Exam 14: The Monetary Policy Approach to Stabilization  

If the Federal Reserve follows a monetary rule, it will keep interest rates constant.

How is the effect of a contractionary monetary policy depicted in an aggregate supply-aggregate demand graph?

With an expansionary monetary policy, the Federal Reserve creates a business environment in which the supply of credit increases.

The typical effect of expansionary monetary policy is to decrease the price level and increase real output.

Contractionary monetary policy is used to combat recessions.

Monetarists believe that growth in the money supply directly increases aggregate _________ directly as consumers spend more.

According to Keynesian theory, an increase in the money supply will cause

Long-term changes in the money supply are tied to changes in the price level.

If the Fed uses discretionary monetary policy to smooth out fluctuations in the level of business activity, it would _________ the money supply during periods of unemployment.

If the economy is underutilizing its economic resources, the Fed can address the situation by

According to Keynesians, which of the following monetary policies would result in an increase in the level of planned investment?

How are the price level and the level of real output affected as a result of contractionary monetary policy?

A Federal Reserve purchase of Treasury bonds on the open market will _________ bond prices.

An increase in the money supply increases the purchasing power of the dollar.

If the Fed chooses to keep the market interest rate at a target level, then it must

The Fed announces changes in monetary policy by stating a target level of M2.

When the Fed sells government securities on the open market,

Open market operations by the Fed

The Federal Reserve increased the money supply significantly during the Great Depression, but prices continued to fall anyway.

Which one of the following statements is true?