Question 1

The money demand curve has a negative slope because

Accepted Answer

A)   lower interest rates cause households and firms to switch from money to financial assets.
B)   lower interest rates cause households and firms to switch from financial assets to money.
C)   lower interest rates cause households and firms to switch from money to stocks.
D)   lower interest rates cause households and firms to switch from money to bonds.E) B) and D)
F) None of the above

Question 2

The leader of the monetarist school and major proponent of a monetary growth rule was

Accepted Answer

A)   Ben Bernanke.
B)   Milton Friedman.
C)   Alan Greenspan.
D)   Paul Volcker.E) C) and D)
F) B) and C)

Question 3

By the 2000s, investment banks had become significant participants in the secondary market for mortgages.

Accepted Answer

A) True 
 B)False

Question 4

Use a graph to show the effects of a contractionary monetary policy to reduce inflation and move an economy back to potential real GDP. Explain what happens to aggregate demand, real GDP, and the price level.

Accepted Answer

If the economy is experiencing inflation...

Question 5

The Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association were established by Congress in order to regulate banks that buy and sell mortgage-backed securities.

Accepted Answer

A) True 
 B)False

Question 6

What is a mortgage? What were the important developments in the mortgage market during the years after 1970?

Accepted Answer

A mortgage is a loan a borrower takes to...

Question 7

By the 2000s, an important change in the mortgage market had occurred when ________ became significant participants in the secondary market for mortgages.

Accepted Answer

A)   investment banks
B)   Federal Reserve Banks
C)   commercial banks
D)   savings banksE) A) and B)
F) A) and C)

Question 8

Contractionary monetary policy on the part of the Fed results in

Accepted Answer

A)   an increase in the money supply, an increase in interest rates, and an increase in GDP.
B)   a decrease in the money supply, an increase in interest rates, and a decrease in GDP.
C)   an increase in the money supply, a decrease in interest rates, and an increase in GDP.
D)   a decrease in the money supply, a decrease in interest rates, and a decrease in GDP.E) All of the above
F) A) and B)

Question 9

If the Fed orders a contractionary monetary policy, describe what will happen to the following variables relative to what would have happened without the policy:
a. The money supply
b. Interest rates
c. Investment
d. Consumption
e. Net Exports
f. The aggregate demand curve
g. Real GDP
h. The price level

Accepted Answer

a. The money supply decreases
b. Interes...

Question 10

During the turmoil in the market for subprime mortgages in 2007 and 2008, the Fed increased the volume of discount loans. The goal of the Fed was to

Accepted Answer

A)   reduce the rate of inflation.
B)   stimulate economic growth.
C)   reduce unemployment.
D)   reassure financial markets and promote financial stability.
E)   reduce the current account deficit.F) A) and E)
G) A) and D)

Question 11

The Fed

Accepted Answer

A)   can easily distinguish the minor ups and downs of the economy from a recession.
B)   can have difficulty distinguishing the minor ups and downs of the economy from a recession.
C)   always times its policy responses correctly.
D)   can easily determine if a drop in production means a recession is inevitable.E) A) and D)
F) A) and B)

Question 12

Figure 26-10 
-Refer to Figure 26-10. In the figure above, suppose the economy is initially at point A. The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by the Federal Reserve?

Accepted Answer

A)   an increase in income taxes
B)   a decrease in the required reserve ratio
C)   an open market purchase of Treasury bills
D)   an open market sale of Treasury billsE) A) and B)
F) A) and C)

Question 13

A decrease in interest rates can ________ the demand for stocks as stocks become relatively ________ attractive investments as compared to bonds.

Accepted Answer

A)   increase; more
B)   decrease; less
C)   decrease; more
D)   increase; less
E)   increase; similarF) A) and E)
G) B) and E)

Question 14

Firms that participate in regular open market transactions with the Federal Reserve are called

Accepted Answer

A)   secondary market banks.
B)   Treasury banks.
C)   primary dealers.
D)   Federal Reserve partners.E) None of the above
F) B) and C)

Question 15

Which of the following will lead to a decrease in the equilibrium interest rate in the economy?

