Chapter 16 – Interest Rates and Monetary Policy
159. According to the Taylor rule:
160. If the Fed were to set policy according to the Taylor rule, then if real GDP falls by 2
percent below potential GDP, the Fed should:
161. According to the Taylor rule, when real GDP is at its potential and inflation is at its
target rate of 2 percent, the Fed should:
Chapter 16 – Interest Rates and Monetary Policy
162. According to the Taylor rule:
163. According to the Taylor rule, if real GDP is 4 percent below potential GDP, the Fed
should:
164. According to the Taylor rule, if inflation has risen by 6 percentage points above its target
of 2 percent, the Fed should:
Chapter 16 – Interest Rates and Monetary Policy
165. Which of the following best describes the cause-effect chain of an expansionary
monetary policy?
166. Upon which of the following industries is a restrictive monetary policy likely to be most
effective?
167. Assuming government wishes to either increase or decrease the level of aggregate
demand, which of the following pairs are not consistent policy measures?
Chapter 16 – Interest Rates and Monetary Policy
168. If the Federal Reserve authorities were attempting to reduce demand-pull inflation, the
proper policies would be to:
169. A contraction of the money supply:
170. The purpose of a restrictive monetary policy is to:
Chapter 16 – Interest Rates and Monetary Policy
171. Monetary policy is expected to have its greatest impact on:
172. Which of the following actions by the Fed would cause the money supply to increase?
173. Assume the economy is operating at less than full employment. An expansionary
monetary policy will cause interest rates to _______, which will ___________ investment
spending.
Chapter 16 – Interest Rates and Monetary Policy
174. Which of the following best describes the cause-effect chain of a restrictive monetary
policy?
175. If the economy were encountering a severe recession, proper monetary and fiscal policies
would call for:
Chapter 16 – Interest Rates and Monetary Policy
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176. If severe demand-pull inflation was occurring in the economy, proper government
policies would involve a government:
177. If the amount of money demanded exceeds the amount supplied, the:
Chapter 16 – Interest Rates and Monetary Policy
178. Refer to the above diagrams. The numbers in parentheses after the AD1, AD2, and AD3
labels indicate the levels of investment spending associated with each curve, respectively. All
numbers are in billions of dollars. If the interest rate is 8 percent and the goal of the Fed is
full-employment output of Qf, it should:
179. Refer to the above diagrams. The numbers in parentheses after the AD1, AD2, and AD3
labels indicate the levels of investment spending associated with each curve, respectively. All
numbers are in billions of dollars. If the interest rate is 4 percent and the Fed desires to reduce
or eliminate demand-pull inflation, it should:
Chapter 16 – Interest Rates and Monetary Policy
180. Refer to the above diagrams. The numbers in parentheses after the AD1, AD2, and AD3
labels indicate the levels of investment spending associated with each curve, respectively. All
numbers are in billions of dollars. If the interest rate is 6 percent and the goal of the Fed is
full-employment output of Qf, it should:
181. The purpose of an expansionary monetary policy is to shift the:
Chapter 16 – Interest Rates and Monetary Policy
182. Refer to the above diagrams. The numbers in parentheses after the AD1, AD2, and AD3
labels indicate the levels of investment spending associated with each curve. All figures are in
billions. If the money supply is MS1 and the goal of the monetary authorities is full-
employment output Qf, they should:
Chapter 16 – Interest Rates and Monetary Policy
183. Refer to the above diagrams. The numbers in parentheses after the AD1, AD2, and AD3
labels indicate the levels of investment spending associated with each curve. All figures are in
billions. If aggregate demand is AD3 and the monetary authorities desire to reduce it to AD2,
they should:
184. Refer to the above diagrams. The numbers in parentheses after the AD1, AD2, and AD3
labels indicate the levels of investment spending associated with each curve. All figures are in
billions. Which of the following would shift the money supply curve from MS1 to MS3?
Chapter 16 – Interest Rates and Monetary Policy
185. Refer to the above diagrams. The numbers in parentheses after the AD1, AD2, and AD3
labels indicate the levels of investment spending associated with each curve. All figures are in
billions. If the MPC for the economy described by the figures is 0.8:
186. An increase in the money supply will:
Chapter 16 – Interest Rates and Monetary Policy
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187. All else equal, when the Federal Reserve Banks engage in a restrictive monetary policy,
the prices of government bonds usually:
188. All else equal, when the Federal Reserve Banks engage in an expansionary monetary
policy, the interest rates received on government bonds usually:
Answer the next question on the basis of the information in the following table.
Chapter 16 – Interest Rates and Monetary Policy
189. Refer to the above table. The equilibrium interest rate in this economy is:
190. Refer to the above table. An interest rate of 2 percent is not sustainable because:
191. Refer to the above table. The amount of investment that will be forthcoming in this
economy at equilibrium is:
Chapter 16 – Interest Rates and Monetary Policy
192. Refer to the above table. Suppose the legal reserve requirement is 10 percent and initially
there are no excess reserves in the banking system. If the Fed wished to reduce the interest
rate by 1 percentage point, it would:
193. The price of government bonds and the interest rate received by a bond buyer are:
194. A restrictive monetary policy is designed to shift the:
Chapter 16 – Interest Rates and Monetary Policy
195. If the economy is operating in the relatively steep (upper) portion of its aggregate supply
curve, a reduction in the money supply will:
196. The sale of government bonds by the Federal Reserve Banks to commercial banks will:
197. Assume that the price level is flexible both upward and downward and that the Fed’s
policy is to keep the price level from either rising or falling. If aggregate supply increases in
the economy, the Fed:
Chapter 16 – Interest Rates and Monetary Policy
198. If the demand for money increases and the Fed wants interest rates to remain unchanged,
which of the following would be appropriate policy?
199. The current chairperson of the Board of Governors of the Federal Reserve System is:
200. In recent years, the Federal Reserve has: