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Chapter 16 - Interest Rates and Monetary Policy
105. Refer to the above graphs, in which the numbers in parentheses near the AD1, AD2, and
AD3 labels indicate the level of investment spending associated with each curve, respectively.
All numbers are in billions of dollars. The interest rate and the level of investment spending in
the economy are at point D on the investment demand curve. To achieve the long-run goal of
a noninflationary full-employment output Qf in the economy, the Fed should:
106. Refer to the above graphs, in which the numbers in parentheses near the AD1, AD2, and
AD3 labels indicate the level of investment spending associated with each curve, respectively.
All numbers are in billions of dollars. The interest rate and the level of investment spending in
the economy are at point B on the investment demand curve. To achieve the long-run goal of
a noninflationary full-employment output Qf in the economy, the Fed should:
Chapter 16 - Interest Rates and Monetary Policy
107. Refer to the above graphs, in which the numbers in parentheses near the AD1, AD2, and
AD3 labels indicate the level of investment spending associated with each curve, respectively.
All numbers are in billions of dollars. The interest rate and the level of investment spending in
the economy are at point C on the investment demand curve. To achieve the long-run goal of
a noninflationary full-employment output Qf in the economy, the Fed should:
108. In the cause-effect chain linking changes in the banks' excess reserves and the resulting
changes in output and employment in the economy:
109. Changes in interest rates, given ceteris paribus, cause a shift in:
Chapter 16 - Interest Rates and Monetary Policy
110. The level of GDP, given ceteris paribus, will tend to increase when:
111. The Federal Reserve can increase aggregate demand by:
112. Which of the following is the most accurate description of events when monetary
authorities increase the size of commercial banks' excess reserves?
Chapter 16 - Interest Rates and Monetary Policy
113. Which of the following best describes what occurs when monetary authorities sell
government securities?
114. If the Fed wants to maintain current interest rates, it would be buying government bonds
in the open market when:
Chapter 16 - Interest Rates and Monetary Policy
115. An increase in the money supply, ceteris paribus, usually:
116. Refer to the above diagrams, 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 interest rate in the economy is 4 percent. What should the Fed do
to achieve a noninflationary full-employment level of real GDP?
Chapter 16 - Interest Rates and Monetary Policy
117. Refer to the above diagrams, 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 equilibrium at the intersection of the aggregate
supply curve and aggregate demand curve AD3. What policy should the Fed pursue to achieve
a noninflationary full-employment level of real GDP?
118. Refer to the above diagrams, 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 X on the investment demand curve. Given
these conditions, what policy should the Fed pursue to achieve a noninflationary full-
employment level of real GDP?
Chapter 16 - Interest Rates and Monetary Policy
119. Refer to the above diagrams, 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 Y on the investment demand curve. Given
these conditions, what policy should the Fed pursue to achieve a noninflationary full-
employment level of real GDP?
120. Refer to the above diagrams, 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?
Chapter 16 - Interest Rates and Monetary Policy
121. Refer to the above diagrams, 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:
122. Refer to the above diagrams, 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. What is the desired level of investment spending in this economy if it is
to achieve a noninflationary full-employment level of real GDP?
123. The purpose of an expansionary monetary policy is to increase:
Chapter 16 - Interest Rates and Monetary Policy
124. Which of the following is a monetary policy intended to rein in inflation?
125. Assume the economy faces high unemployment but stable prices. Which combination of
government policies is most likely to reduce unemployment?
126. 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?
Chapter 16 - Interest Rates and Monetary Policy
127. 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?
128. 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?
129. Suppose the economy is at full employment with a high inflation rate. Which
combination of government policies is least likely to reduce the inflation rate?
Chapter 16 - Interest Rates and Monetary Policy
130. 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:
131. If the Fed is trying to make the interest rates go down, it wants:
132. Which monetary policy would most likely increase real GDP?
Chapter 16 - Interest Rates and Monetary Policy
133. When the Federal Reserve acts to tighten money and credit in the economy, it is trying to
reduce:
134. Assume that the MPC is .75. If the Federal Reserve increases the money supply and
investment spending increases by $8 billion, then aggregate demand is likely to:
135. Assume that the MPC is .80. If the Federal Reserve decreases the money supply, interest
rates rise, and investment spending falls by $10 billion, then aggregate demand is most likely
to:
Chapter 16 - Interest Rates and Monetary Policy
136. What is one of the advantages of monetary policy over fiscal policy?
137. Which is considered an advantage of monetary policy compared to fiscal policy?
138. Compared to fiscal policy, monetary policy has a much shorter:
