Question 1

Which of the three tools of monetary policy is used least frequently?

Accepted Answer

Changing the required reserve ratio

Question 2

If the Fed increases the discount rate,

Accepted Answer

A)  it will then increase the required reserve ratio as well. 
B)  it will then decrease the required reserve ratio to offset any possible contractionary effect. 
C)  it will be easier for banks to secure the reserves needed to support a higher volume of commercial loans. 
D)  banks will face a higher cost of borrowing and will pass some of this cost onto customers in terms of higher interest rates. 
A)  it will then increase the required reserve ratio as well. 
B)  it will then decrease the required reserve ratio to offset any possible contractionary effect. 
C)  it will be easier for banks to secure the reserves needed to support a higher volume of commercial loans. 
D)  banks will face a higher cost of borrowing and will pass some of this cost onto customers in terms of higher interest rates. D

Question 3

When the Fed announces an interest rate target, what action does it take to meet that goal?

Accepted Answer

It engages in open market operations to bring about the necessary changes in the money supply that will produce the target interest rate

Question 4

The rate of money supply growth affects aggregate supply, but not aggregate demand.

Accepted Answer

A) True 
 B)False

Question 5

How would the Federal Reserve pursue a contractionary monetary policy?

Accepted Answer

By increasing the discount rat

Question 6

Contractionary monetary policy will _________ the price level.

Accepted Answer

The answer of Contractionary monetary policy will _________ the price...

Question 7

A Federal Reserve purchase of bonds on the open market will supply the banking system with more reserves, and the likely result will be that banks will issue more loans.

Accepted Answer

A) True 
 B)False

Question 8

During the Great Depression, the Fed followed a _________ monetary policy.

Accepted Answer

The answer of During the Great Depression, the Fed followed...

Question 9

Which of the following is FALSE?

Accepted Answer

A)  Some monetarists believe that monetary policy can be a destabilizing influence on the economy. 
B)  The Federal Reserve followed a contractionary monetary policy during the Great Depression. 
C)  Following a monetary rule would mean that the level of business investment would be constant on a year-to-year basis. 
D)  In the long run, there appears to be a direct relationship between the rate of growth of the money supply and the rate of inflation. 
A)  Some monetarists believe that monetary policy can be a destabilizing influence on the economy. 
B)  The Federal Reserve followed a contractionary monetary policy during the Great Depression. 
C)  Following a monetary rule would mean that the level of business investment would be constant on a year-to-year basis. 
D)  In the long run, there appears to be a direct relationship between the rate of growth of the money supply and the rate of inflation.

Question 10

A contractionary monetary policy

Accepted Answer

A)  is brought about by lower interest rates. 
B)  is brought about by a lowering of the required reserve ratio. 
C)  will lead to an increase in aggregate demand. 
D)  will lead to a decrease in aggregate demand. 
A)  is brought about by lower interest rates. 
B)  is brought about by a lowering of the required reserve ratio. 
C)  will lead to an increase in aggregate demand. 
D)  will lead to a decrease in aggregate demand.

Question 11

Which of the following is FALSE?

Accepted Answer

A)  The Fed signifies its current monetary policy by making announcements about its interest rate target. 
B)  If the Fed wishes to lower the interest rate, it can do so by buying bonds. 
C)  Following a monetary rule avoids the problems associated with the lags inherent in discretionary monetary policy. 
D)  Monetarists advocate using discretionary monetary policy to smooth out fluctuations in the level of business activity. 
A)  The Fed signifies its current monetary policy by making announcements about its interest rate target. 
B)  If the Fed wishes to lower the interest rate, it can do so by buying bonds. 
C)  Following a monetary rule avoids the problems associated with the lags inherent in discretionary monetary policy. 
D)  Monetarists advocate using discretionary monetary policy to smooth out fluctuations in the level of business activity.

Question 12

How would the Federal Reserve pursue an expansionary monetary policy?

Accepted Answer

By decreasing the discount rat

Question 13

If you buy a bond which pays 5 percent and subsequently the interest rate rises to 6 percent, then it is true that

Accepted Answer

A)  the price of the bond is still $1,000. 
B)  the interest payment on the bond will fall. 
C)  the price of the bond will rise. 
D)  the price of the bond will fall. 
A)  the price of the bond is still $1,000. 
B)  the interest payment on the bond will fall. 
C)  the price of the bond will rise. 
D)  the price of the bond will fall.

Question 14

According to the Keynesians, expansionary monetary policy works by lowering the interest rate, which stimulates investment.

Accepted Answer

A) True 
 B)False

Question 15

If the Fed follows a monetary rule, it will increase the money supply at a rate of growth equal to the rate of inflation.

Accepted Answer

A) True 
 B)False

Question 16

Keynesian economists believe that monetary policy works through its effect on

Accepted Answer

A)  consumer confidence. 
B)  the federal budget deficit. 
C)  long-run aggregate supply. 
D)  the interest rate. 
A)  consumer confidence. 
B)  the federal budget deficit. 
C)  long-run aggregate supply. 
D)  the interest rate.

