Question 1

When the economy is in a recession, the Fed can --------------------the federal funds rate, which-------------------- aggregate demand and --------------------real GDP.

Accepted Answer

A)  raise; increases; decreases
B)  raise; decreases; increases
C)  lower; increases; increases
D)  lower; increases; decreases
E)  lower; decreases; decreases

Question 2

If the Fed carries out an open market operation and sells U.S. government securities, the federal funds rate --------------------and the quantity of reserves-------------------- .

Accepted Answer

A)  falls; increases
B)  rises; decreases
C)  rises; does not change
D)  rises; increases
E)  falls; decreases

Question 3

Which of the following are TRUE regarding Milton Friedman's k-percent money targeting rule?
I. Currently this policy is used by many policy makers.
Ii. This rule sets the growth rate of the quantity of money independently of the economy's behavior.
Iii. For this policy to work well, the velocity of circulation must be stable.

Accepted Answer

A)  i only
B)  i and ii
C)  ii only
D)  iii only
E)  ii and iii

Question 4

When the Federal Reserve increases the federal funds rate, bank loans-------------------- , the supply of loanable funds --------------------, and the real interest rate --------------------.

Accepted Answer

A)  increase; increases; falls
B)  decrease; decreases; rises
C)  increase; increases; rises
D)  does not change; decreases; rises
E)  decrease; does not change; rises

Question 5

Monetary policy decisions are made by the

Accepted Answer

A)  Federal Open Market Committee.
B)  Federal Reserve Economic Committee.
C)  U.S. Mint.
D)  Congress of the United States.
E)  Council of Economic Advisors.

Question 6

The federal funds rate is--------------------of the Fed.

Accepted Answer

A)  an objective
B)  a technique
C)  a goal
D)  a monetary policy rule
E)  the monetary policy instrument

Question 7

Which of the following statements are correct?
I. The Federal Reserve's monetary policy must be approved by the President of the United States
.
Ii. The Federal Reserve Board of Directors meets approximately every six months to review the state of the economy and determine monetary policy.
Iii. The Federal Reserve has determined it will use the monetary base as its policy instrument.

Accepted Answer

A)  iii only
B)  ii only
C)  i and ii
D)  i only
E)  None of the above answers is correct.

Question 8

If the Fed sells U.S. government securities,

Accepted Answer

A)  the U.S. Treasury gains some revenue.
B)  the federal funds rate rises.
C)  banks' reserves increase.
D)  the U.S. Treasury loses some revenue.
E)  None of the above answers is correct.

Question 9

If the Fed lowers the interest rate, then

Accepted Answer

A)  net exports will increase.
B)  only investment decreases.
C)  consumption expenditure decreases and investment increases.
D)  both consumption expenditure and investment decrease.
E)  only consumption expenditure decreases.

Question 10

A decrease in the federal funds rate

Accepted Answer

A)  decreases the demand for loanable funds, lowers the real interest rate, and decreases aggregate demand.
B)  decreases the supply of loanable funds, raises the real interest rate, and decreases aggregate demand.
C)  increases other short-term interest rates, decreases investment, and decreases aggregate demand.
D)  lowers other sort-term interest rate, raises the real interest rate, and increases aggregate demand.
E)  lowers the exchange rate, increases the supply of loanable funds, and increases aggregate demand.

Question 11

The main goals of monetary policy include all of the following EXCEPT

Accepted Answer

A)  attaining the maximum sustainable growth of potential GDP.
B)  keeping the long term nominal interest rate equal to the real interest rate plus the inflation rate.
C)  keeping the inflation rate low.
D)  keeping the unemployment rate close to the natural unemployment rate.
E)  keeping the long-term interest rate at a moderate level.

Question 12

Which of the following are policy instruments available to the Fed as it tries to achieve its macroeconomic goals?
I. government expenditure on goods and services and taxes 
ii. the government budget deficit or surplus
Iii. changes in the federal funds rate

Accepted Answer

A)  ii only
B)  iii only
C)  i and ii
D)  i and iii
E)  ii and iii

Question 13

-

The economy is at the equilibrium shown at point a in the above figure. If the Fed

Accepted Answer

A)  buys government securities, the economy moves to an equilibrium at point b.
B)  sells government securities, the economy moves to an equilibrium at point b.
C)  sells government securities, the economy moves to an equilibrium at point c.
D)  buys government securities, the economy moves to an equilibrium at point c.
E)  None of the above are correct because the economy will remain at point a if the Fed buys or if the Fed sells government securities.