Accepted Answer

A)   an increase in the price level
B)   a sale of government securities by the Fed
C)   a decrease in GDP
D)   an increase in the discount rate
E)   an increase in the reserve requirementF) C) and D)
G) C) and E)

Question 16

When the Fed embarked on a policy known as quantitative easing, they

Accepted Answer

A)   slowly lowered the federal funds rate target until it was equal to zero.
B)   reduced the required reserve ration by one-quarter point per month for 12 months.
C)   bought longer-term securities than are usually bought in open market operations.
D)   opened up lending to primary dealers, commercial banks, and investment banks.E) B) and C)
F) A) and D)

Question 17

The ability of the Federal Reserve to use monetary policy to affect economic variables such as real GDP ultimately depends upon its ability to affect

Accepted Answer

A)   tax rates.
B)   real interest rates.
C)   nominal interest rates.
D)   foreign exchange rates.E) A) and C)
F) None of the above

Question 18

Figure 26-13 
-Refer to Figure 26-13. In the figure above, if the economy in Year 1 is at point A and expected in Year 2 to be at point B, then the appropriate monetary policy by the Federal Reserve would be to

Accepted Answer

A)   lower interest rates.
B)   raise interest rates.
C)   lower income taxes.
D)   raise income taxes.E) A) and B)
F) A) and C)

Question 19

If the Fed pursues expansionary monetary policy,

Accepted Answer

A)   aggregate demand will rise, and the price level will rise.
B)   aggregate demand will fall, and the price level will fall.
C)   aggregate demand will rise, and the price level will fall.
D)   aggregate demand will fall, and the price level will rise.E) B) and C)
F) A) and D)

Question 20

Which of the following is not an argument against inflation targeting?

Accepted Answer

A)   Inflation targeting reduces the flexibility of the Fed to pursue other policy goals.
B)   Inflation targeting assumes that the Fed can accurately forecast future inflation rates.
C)   Inflation targeting makes monetary policy ineffective because the targets are publicly announced.
D)   Inflation targeting holds the Fed accountable for an inflation goal, but may make it less likely the Fed will achieve other goals.E) B) and C)
F) None of the above

Exam 26: Monetary Policy

What is a mortgage? What were the important developments in the mortgage market during the years after 1970?

Correct Answer
verified
A mortgage is a loan a borrower takes to...
View Answer

Correct Answer
verified
a. The money supply decreases
b. Interes...
View Answer

The leader of the monetarist school and major proponent of a monetary growth rule was

Correct Answer
verified

By the 2000s, an important change in the mortgage market had occurred when ________ became significant participants in the secondary market for mortgages.

Correct Answer
verified

When the Fed embarked on a policy known as quantitative easing, they

Correct Answer
verified

Figure 26-10 -Refer to Figure 26-10. In the figure above, suppose the economy is initially at point A. The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by the Federal Reserve?

Correct Answer
verified

The Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association were established by Congress in order to regulate banks that buy and sell mortgage-backed securities.

Correct Answer
verified

Which of the following will lead to a decrease in the equilibrium interest rate in the economy?

Correct Answer
verified

Firms that participate in regular open market transactions with the Federal Reserve are called

Correct Answer
verified

If the Fed pursues expansionary monetary policy,

Correct Answer
verified

By the 2000s, investment banks had become significant participants in the secondary market for mortgages.

Correct Answer
verified

A decrease in interest rates can the demand for stocks as stocks become relatively attractive investments as compared to bonds.

