Question 1

Which of the following is true of the bank reserves held at the Fed?

Accepted Answer

A)  These reserves are an asset to both the bank and the Fed. 
B)  These reserves are a liability to both the bank and the Fed. 
C)  These reserves are an asset to the bank and a liability to the Fed. 
D)  These reserves are a liability to the bank and an asset to the Fed.

Question 2

Plutonia uses the Taylor rule to set the short-term interest rate at which banks lend to one another.Compute the short-term interest rate that should be set in Plutonia if the inflation target is 2 percent,the long-term target for the interest rate is 3 percent,the current rate of inflation is 5 percent,and output is 5 percent below its trend.

Accepted Answer

The answer of Plutonia uses the Taylor rule to set...

Question 3

Expansionary fiscal policy uses ________ government spending and ________ taxes to increase aggregate economic activity.

Accepted Answer

A)  higher; higher 
B)  higher; lower 
C)  lower; higher 
D)  lower; lower

Question 4

A fall in long-term interest rates leads to a ________.

Accepted Answer

A)  leftward shift of the labor demand curve 
B)  rightward shift of the labor demand curve 
C)  leftward shift of the labor supply curve 
D)  rightward shift of the labor supply curve

Question 5

A countercyclical monetary policy is conducted by ________ with the overall goal of ________.

Accepted Answer

A)  the government; reducing economic fluctuations 
B)  the central bank; increasing economic activity 
C)  the central bank; reducing economic fluctuations 
D)  the government; increasing economic activity

Question 6

If people expect the Fed to adopt a(n)________ for several years,the long-term expected real interest rate will remain ________.

Accepted Answer

A)  contractionary monetary policy; low 
B)  expansionary monetary policy; low 
C)  contractionary fiscal policy; high 
D)  expansionary fiscal policy; low

Question 7

Which of the following is likely to happen during a boom?

Accepted Answer

A)  The Fed will lower the federal funds rate. 
B)  The Fed will increase the federal funds rate. 
C)  The Fed will increase the supply of money. 
D)  The Fed will lower the reserve requirement.

Question 8

If the quantity of bank reserves held at the Fed increases,________.

Accepted Answer

A)  banks make more loans 
B)  bank deposits decrease 
C)  the real interest rate increases 
D)  the M2 measure of money decreases

Question 9

If the federal funds rate is set by the Taylor rule and the inflation rate increases by 3 percentage points,everything else remaining unchanged,the federal funds rate for a given inflation target should ________.

Accepted Answer

A)  increase by 3 percentage points 
B)  increase by 4.5 percentage points 
C)  decrease by 3 percentage points 
D)  decrease by 1.5 percentage points

Question 10

Expansionary fiscal policy leads to a ________.

Accepted Answer

A)  rightward shift of the labor demand curve 
B)  leftward shift of the labor demand curve 
C)  rightward shift of the labor supply curve 
D)  leftward shift of the labor supply curve

Question 11

Give two disadvantages of using an expenditure-based fiscal policy over a taxation-based fiscal policy.

Accepted Answer

The answer of Give two disadvantages of using an expenditure-based...

Question 12

What does crowding out lead to?
i.A smaller effect of a countercyclical fiscal policy
ii.Higher investment expenditures

Accepted Answer

A)  i) and ii) are both true 
B)  i) and ii) are both false 
C)  i) is true and ii) is false 
D)  i) is false and ii) is true

Question 13

Scenario: The following figure shows the federal funds market. Assume that the market of reserves is in equilibrium at point (R₀, i₀).
 
-Refer to the scenario above.If the Fed uses a contractionary monetary policy,the new equilibrium quantity of reserves is ________ and the new federal funds rate is ________.

Accepted Answer

A)  R₁; i₀ 
B)  R₁; i₁ 
C)  R₂; i₂ 
D)  R₂; i₀

Question 14

Contractionary effects on the rate of GDP growth are always a by-product of other countercyclical policies.

Accepted Answer

A) True 
 B)False

Question 15

A specific policy rule announcement by the Fed increases the public's ability to forecast future interest rates.

Accepted Answer

A) True 
 B)False

Question 16

What is the Fed's "dot plot" and why is it useful?

Accepted Answer

The answer of What is the Fed's "dot plot" and...

Question 17

Which of the following is likely to happen because of a contractionary monetary policy?

Accepted Answer

A)  An increase in the inflation rate 
B)  An increase in labor demand 
C)  An increase in labor supply 
D)  An increase in the federal funds rate

Question 18

A decrease in government expenditures leads to a(n)________ in the growth rate of real GDP and a ________ shift of the labor demand curve.