Question 14

-If the Fed raises the federal funds rate, eventually the

Accepted Answer

A)  AD curve shifts leftward and real GDP decreases.
B)  AS curve shifts leftward and real GDP decreases.
C)  AS curve shifts rightward and real GDP increases.
D)  AD curve shifts rightward and real GDP increases.
E)  AD curve shifts rightward and real GDP decreases.

Question 15

If the Fed is concerned about a possible recession, it-------------------- the federal funds rate, which-------------------- the quantity of reserves and-------------------- the amount of bank loans.

Accepted Answer

A)  raises; decreases; decreases
B)  lowers; increases; increases
C)  lowers; decreases; decreases
D)  raises; increases; increases
E)  lowers; increases; decreases

Question 16

--------------------government securities and thereby shifts the-------------------- curve -------------------- . A) sell; RD; leftward B) buy; RS; leftward C) sell; RS; rightward D) buy; RD; rightward E) sell; RS; leftward" class="answers-bank-image d-inline" rel="preload" >
-
If the Fed wants to increase the federal funds rate, it will conduct an open market operation in which it --------------------government securities and thereby shifts the-------------------- curve -------------------- .

Accepted Answer

A)  sell; RD; leftward
B)  buy; RS; leftward
C)  sell; RS; rightward
D)  buy; RD; rightward
E)  sell; RS; leftward

Question 17

If the Fed buys U.S. government securities from banks, the federal funds rate --------------------and banks' reserves --------------------.

Accepted Answer

A)  rises; increase
B)  falls; decrease
C)  rises; decrease
D)  falls; increase
E)  does not change; increases

Question 18

Maintaining the growth of the money supply at a constant rate is an example of

Accepted Answer

A)  a money targeting rule.
B)  an inflation targeting rule.
C)  a money demand rule.
D)  a nominal GDP targeting rule.
E)  discretionary policy.

Question 19

-If the Fed lowers the federal funds rate, which of the following will NOT happen?

Accepted Answer

A)  aggregate demand increases
B)  real GDP increases
C)  the real interest rate falls
D)  other short-term interest rates fall
E)  the price level falls

Question 20

The higher the federal funds rate, the --------------------the opportunity cost of holding reserves, which-------------------- the incentive to economize on reserves.

Accepted Answer

A)  lower; increases
B)  lower; decreases
C)  higher; increases
D)  lower; does not change
E)  higher; decreases

Exam 17: Monetary Policy

If the Fed buys U.S. government securities from banks, the federal funds rate _{--------------------}and banks' reserves _{--------------------}.

Correct Answer
verified

- If the Fed wants to increase the federal funds rate, it will conduct an open market operation in which it _{--------------------}government securities and thereby shifts the_{--------------------} curve _{--------------------} .

Correct Answer
verified

If the Fed is concerned about a possible recession, it_{--------------------} the federal funds rate, which_{--------------------} the quantity of reserves and_{--------------------} the amount of bank loans.

Correct Answer
verified

Which of the following are policy instruments available to the Fed as it tries to achieve its macroeconomic goals? I. government expenditure on goods and services and taxes ii. the government budget deficit or surplus Iii. changes in the federal funds rate

Correct Answer
verified

When the Federal Reserve increases the federal funds rate, bank loans_{--------------------} , the supply of loanable funds _{--------------------}, and the real interest rate _{--------------------}.

Correct Answer
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The federal funds rate is_{--------------------}of the Fed.

Correct Answer
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- The economy is at the equilibrium shown at point a in the above figure. If the Fed

Correct Answer
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A decrease in the federal funds rate

Correct Answer
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Correct Answer
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Correct Answer
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The higher the federal funds rate, the _{--------------------}the opportunity cost of holding reserves, which_{--------------------} the incentive to economize on reserves.

Correct Answer
verified

When the economy is in a recession, the Fed can _{--------------------}the federal funds rate, which_{--------------------} aggregate demand and _{--------------------}real GDP.

