Figure 16–4
62)
Refer to Figure 16–4. Suppose the Fed sells Treasury Bills in pursuit of contractionary monetary
policy. Using the static AD–AS model in the figure above, this situation would be depicted as a
movement from
62)
A)
A to B.
B)
C to B.
C)
B to A.
D)
C to D.
E)
B to C.
63)
The interest rate that banks charge other banks for overnight loans is the
63)
A)
prime rate.
B)
federal funds rate.
C)
discount rate.
D)
Treasury bill rate.
64)
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
64)
A)
nominal interest rates.
B)
real interest rates.
C)
tax rates.
D)
foreign exchange rates.
65)
The Federal Reserve does not target both the money supply and an interest rate because
65)
A)
the Fed cannot achieve a target for both the money supply and an interest rate at the same
time.
B)
it would be too easy for Wall Street to determine what policy the Fed is following and this
would destabilize the economy.
C)
it would be too confusing to Wall Street and would disrupt the financial markets.
D)
it would be illegal according to the Federal Reserve Act.
66)
Using the Taylor rule, if the current inflation rate exceeds the target inflation rate and real GDP
exceeds potential GDP, then the federal funds target rate ________ the sum of the current inflation
rate plus the real equilibrium federal funds rate.
66)
A)
will be greater than
B)
may be greater than or less than
C)
will be the same as
D)
will be less than
67)
The Taylor rule links the Federal Reserve’s target for the
67)
A)
money supply to changes in interest rates.
B)
federal funds rate to the money supply.
C)
money supply to shifts in money demand.
D)
federal funds rate to economic variables.
68)
Which of the following would cause the money demand curve to shift to the left?
68)
A)
a decrease in real GDP
B)
an increase in the interest rate
C)
an increase in the price level
D)
an open market purchase of Treasury securities by the Federal Reserve
A
69)
Which of the following would most likely induce the Federal Reserve to conduct expansionary
monetary policy? A significant decrease in
69)
A)
oil prices.
B)
income tax rates.
C)
investment spending.
D)
business taxes.
70)
Which of the following is true?
70)
A)
The loanable funds model is essentially a model that determines the short term real rate of
interest.
B)
The loanable funds model is essentially a model that determines the long term nominal rate of
interest.
C)
The money market model is essentially a model that determines the short term real rate of
interest.
D)
The money market model is essentially a model of that determines the short term nominal
rate of interest.
71)
In the countries that have adopted inflation targeting, the inflation rate has typically
71)
A)
decreased.
B)
decreased to zero.
C)
not changed.
D)
increased.
72)
The Federal Reserve System’s four monetary policy goals are
72)
A)
low rate of bank failures, high reserve ratios, price stability, and economic growth.
B)
price stability, high employment, economic growth, and stability of financial markets and
institutions.
C)
price stability, low government budget deficits, low current account deficits, and low rate of
bank failures.
D)
low government budget deficits, low current account deficits, high employment, and a high
foreign exchange value of the dollar.
Figure 16–1
73)
Refer to Figure 16–1. In the figure the money demand curve would move from MD1 to MD2 if
73)
A)
the price level decreased.
B)
the Federal Reserve sold Treasury securities.
C)
the interest rate increased.
D)
real GDP decreased.
74)
Monetary policy refers to the actions the
74)
A)
President and Congress take to manage the money supply and interest rates to pursue their
economic objectives.
B)
Federal Reserve takes to manage government spending and taxes to pursue its economic
objectives.
C)
President and Congress take to manage government spending and taxes to pursue their
economic objectives.
D)
Federal Reserve takes to manage the money supply and interest rates to pursue its
macroeconomic policy objectives.
75)
An increase in the price level causes
75)
A)
a movement down along the money demand curve.
B)
a movement up along the money demand curve.
C)
the money demand curve to shift to the right.
D)
the money demand curve to shift to the left.
76)
The Federal Reserve cannot target both the money supply and the interest rate because it does not
control
76)
A)
bank reserves.
B)
money demand.
C)
open market operations.
D)
the discount rate.
77)
If the Federal Reserve raises or lowers interest rates too late, it could result in a ________ policy that
destabilizes the economy.
77)
A)
fiscal
B)
countercyclical
C)
budgetary
D)
procyclical
78)
The day after the terrorist attacks on September 11, 2001, the Federal Reserve
78)
A)
sold massive amounts of Treasury securities to prevent a recession.
B)
eliminated discount loans to banks to prevent the withdrawal of excessive amounts of
reserves from the bank accounts of households and firms.
C)
made massive amounts of discount loans to banks in case households and firms withdrew
excessive amounts from their bank accounts.
D)
increased the required reserve ratio to prevent a recession.
79)
Most of the pressure for a monetary growth rule has disappeared because since 1980
79)
A)
the relationship between movements in the money supply and movements in real GDP and
the price level have become much stronger.
B)
the relationship between movements in interest rates and movements in real GDP and the
price level have become much stronger.
C)
the relationship between movements in the money supply and movements in real GDP and
the price level have become much weaker.
D)
the relationship between movements in interest rates and movements in real GDP and the
price level have become much weaker.
