978-1259723223 Test Bank TBChap036 Part 10

386.

Refer to the graphs, in which the numbers in parentheses near the AD1, AD2, and AD3

labels indicate the level of investment spending associated

with each curve. All figures are

in billions. The economy is at point Z on the investment demand curve. Given these

conditions, what policy should the monetary authorities pursue to achieve a noninflationary,

full–employment level of real GDP?

387.

Refer to the graphs, in which the numbers in parentheses near the AD1, AD2, and AD3

labels indicate the levels of investment spending associated

with each curve. All figures are

in billions. A shift in the aggregate demand curve from AD3 to AD2 can be achieved by

Federal Reserve action

to

388.

The purpose of an expansionary monetary policy is to increase

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D. interest rates.

389.

Which of the following is a monetary policy intended to rein in inflation?

390.

Assume the economy faces high unemployment but stable prices. Which combination of

government policies is most likely to reduce

unemployment?

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Topic: Monetary Policy, Real GDP, and the Price Level

391.

The major problem facing the economy is high unemployment and weak economic

growth. The inflation rate is low and stable. Therefore, the

Federal Reserve decides to

pursue a policy to increase the rate of economic growth. Which policy changes by the Fed

would reinforce each other to achieve that objective?

392.

The major problem facing the economy is high unemployment and weak economic

growth. The inflation rate is low and stable. Therefore, the

Federal Reserve decides to

pursue a policy to increase the rate of economic growth. Which policy changes by the Fed

would tend to offset each other in trying to achieve that objective?

393.

Suppose the economy is at full employment with a high inflation rate. Which

combination of government policies is most likely to reduce the

inflation rate?

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B.

buy government securities in the open market, do bond repos, and decrease taxes

C.

sell government securities in the open market, do bond repos, and increase government

spending

D.

sell government securities in the open market, do bond reverse-repos, and cut

government spending

394.

A newspaper headline reads, “Fed Raises Discount Rate for Third Time This Year.“

This headline indicates that the Federal Reserve is most

likely trying to

395.

If the Fed is trying to make interest rates go down, it wants

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the price level.

Test Bank: II

Topic: Monetary Policy, Real GDP, and the Price Level

396.

When the Federal Reserve acts to tighten money and credit in the economy, it is trying

to reduce

397.

Assume that the MPC is 0.75 and that the price level is “sticky.“ If the Federal Reserve

increases the money supply and investment spending

increases by $8 billion, then aggregate

demand is likely to

398.

What is one of the advantages of monetary policy over fiscal policy?

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D.

It can guarantee an expansion of aggregate demand when needed.

399.

Which of the following is considered an advantage of monetary policy compared to

fiscal policy?

400.

Compared to fiscal policy, monetary policy has a much shorter

401.

An interesting development that happened in late 2008, relating to the Fed and bank

reserves, was that the Fed

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A.

reduced the reserve ratio drastically.

B.

required banks to hold more excess reserves.

C.

started paying interest on the banks’ reserves.

D. gave back all the reserves to the banks to hold as vault cash.

402.

In 2008, at the depth of the Great Recession, the Fed moved toward a ZIRP when it

aimed to keep the Federal funds rate between

403.

The ZIRP (zero interest rate policy) of the Fed led to the so-called zero lower bound

problem, which refers to the problem of

404.

The Fed’s response to the zero lower bound problem was quantitative easing (or “QE“),

where the Fed buys large amounts of bonds in order to

405.

Which of the following statements about quantitative easing (or “QE“) and open-market

406.

Which of the following is considered a limitation of monetary policy?

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A c c e ss ib i l i ty : Keyboard Navigation

Blooms: Understand

D i f f ic ul t y: 02 Medium

Learning Objective: 36-06 Explain the effectiveness of monetary policy and its shortcomings.

Test Bank: II

Topic: Monetary Policy: Evaluation and Issues

407.

Assume the Fed creates excess reserves in the banking system by buying government

bonds, but banks do not make more loans because economic

conditions are bad. This

situation is a problem of

408.

Monetary policy actions by the Fed are

409.

The use of monetary policy to shift aggregate demand to the right in a severe recession

is like

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C.

pulling on one’s purse-strings.

D.

pushing the envelope.

410.

In the recent financial and economic crises, the economy fell into a so-called liquidity

trap, which means that

411.

Which of the following is not a reason why after the Great Recession, when the

recovery turned out to be very weak, economic policy in the U.S.

had to turn forcefully

toward fiscal policy?

412.

Other things equal, an improvement in the expected rate of net profit would

413.

Other things equal, an appreciation of the U.S. dollar would

414.

Other things equal, an increase in taxes on businesses will

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Learning Objective: 36-05 Identify the mechanisms by which monetary policy affects GDP and

the price level.

Test Bank: II

Topic: The Big Picture

415.

Other things equal, an increase in consumer wealth will

416.

If consumers and businesses are especially pessimistic, as in the Great Recession of

2007–2009, and do not want to borrow money from banks,

then the use of an expansionary

money policy is likened to

417.

Starting in 2014, the European Central Bank (ECB), along with a few other central

banks in Europe, implemented a strange monetary policy of