Question 1

Other things equal, a reduction in income taxes would

Accepted Answer

A)   reduce productivity and reduce aggregate supply.
B)   increase consumption and increase aggregate demand.
C)   increase the supply of money and reduce investment.
D)   increase government spending and increase aggregate demand.E) B) and C)
F) B) and D)

Question 2

If there is a 2 percent unemployment gap and the inﬂation rate is 1 percent, then according to the Taylor rule, the Fed should make their targeted interest rate

Accepted Answer

A)   decrease to 0.5 percent.
B)   decrease to 3 percent.
C)   decrease to 1.5 percent.
D)   decrease to 1 percent.E) All of the above
F) A) and C)

Question 3

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

Accepted Answer

A)   the cause-effect chain
B)   its cyclical asymmetry
C)   its isolation from political pressure
D)   the speed with which it can be implementedE) B) and D)
F) B) and C)

Question 4

A decrease in the interest rate will cause a(n)

Accepted Answer

A)   increase in the transactions demand for money.
B)   decrease in the transactions demand for money.
C)   decrease in the amount of money held as an asset.
D)   increase in the amount of money held as an asset.E) A) and B)
F) A) and C)

Question 5

If the Fed wants to discourage commercial bank lending, it will

Accepted Answer

A)   increase the interest paid on excess reserves held at the Fed.
B)   decrease the interest paid on excess reserves held at the Fed.
C)   buy government securities from commercial banks.
D)   lower the federal funds rate target.E) B) and C)
F) A) and B)

Question 6

Accepted Answer

A)   increase the interest rate from 8 percent to 10 percent.
B)   decrease the interest rate from 8 percent to 4 percent.
C)   decrease the interest rate from 8 percent to 6 percent.
D)   maintain the interest rate at 8 percent.E) A) and D)
F) None of the above

Question 7

Which of the following tools of monetary policy is considered the most important on a day-to-day basis?

Accepted Answer

A)   the discount rate
B)   the reserve ratio
C)   open-market operations
D)   paying interest on excess reservesE) B) and C)
F) A) and D)

Question 8

The Federal Reserve can increase aggregate demand by

Accepted Answer

A)   reducing the money supply.
B)   reducing the discount rate.
C)   raising the reserve requirement.
D)   selling government securities in the open market.E) A) and C)
F) None of the above

Question 9

The Federal Reserve could reduce the money supply by

Accepted Answer

A)   lowering the required reserve ratio.
B)   buying government bonds in the open market.
C)   increasing the interest on excess reserves.
D)   reducing the discount rate.E) B) and C)
F) All of the above

Question 10

If the Fed reduces the interest paid on banks' reserves, it is trying to make banks hold

Accepted Answer

A)   more excess reserves.
B)   less excess reserves.
C)   more required reserves.
D)   less required reserves.E) B) and D)
F) B) and C)

Question 11

If the economy is operating in the relatively steep (upper)  portion of its aggregate supply curve, a reduction in the money supply will

Accepted Answer

A)   increase the interest rate and increase employment.
B)   reduce the interest rate and increase employment.
C)   increase the interest rate and reduce the price level, assuming it is ﬂexible downward.
D)   reduce the interest rate and increase the price level.E) A) and B)
F) B) and D)

Question 12

Quantitative easing (QE) differs from open-market purchases in that QE shrinks the assets of the Fed, whereas open market purchases
expand the Fed's assets.

Accepted Answer

A) True 
 B)False

Question 13

The four main tools of monetary policy are

Accepted Answer

A)   tax-rate changes, the discount rate, open-market operations, and the federal funds rate.
B)   tax-rate changes, changes in government expenditures, open-market operations, and interest on excess reserves.
C)   the discount rate, the reserve ratio, interest on excess reserves, and open-market operations.
D)   changes in government expenditures, the reserve ratio, the federal funds rate, and the discount rate.E) B) and C)
F) B) and D)

Question 14

Trace the cause-effect chain that results from an expansionary monetary policy.

Accepted Answer

An expansionary monetary policy addresse...

Question 15

Disequilibrium in the money market is mainly corrected via a change in

Accepted Answer

A)   bond prices.
B)   the price level.
C)   saving levels.
D)   the money supply.E) All of the above
F) B) and D)

Question 16

The main tools that the Fed can use to alter the reserves of commercial banks are the required-reserve ratio and all of the following, except

Accepted Answer

A)   exchange rates.
B)   the discount rate.
C)   interest on reserves.
D)   open-market operations.E) A) and B)
F) None of the above

Question 17

According to the Taylor rule, if there is no unemployment gap and

Accepted Answer

A)   if inﬂation rises to 4 percent, the Fed should raise its targeted interest rate to 7 percent.
B)   when real GDP is equal to potential GDP and inﬂation is equal to its target of 4 percent, the Fed's targeted interest rate should be kept at 2 percent.
C)   if inﬂation falls by 1 percentage point below its target of 2 percent, then the Fed should raise the real federal funds rate by one-half a percentage point.
D)   all of these are appropriate Fed actions.E) All of the above
F) B) and C)

Question 18

Which of the following is not a result of policy actions taken by the Fed since the ﬁnancial crisis in 2008?