80)
Toll Brothers, a residential home builder, did well during the recession in 2001 but did not do so
well in 2007 after the housing bubble burst. The reason for this is
80)
A)
the Fed lowered interest rates in 2001 but delayed changing interest rates in 2007.
B)
the Fed lowered interest rates in 2001 but raised interest rates in 2007.
C)
the Fed raised interest rates in 2001 but lowered interest rates in 2007.
D)
the Fed raised interest rates in 2001 but did not change interest rates in 2007.
E)
the Fed raised interest rates in 2001 and raised interest rates in 2007.
Figure 16–4
81)
Refer to Figure 16–4. Suppose the economy is in short–run equilibrium above potential GDP, the
unemployment rate is very low, and wages and prices are rising. Using the static AD–AS model in
the figure above, the correct Fed policy for this situation would be depicted as a movement from
81)
A)
C to D.
B)
B to C.
C)
A to B.
D)
A to E.
E)
C to B.
82)
The Fed uses a “core” price index, one that excludes food and energy prices to measure inflation. It
does so because
82)
A)
it wants to avoid the blame for high gasoline prices causing inflation.
B)
food and energy are inelastic goods and consumers will buy them regardless of their price.
C)
food and energy prices do not change all that much during the short run, so are irrelevant to
the calculation of inflation.
D)
food and energy prices have wide swings that are not related to the causes of general
inflation.
83)
Which of the following explains why mortgages weren’t considered securities prior to 1970?
83)
A)
Prior to 1970 mortgages were rarely resold in the secondary market.
B)
Congress passed a law in 1970 that stipulated that mortgages could be classified as securities.
C)
Until 1970 the average annual increase in housing prices did not allow the buying and selling
of mortgages to be profitable. There has been a significant annual increase in housing prices
and mortgage values since 1970.
D)
The Federal Reserve Act of 1913 prohibited mortgages from being considered securities. A
amendment to the Act was approved in 1970 that allowed mortgages to be considered
securities.
84)
Changes in the federal funds rate usually result in
84)
A)
changes in both short–term and long–term interest rates with equal effect on both.
B)
changes in both short–term and long–term interest rates with more of an effect on short–term
interest rates.
C)
changes in both short–term and long–term interest rates with more of an effect on long–term
interest rates.
D)
no change in both short–term and long–term interest rates.
85)
Suppose that the Federal Reserve Open Market Committee adheres to the ideas expressed by
________. If the economy moves into a recession, the Fed would recommend that the federal funds
target rate decrease as long as the inflation rate did not rise above the publicly announced goal for
inflation.
85)
A)
inflation targeting
B)
the monetarist school of thought
C)
the Taylor Rule
D)
the gold standard
86)
When the Federal Reserve decreases the money supply, at the previous equilibrium interest rate
households and firms will now want to
86)
A)
buy Treasury bills.
B)
neither buy nor sell Treasury bills.
C)
sell Treasury bills.
D)
hold less money.
87)
A decrease in interest rates can ________ the demand for stocks as stocks become relatively
________ attractive investments as compared to bonds.
87)
A)
increase; more
B)
decrease; less
C)
increase; similar
D)
increase; less
E)
decrease; more
Figure 16–3
88)
Refer to Figure 16–3. In the figure above, when the money supply shifts from MS1 to MS2, at the
interest rate of 3 percent households and firms will
88)
A)
neither buy nor sell Treasury bills.
B)
buy Treasury bills.
C)
sell Treasury bills.
D)
want to hold more money.
Figure 16–6
89)
Refer to Figure 16–6. In the dynamic AD–AS model, the economy is at point A in year 1 and is
expected to go to point B in year 2, and the Federal Reserve pursues policy. This will result in
89)
A)
unemployment rates higher than what would occur if no policy had been pursued.
B)
potential real GDP levels lower than what would occur if no policy had been pursued.
C)
inflation rates higher than what would occur if no policy had been pursued.
D)
real GDP levels higher than what would occur if no policy had been pursued.
90)
The Federal Reserve cut the federal funds rate seven times between September 2007 and March
2008. What event led the Fed to make these reductions in the federal funds rate?
90)
A)
It was in response to reductions in the discount rate, which was also lowered seven times over
the same time period.
B)
During this period there was a substantial reduction in the demand for housing.
C)
Several large investment banks failed during this time period.
D)
The chairman of the Federal Reserve System persuaded members of the Federal Open Market
Committee to lower interest rates in order to reduce the price of oil in international markets.
91)
An increase in interest rates
91)
A)
decreases investment spending on machinery, equipment, and factories, but increases
consumption spending on durable goods and net exports.
B)
increases investment spending on machinery, equipment, and factories, and consumption
spending on durable goods, and net exports.
C)
decreases investment spending on machinery, equipment, and factories, and consumption
spending on durable goods, but increases net exports.
D)
decreases investment spending on machinery, equipment, and factories, and consumption
spending on durable goods, and net exports.
Figure 16–2
92)
Refer to Figure 16–2. In the figure above, when the money supply shifts from MS1 to MS2, at the
interest rate of 3 percent households and firms will
92)
A)
buy Treasury bills.
B)
sell Treasury bills.
C)
want to hold less money.
D)
neither buy nor sell Treasury bills.