Correct Answer
verified

Figure 26-13 -Refer to Figure 26-13. In the figure above, if the economy in Year 1 is at point A and expected in Year 2 to be at point B, then the appropriate monetary policy by the Federal Reserve would be to

Correct Answer
verified

The money demand curve has a negative slope because

Correct Answer
verified

Contractionary monetary policy on the part of the Fed results in

Correct Answer
verified

The Fed

Correct Answer
verified

The ability of the Federal Reserve to use monetary policy to affect economic variables such as real GDP ultimately depends upon its ability to affect

Correct Answer
verified

Use a graph to show the effects of a contractionary monetary policy to reduce inflation and move an economy back to potential real GDP. Explain what happens to aggregate demand, real GDP, and the price level.

Correct Answer
verified
If the economy is experiencing inflation...
View Answer

Which of the following is not an argument against inflation targeting?

Correct Answer
verified

During the turmoil in the market for subprime mortgages in 2007 and 2008, the Fed increased the volume of discount loans. The goal of the Fed was to

Correct Answer
verified

Exam 26: Monetary Policy

What is a mortgage? What were the important developments in the mortgage market during the years after 1970?

Correct AnswerverifiedA mortgage is a loan a borrower takes to...View AnswerShow Answer

Correct Answerverifieda. The money supply decreasesb. Interes...View AnswerShow Answer

The leader of the monetarist school and major proponent of a monetary growth rule was

Correct AnswerverifiedShow Answer

By the 2000s, an important change in the mortgage market had occurred when ________ became significant participants in the secondary market for mortgages.

Correct AnswerverifiedShow Answer

When the Fed embarked on a policy known as quantitative easing, they

Correct AnswerverifiedShow Answer

Figure 26-10 -Refer to Figure 26-10. In the figure above, suppose the economy is initially at point A. The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by the Federal Reserve?

Correct AnswerverifiedShow Answer

The Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association were established by Congress in order to regulate banks that buy and sell mortgage-backed securities.

Correct AnswerverifiedShow Answer

Which of the following will lead to a decrease in the equilibrium interest rate in the economy?

Correct AnswerverifiedShow Answer

Firms that participate in regular open market transactions with the Federal Reserve are called

Correct AnswerverifiedShow Answer

If the Fed pursues expansionary monetary policy,

Correct AnswerverifiedShow Answer

By the 2000s, investment banks had become significant participants in the secondary market for mortgages.

Correct AnswerverifiedShow Answer

A decrease in interest rates can ________ the demand for stocks as stocks become relatively ________ attractive investments as compared to bonds.

Correct AnswerverifiedShow Answer

Figure 26-13 -Refer to Figure 26-13. In the figure above, if the economy in Year 1 is at point A and expected in Year 2 to be at point B, then the appropriate monetary policy by the Federal Reserve would be to

Correct AnswerverifiedShow Answer

The money demand curve has a negative slope because

Correct AnswerverifiedShow Answer

Contractionary monetary policy on the part of the Fed results in

Correct AnswerverifiedShow Answer

The Fed

Correct AnswerverifiedShow Answer

The ability of the Federal Reserve to use monetary policy to affect economic variables such as real GDP ultimately depends upon its ability to affect

Correct AnswerverifiedShow Answer

Use a graph to show the effects of a contractionary monetary policy to reduce inflation and move an economy back to potential real GDP. Explain what happens to aggregate demand, real GDP, and the price level.

Correct AnswerverifiedIf the economy is experiencing inflation...View AnswerShow Answer

Which of the following is not an argument against inflation targeting?

Correct AnswerverifiedShow Answer

During the turmoil in the market for subprime mortgages in 2007 and 2008, the Fed increased the volume of discount loans. The goal of the Fed was to

Correct AnswerverifiedShow Answer

Correct Answer
verified
A mortgage is a loan a borrower takes to...
View Answer

Correct Answer
verified
a. The money supply decreases
b. Interes...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

A decrease in interest rates can the demand for stocks as stocks become relatively attractive investments as compared to bonds.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
If the economy is experiencing inflation...
View Answer

Correct Answer
verified

Correct Answer
verified