Accepted Answer

A)  decrease; right 
B)  increase; right 
C)  increase; left 
D)  decrease; left

Question 19

If the nominal interest rate is 0 percent and the real interest rate is 2 percent,what is the inflation rate?

Accepted Answer

A)  2 percent 
B)  −2 percent 
C)  0 percent 
D)  −4 percent

Question 20

The economy of Budopia is going through a recession.How will a countercyclical policy affect the labor market in Budopia if wages are downwardly rigid? Explain with a diagram.

Accepted Answer

The answer of The economy of Budopia is going through...

Exam 13: Countercyclical Macroeconomic Policy

Which of the following is true of the bank reserves held at the Fed?

Expansionary fiscal policy uses government spending and taxes to increase aggregate economic activity.

A fall in long-term interest rates leads to a ________.

A countercyclical monetary policy is conducted by with the overall goal of .

If people expect the Fed to adopt a(n) for several years,the long-term expected real interest rate will remain .

Which of the following is likely to happen during a boom?

If the quantity of bank reserves held at the Fed increases,________.

If the federal funds rate is set by the Taylor rule and the inflation rate increases by 3 percentage points,everything else remaining unchanged,the federal funds rate for a given inflation target should ________.

Expansionary fiscal policy leads to a ________.

Give two disadvantages of using an expenditure-based fiscal policy over a taxation-based fiscal policy.

What does crowding out lead to? i.A smaller effect of a countercyclical fiscal policy ii.Higher investment expenditures

Scenario: The following figure shows the federal funds market. Assume that the market of reserves is in equilibrium at point (R₀, i₀) . -Refer to the scenario above.If the Fed uses a contractionary monetary policy,the new equilibrium quantity of reserves is and the new federal funds rate is .

Contractionary effects on the rate of GDP growth are always a by-product of other countercyclical policies.

A specific policy rule announcement by the Fed increases the public's ability to forecast future interest rates.

What is the Fed's "dot plot" and why is it useful?

Which of the following is likely to happen because of a contractionary monetary policy?

A decrease in government expenditures leads to a(n) in the growth rate of real GDP and a shift of the labor demand curve.

If the nominal interest rate is 0 percent and the real interest rate is 2 percent,what is the inflation rate?

The economy of Budopia is going through a recession.How will a countercyclical policy affect the labor market in Budopia if wages are downwardly rigid? Explain with a diagram.

Exam 13: Countercyclical Macroeconomic Policy

Which of the following is true of the bank reserves held at the Fed?

Expansionary fiscal policy uses ________ government spending and ________ taxes to increase aggregate economic activity.

A fall in long-term interest rates leads to a ________.

A countercyclical monetary policy is conducted by ________ with the overall goal of ________.

If people expect the Fed to adopt a(n) ________ for several years,the long-term expected real interest rate will remain ________.

Which of the following is likely to happen during a boom?

If the quantity of bank reserves held at the Fed increases,________.

If the federal funds rate is set by the Taylor rule and the inflation rate increases by 3 percentage points,everything else remaining unchanged,the federal funds rate for a given inflation target should ________.

Expansionary fiscal policy leads to a ________.

Give two disadvantages of using an expenditure-based fiscal policy over a taxation-based fiscal policy.

What does crowding out lead to? i.A smaller effect of a countercyclical fiscal policy ii.Higher investment expenditures

Contractionary effects on the rate of GDP growth are always a by-product of other countercyclical policies.

A specific policy rule announcement by the Fed increases the public's ability to forecast future interest rates.

What is the Fed's "dot plot" and why is it useful?

Which of the following is likely to happen because of a contractionary monetary policy?

A decrease in government expenditures leads to a(n) ________ in the growth rate of real GDP and a ________ shift of the labor demand curve.

If the nominal interest rate is 0 percent and the real interest rate is 2 percent,what is the inflation rate?

The economy of Budopia is going through a recession.How will a countercyclical policy affect the labor market in Budopia if wages are downwardly rigid? Explain with a diagram.

Expansionary fiscal policy uses government spending and taxes to increase aggregate economic activity.

A countercyclical monetary policy is conducted by with the overall goal of .

If people expect the Fed to adopt a(n) for several years,the long-term expected real interest rate will remain .

A decrease in government expenditures leads to a(n) in the growth rate of real GDP and a shift of the labor demand curve.