles, and Macroeconomic Policy in the Open Economy

Government Spending and Its Financing

Filters

In response to an unanticipated tightening of monetary policy,the price level at first,then after a year.