Accepted Answer

A)   a massive expansion of excess reserves in the banking system
B)   The federal funds rate has hovered near zero.
C)   very little activity in the federal funds market
D)   a very volatile federal funds rateE) All of the above
F) A) and B)

Question 19

As expansionary monetary policy tools, quantitative easing (QE)  and traditional open-market purchases differ in all of the following, except

Accepted Answer

A)   the intended effect on the federal funds rate.
B)   securities purchased by the Fed.
C)   the mechanics of how the Fed buys the securities.
D)   the desired goal of shifting aggregate demand.E) A) and D)
F) A) and B)

Question 20

Refer to the given market-for-money diagrams. Curve  D1D _ { 1 }D1​  represents the

Accepted Answer

A)   total demand for money.
B)   transactions demand for money.
C)   asset demand for money.
D)   stock of money. E) B) and C)
F) A) and D)

Exam 16: Interest Rates and Monetary Policy

Correct Answer
verified

The Federal Reserve could reduce the money supply by

Correct Answer
verified

$Refer to the given market-for-money diagrams. Curve D _ { 1 } represents the A) total demand for money. B) transactions demand for money. C) asset demand for money. D) stock of money.$ Refer to the given market-for-money diagrams. Curve $D _ { 1 }$ represents the

Correct Answer
verified

Disequilibrium in the money market is mainly corrected via a change in

Correct Answer
verified

As expansionary monetary policy tools, quantitative easing (QE) and traditional open-market purchases differ in all of the following, except

Correct Answer
verified

If the Fed wants to discourage commercial bank lending, it will

Correct Answer
verified

The four main tools of monetary policy are

Correct Answer
verified

Which of the following tools of monetary policy is considered the most important on a day-to-day basis?

Correct Answer
verified

Trace the cause-effect chain that results from an expansionary monetary policy.

Correct Answer
verified
An expansionary monetary policy addresse...
View Answer

If there is a 2 percent unemployment gap and the inﬂation rate is 1 percent, then according to the Taylor rule, the Fed should make their targeted interest rate

Correct Answer
verified

If the Fed reduces the interest paid on banks' reserves, it is trying to make banks hold

Correct Answer
verified

Which of the following is not a result of policy actions taken by the Fed since the ﬁnancial crisis in 2008?

Correct Answer
verified

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

Correct Answer
verified

A decrease in the interest rate will cause a(n)

Correct Answer
verified

If the economy is operating in the relatively steep (upper) portion of its aggregate supply curve, a reduction in the money supply will

Correct Answer
verified

According to the Taylor rule, if there is no unemployment gap and

Correct Answer
verified

Quantitative easing (QE) differs from open-market purchases in that QE shrinks the assets of the Fed, whereas open market purchases expand the Fed's assets.

Correct Answer
verified

The Federal Reserve can increase aggregate demand by

Correct Answer
verified

The main tools that the Fed can use to alter the reserves of commercial banks are the required-reserve ratio and all of the following, except

Correct Answer
verified

Other things equal, a reduction in income taxes would

Correct Answer
verified

Exam 16: Interest Rates and Monetary Policy

Correct AnswerverifiedShow Answer

The Federal Reserve could reduce the money supply by

Correct AnswerverifiedShow Answer

Refer to the given market-for-money diagrams. Curve D1D _ { 1 }D1​ represents the

Correct AnswerverifiedShow Answer

Disequilibrium in the money market is mainly corrected via a change in

Correct AnswerverifiedShow Answer

As expansionary monetary policy tools, quantitative easing (QE) and traditional open-market purchases differ in all of the following, except

Correct AnswerverifiedShow Answer

If the Fed wants to discourage commercial bank lending, it will

Correct AnswerverifiedShow Answer

The four main tools of monetary policy are

Correct AnswerverifiedShow Answer

Which of the following tools of monetary policy is considered the most important on a day-to-day basis?

Correct AnswerverifiedShow Answer

Trace the cause-effect chain that results from an expansionary monetary policy.

Correct AnswerverifiedAn expansionary monetary policy addresse...View AnswerShow Answer

If there is a 2 percent unemployment gap and the inﬂation rate is 1 percent, then according to the Taylor rule, the Fed should make their targeted interest rate

Correct AnswerverifiedShow Answer

If the Fed reduces the interest paid on banks' reserves, it is trying to make banks hold

Correct AnswerverifiedShow Answer

Which of the following is not a result of policy actions taken by the Fed since the ﬁnancial crisis in 2008?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A decrease in the interest rate will cause a(n)

Correct AnswerverifiedShow Answer

If the economy is operating in the relatively steep (upper) portion of its aggregate supply curve, a reduction in the money supply will

Correct AnswerverifiedShow Answer

According to the Taylor rule, if there is no unemployment gap and

Correct AnswerverifiedShow Answer

Quantitative easing (QE) differs from open-market purchases in that QE shrinks the assets of the Fed, whereas open market purchases expand the Fed's assets.

Correct AnswerverifiedShow Answer

The Federal Reserve can increase aggregate demand by

Correct AnswerverifiedShow Answer

The main tools that the Fed can use to alter the reserves of commercial banks are the required-reserve ratio and all of the following, except

Correct AnswerverifiedShow Answer

Other things equal, a reduction in income taxes would

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

$Refer to the given market-for-money diagrams. Curve D _ { 1 } represents the A) total demand for money. B) transactions demand for money. C) asset demand for money. D) stock of money.$ Refer to the given market-for-money diagrams. Curve $D _ { 1 }$ represents the

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
An expansionary monetary policy addresse...
View Answer

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verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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