Correct Answer
verified

The main goals of monetary policy include all of the following EXCEPT

Correct Answer
verified

Maintaining the growth of the money supply at a constant rate is an example of

Correct Answer
verified

If the Fed carries out an open market operation and sells U.S. government securities, the federal funds rate _{--------------------}and the quantity of reserves_{--------------------} .

Correct Answer
verified

If the Fed lowers the interest rate, then

Correct Answer
verified

Monetary policy decisions are made by the

Correct Answer
verified

-If the Fed raises the federal funds rate, eventually the

Correct Answer
verified

If the Fed sells U.S. government securities,

Correct Answer
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-If the Fed lowers the federal funds rate, which of the following will NOT happen?

Correct Answer
verified

Exam 17: Monetary Policy

If the Fed buys U.S. government securities from banks, the federal funds rate --------------------and banks' reserves --------------------.

Correct AnswerverifiedShow Answer

- If the Fed wants to increase the federal funds rate, it will conduct an open market operation in which it --------------------government securities and thereby shifts the-------------------- curve -------------------- .

Correct AnswerverifiedShow Answer

If the Fed is concerned about a possible recession, it-------------------- the federal funds rate, which-------------------- the quantity of reserves and-------------------- the amount of bank loans.

Correct AnswerverifiedShow Answer

Which of the following are policy instruments available to the Fed as it tries to achieve its macroeconomic goals? I. government expenditure on goods and services and taxes ii. the government budget deficit or surplus Iii. changes in the federal funds rate

Correct AnswerverifiedShow Answer

When the Federal Reserve increases the federal funds rate, bank loans-------------------- , the supply of loanable funds --------------------, and the real interest rate --------------------.

Correct AnswerverifiedShow Answer

The federal funds rate is--------------------of the Fed.

Correct AnswerverifiedShow Answer

- The economy is at the equilibrium shown at point a in the above figure. If the Fed

Correct AnswerverifiedShow Answer

A decrease in the federal funds rate

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The higher the federal funds rate, the --------------------the opportunity cost of holding reserves, which-------------------- the incentive to economize on reserves.

Correct AnswerverifiedShow Answer

When the economy is in a recession, the Fed can --------------------the federal funds rate, which-------------------- aggregate demand and --------------------real GDP.

Correct AnswerverifiedShow Answer

The main goals of monetary policy include all of the following EXCEPT

Correct AnswerverifiedShow Answer

Maintaining the growth of the money supply at a constant rate is an example of

Correct AnswerverifiedShow Answer

If the Fed carries out an open market operation and sells U.S. government securities, the federal funds rate --------------------and the quantity of reserves-------------------- .

Correct AnswerverifiedShow Answer

If the Fed lowers the interest rate, then

Correct AnswerverifiedShow Answer

Monetary policy decisions are made by the

Correct AnswerverifiedShow Answer

-If the Fed raises the federal funds rate, eventually the

Correct AnswerverifiedShow Answer

If the Fed sells U.S. government securities,

Correct AnswerverifiedShow Answer

-If the Fed lowers the federal funds rate, which of the following will NOT happen?

Correct AnswerverifiedShow Answer

If the Fed buys U.S. government securities from banks, the federal funds rate _{--------------------}and banks' reserves _{--------------------}.

Correct Answer
verified

- If the Fed wants to increase the federal funds rate, it will conduct an open market operation in which it _{--------------------}government securities and thereby shifts the_{--------------------} curve _{--------------------} .

Correct Answer
verified

If the Fed is concerned about a possible recession, it_{--------------------} the federal funds rate, which_{--------------------} the quantity of reserves and_{--------------------} the amount of bank loans.

Correct Answer
verified

Correct Answer
verified

When the Federal Reserve increases the federal funds rate, bank loans_{--------------------} , the supply of loanable funds _{--------------------}, and the real interest rate _{--------------------}.

Correct Answer
verified

The federal funds rate is_{--------------------}of the Fed.

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The higher the federal funds rate, the _{--------------------}the opportunity cost of holding reserves, which_{--------------------} the incentive to economize on reserves.

Correct Answer
verified

When the economy is in a recession, the Fed can _{--------------------}the federal funds rate, which_{--------------------} aggregate demand and _{--------------------}real GDP.

Correct Answer
verified

Correct Answer
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Correct Answer
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If the Fed carries out an open market operation and sells U.S. government securities, the federal funds rate _{--------------------}and the quantity of reserves_{--------------------} .

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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