Question 1

If the prevailing rate of interest in the economy were to rise, what effect would this have on the market price of existing bonds?

Accepted Answer

A)  The market price would also rise. 
B)  The market price would fall. 
C)  The market price is not related to the prevailing rate of interest, thus no change. 
D)  The market price falls when the real interest rate is negative. 
A)  The market price would also rise. 
B)  The market price would fall. 
C)  The market price is not related to the prevailing rate of interest, thus no change. 
D)  The market price falls when the real interest rate is negative.

Question 2

A central bank that engages in inflation targeting is following a monetary rule.

Accepted Answer

A) True 
 B)False

Question 3

Monetarists argue that monetary policy should not be used as a stabilization tool to offset business fluctuations because they believe that

Accepted Answer

A)  changes in the money supply do not affect spending. 
B)  the lag effects associated with monetary policy can make it destabilizing. 
C)  expansionary monetary policy will not increase aggregate demand. 
D)  contractionary monetary policy will not decrease aggregate demand. 
A)  changes in the money supply do not affect spending. 
B)  the lag effects associated with monetary policy can make it destabilizing. 
C)  expansionary monetary policy will not increase aggregate demand. 
D)  contractionary monetary policy will not decrease aggregate demand.

Question 4

If the Fed contracts the money supply,

Accepted Answer

A)  the price level will rise. 
B)  interest rates will rise. 
C)  aggregate demand will increase. 
D)  firms will increase their levels of investment. 
A)  the price level will rise. 
B)  interest rates will rise. 
C)  aggregate demand will increase. 
D)  firms will increase their levels of investment.

Question 5

The effect of contractionary monetary policy is to

Accepted Answer

A)  increase real output and increase the price level. 
B)  increase real output and decrease the price level. 
C)  decrease real output and increase the price level. 
D)  decrease real output and decrease the price level. 
A)  increase real output and increase the price level. 
B)  increase real output and decrease the price level. 
C)  decrease real output and increase the price level. 
D)  decrease real output and decrease the price level.

Question 6

An excess supply of money will

Accepted Answer

A)  decrease investment. 
B)  decrease income. 
C)  raise interest rates. 
D)  raise bond prices. 
A)  decrease investment. 
B)  decrease income. 
C)  raise interest rates. 
D)  raise bond prices.

Question 7

In the short run, an increase in the discount rate usually

Accepted Answer

A)  results in decreases in other interest rates. 
B)  leads banks to hold fewer excess reserves. 
C)  causes the equilibrium level of real GDP and the price level to fall. 
D)  leads to an increase in the price of existing bonds. 
A)  results in decreases in other interest rates. 
B)  leads banks to hold fewer excess reserves. 
C)  causes the equilibrium level of real GDP and the price level to fall. 
D)  leads to an increase in the price of existing bonds.

Question 8

The direct effect of an increase in the money supply is that

Accepted Answer

A)  people will spend the extra money, causing the aggregate demand curve to shift to the left and resulting in a recession. 
B)  people will save the money, causing an increase in bank deposits with the result that interest rates will increase. 
C)  people will save more money, causing a decrease in economic activity and a fall in prices. 
D)  people will spend the extra money, causing the aggregate demand curve to shift to the right and resulting in a boost to economic activity. 
A)  people will spend the extra money, causing the aggregate demand curve to shift to the left and resulting in a recession. 
B)  people will save the money, causing an increase in bank deposits with the result that interest rates will increase. 
C)  people will save more money, causing a decrease in economic activity and a fall in prices. 
D)  people will spend the extra money, causing the aggregate demand curve to shift to the right and resulting in a boost to economic activity.

Question 9

Open market operations are conducted when the Federal Reserve buys and sells
government _________.

Accepted Answer

The answer of Open market operations are conducted when the...

Question 10

The Open Market Committee of the Federal Reserve guides money supply growth.

Accepted Answer

A) True 
 B)False

Question 11

Bond prices _________ when interest rates increase.

Accepted Answer

The answer of Bond prices _________ when interest rates increase....

Question 12

If the Fed follows a monetary rule,

Accepted Answer

A)  the growth rate of the money supply will be increased during recessions. 
B)  discretionary monetary policy will be used to combat unemployment. 
C)  the growth rate of the money supply will match the long-term growth rate of real output. 
D)  the money supply will equal the level of annual national income. 
A)  the growth rate of the money supply will be increased during recessions. 
B)  discretionary monetary policy will be used to combat unemployment. 
C)  the growth rate of the money supply will match the long-term growth rate of real output. 
D)  the money supply will equal the level of annual national income.

Question 13

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

Accepted Answer

Both the price level

Question 14

The Fed would be pursuing a contractionary monetary policy if it were

Accepted Answer

A)  lowering the required reserve ratio. 
B)  raising the discount rate. 
C)  buying bonds. 
D)  raising bond prices. 
A)  lowering the required reserve ratio. 
B)  raising the discount rate. 
C)  buying bonds. 
D)  raising bond prices.

Question 15

How are bond prices affected when interest rates fall?

Accepted Answer

The answer of How are bond prices affected when interest...

Question 16

Believers of the monetary rule advocate that the

Accepted Answer

A)  speculative demand for money should be reduced by government action. 
B)  money supply should grow at the same rate as the potential long-term growth rate of real GDP. 
C)  money supply should grow at the same rate as the rate of inflation. 
D)  money supply should be increased during periods of inflation and decreased during recessions. 
A)  speculative demand for money should be reduced by government action. 
B)  money supply should grow at the same rate as the potential long-term growth rate of real GDP. 
C)  money supply should grow at the same rate as the rate of inflation. 
D)  money supply should be increased during periods of inflation and decreased during recessions.

If the prevailing rate of interest in the economy were to rise, what effect would this have on the market price of existing bonds?

A central bank that engages in inflation targeting is following a monetary rule.

Monetarists argue that monetary policy should not be used as a stabilization tool to offset business fluctuations because they believe that

If the Fed contracts the money supply,

The effect of contractionary monetary policy is to

An excess supply of money will

In the short run, an increase in the discount rate usually

The direct effect of an increase in the money supply is that

Open market operations are conducted when the Federal Reserve buys and sells government _________.

The Open Market Committee of the Federal Reserve guides money supply growth.

Bond prices _________ when interest rates increase.

If the Fed follows a monetary rule,

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

The Fed would be pursuing a contractionary monetary policy if it were

How are bond prices affected when interest rates fall?

Believers of the monetary rule advocate that the

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

If the prevailing rate of interest in the economy were to rise, what effect would this have on the market price of existing bonds?

A central bank that engages in inflation targeting is following a monetary rule.

Monetarists argue that monetary policy should not be used as a stabilization tool to offset business fluctuations because they believe that

If the Fed contracts the money supply,

The effect of contractionary monetary policy is to

An excess supply of money will

In the short run, an increase in the discount rate usually

The direct effect of an increase in the money supply is that

Open market operations are conducted when the Federal Reserve buys and sells government _________.

The Open Market Committee of the Federal Reserve guides money supply growth.

Bond prices _________ when interest rates increase.

If the Fed follows a monetary rule,

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

The Fed would be pursuing a contractionary monetary policy if it were

How are bond prices affected when interest rates fall?

Believers of the monetary rule advocate that the

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