Question 17

Keynesian theory argues that

Accepted Answer

A)  increases in the money supply lead to decreases in the interest rate which decreases investment which decreases the level of real GDP. 
B)  decreases in the money supply lead to increases in the interest rate which increases investment which increases the level of real GDP. 
C)  increases in the money supply cause consumers to spend more which reduces the unemployment rate and therefore increases real GDP. 
D)  increases in the money supply lead to decreases in the interest rate which increases investment which increases the level of real GDP. 
A)  increases in the money supply lead to decreases in the interest rate which decreases investment which decreases the level of real GDP. 
B)  decreases in the money supply lead to increases in the interest rate which increases investment which increases the level of real GDP. 
C)  increases in the money supply cause consumers to spend more which reduces the unemployment rate and therefore increases real GDP. 
D)  increases in the money supply lead to decreases in the interest rate which increases investment which increases the level of real GDP.

Question 18

Suppose the economy is currently in equilibrium. The Fed changes its policy by raising the discount rate. This would have the effect of

Accepted Answer

A)  increasing aggregate demand and lowering the price level. 
B)  increasing aggregate demand and raising the price level. 
C)  decreasing aggregate demand and raising the price level. 
D)  decreasing aggregate demand and lowering the price level. 
A)  increasing aggregate demand and lowering the price level. 
B)  increasing aggregate demand and raising the price level. 
C)  decreasing aggregate demand and raising the price level. 
D)  decreasing aggregate demand and lowering the price level.

Question 19

Open market operations change the level of _________ in the banking system.

Accepted Answer

The answer of Open market operations change the level of...

Question 20

According to the monetarists, which component of aggregate demand changes in response to monetary policy?

Accepted Answer

The answer of According to the monetarists, which component of...

Which of the three tools of monetary policy is used least frequently?

If the Fed increases the discount rate,

When the Fed announces an interest rate target, what action does it take to meet that goal?

The rate of money supply growth affects aggregate supply, but not aggregate demand.

How would the Federal Reserve pursue a contractionary monetary policy?

Contractionary monetary policy will _________ the price level.

A Federal Reserve purchase of bonds on the open market will supply the banking system with more reserves, and the likely result will be that banks will issue more loans.

During the Great Depression, the Fed followed a _________ monetary policy.

Which of the following is FALSE?

A contractionary monetary policy

Which of the following is FALSE?

How would the Federal Reserve pursue an expansionary monetary policy?

If you buy a bond which pays 5 percent and subsequently the interest rate rises to 6 percent, then it is true that

According to the Keynesians, expansionary monetary policy works by lowering the interest rate, which stimulates investment.

If the Fed follows a monetary rule, it will increase the money supply at a rate of growth equal to the rate of inflation.

Keynesian economists believe that monetary policy works through its effect on

Keynesian theory argues that

Suppose the economy is currently in equilibrium. The Fed changes its policy by raising the discount rate. This would have the effect of

Open market operations change the level of _________ in the banking system.

According to the monetarists, which component of aggregate demand changes in response to monetary policy?

Economics and the World of Scarcity

The United States Within the World Economy

Demand and Supply

Consumer Decision Making and Consumer Reaction to Price Changes

The Firm: Production and Cost

The Two Extremes: Perfect Competition and Pure Monopoly

In Between the Extremes: Imperfect Competition

Market and Government Failures

Labor Economics

Unemployment, Inflation, and the Business Cycle

Aggregate Demand and Supply

The Fiscal Policy Approach to Stabilization

Money and Our Banking System

How Economies Grow

Trading With Other Nations

Financing World Trade

Filters

Exam 14: The Monetary Policy Approach to Stabilization

Which of the three tools of monetary policy is used least frequently?

If the Fed increases the discount rate,

When the Fed announces an interest rate target, what action does it take to meet that goal?

The rate of money supply growth affects aggregate supply, but not aggregate demand.

How would the Federal Reserve pursue a contractionary monetary policy?

Contractionary monetary policy will _________ the price level.

A Federal Reserve purchase of bonds on the open market will supply the banking system with more reserves, and the likely result will be that banks will issue more loans.

During the Great Depression, the Fed followed a _________ monetary policy.

Which of the following is FALSE?

A contractionary monetary policy

Which of the following is FALSE?

How would the Federal Reserve pursue an expansionary monetary policy?

If you buy a bond which pays 5 percent and subsequently the interest rate rises to 6 percent, then it is true that

According to the Keynesians, expansionary monetary policy works by lowering the interest rate, which stimulates investment.

If the Fed follows a monetary rule, it will increase the money supply at a rate of growth equal to the rate of inflation.

Keynesian economists believe that monetary policy works through its effect on

Keynesian theory argues that

Suppose the economy is currently in equilibrium. The Fed changes its policy by raising the discount rate. This would have the effect of

Open market operations change the level of _________ in the banking system.

According to the monetarists, which component of aggregate demand changes in response to monetary policy?

Economics and the World of Scarcity

The United States Within the World Economy

Demand and Supply

Consumer Decision Making and Consumer Reaction to Price Changes

The Firm: Production and Cost

The Two Extremes: Perfect Competition and Pure Monopoly

In Between the Extremes: Imperfect Competition

Market and Government Failures

Labor Economics

Unemployment, Inflation, and the Business Cycle

Aggregate Demand and Supply

The Fiscal Policy Approach to Stabilization

Money and Our Banking System

How Economies Grow

Trading With Other Nations

Financing World Trade

Filters