Question 1

Following the terrorist attacks of September 11,2001,the Federal Reserve increased:

Accepted Answer

A)   its lending to banks.
B)   required reserve ratios.
C)   open market sales of bonds.
D)   the discount rate.E) A) and B)
F) B) and C)

Question 2

Explain what factors led to the 2006 decrease in housing prices causing a reduction in aggregate demand.

Accepted Answer

Several factors attributable to the fall...

Question 3

If uncertainty causes people to increase their demand for cash at the same time that the Fed raises money supply growth,then the Fed's action will:

Accepted Answer

A)   shift the AD curve further to the right.
B)   shift the AD curve less to the right.
C)   shift the AD curve further to the left.
D)   more effectively move the economy back to the old equilibrium point.E) A) and C)
F) None of the above

Question 4

What was Milton Friedman's reasoning behind the 3% growth rule for money supply?

Accepted Answer

A)   monetary neutrality
B)   increasing long-run economic growth rates
C)   minimization of negative supply shocks
D)   price stabilityE) A) and B)
F) B) and D)

Question 5

Uncertainty always causes:

Accepted Answer

A)   investment to increase.
B)   consumption to increase.
C)   government spending to increase.
D)   investment to decrease.E) All of the above
F) B) and C)

Question 6

In 2003-2004,the Fed kept the Federal Funds rate:

Accepted Answer

A)   low,because the recession had not ended yet.
B)   low,even though the recession had ended.
C)   high,because the recession had ended.
D)   high,because the recession had not ended yet.E) A) and D)
F) All of the above

Question 7

In the best case scenario,the Federal Reserve is most successful at counteracting a negative:

Accepted Answer

A)   AD shock.
B)   SRAS shock.
C)   LRAS shock.
D)   real shock.E) A) and C)
F) A) and D)

Question 8

If the Fed reacts to a negative real shock by raising aggregate demand,it can keep the inflation rate stable.

Accepted Answer

A) True 
 B)False

Question 9

In the best case scenario,the Federal Reserve can increase the money supply after a negative shock to AD and restore the growth rate.

Accepted Answer

A) True 
 B)False

Question 10

If businesses react to a pessimistic outlook and decrease spending,the Fed can counteract this by:

Accepted Answer

A)   decreasing money supply growth to spur the economy out of the recession.
B)   increasing money supply growth,lowering real interest rates,and encouraging borrowing.
C)   increasing government expenditures to spur the economy out of the recession.
D)   decreasing corporate taxes to encourage firms to increase their spending.E) None of the above
F) A) and D)

Question 11

If the Federal Reserve reduces the growth rate of the money supply to combat a negative real shock,the inflation rate will be:

Accepted Answer

A)   lower,but the growth rate will be higher.
B)   lower,but the growth rate will be even lower.
C)   higher,but the growth rate will be lower.
D)   higher,but the growth rate will be even higher.E) All of the above
F) None of the above

Question 12

Use the following to answer questions 50-54:
Figure: Monetary Policy and Demand Shocks 1 to AD2.The correct monetary policy response is to: A)  reduce money supply growth,so that the AD curve shifts back to AD1. B)  reduce money supply growth,so that the AD curve remains at AD2. C)  increase money supply growth,so that the AD curve shifts to AD3. D)  increase money supply growth,so that the AD curve shifts to AD5." class="answers-bank-image d-inline" rel="preload" >
-(Figure: Monetary Policy and Demand Shocks) Refer to the figure.In the figure,assume the initial real growth rate of the economy is 3% when a negative aggregate demand shock shifts the AD curve from AD1 to AD2.The correct monetary policy response is to:

Accepted Answer

A)   reduce money supply growth,so that the AD curve shifts back to AD1.
B)   reduce money supply growth,so that the AD curve remains at AD2.
C)   increase money supply growth,so that the AD curve shifts to AD3.
D)   increase money supply growth,so that the AD curve shifts to AD5.E) A) and B)
F) C) and D)

Question 13

One of the Fed's greatest powers is its ability to:

Accepted Answer

A)   boost market confidence.
B)   perfectly control the supply of M1 and M2.
C)   help stabilize commodity prices.
D)   always keep a nation on its LRAS curve.E) C) and D)
F) B) and D)

Question 14

The central bank should respond to a negative shock to AD with a decrease in money growth.

Accepted Answer

A) True 
 B)False

Question 15

Monetary policy is more effective at combating real shocks than AD shocks.

Accepted Answer

A) True 
 B)False

Question 16

The Fed's job in manipulating monetary policy is made harder by the fact that:

Accepted Answer

A)   monetary authorities do not have a good understanding of how monetary policy works.
B)   monetary policy is usually pulling the economy in the opposite direction from fiscal policy.
C)   the Fed operates in real time and information on recessions becomes available with a lag.
D)   monetary policy is hardly ever effective in influencing business fluctuations.E) B) and C)
F) A) and C)

Question 17

A nominal GDP rule says _____ should always grow at a constant rate.

Accepted Answer

A)   M
B)   Mv
C)   P
D)   YRE) A) and D)
F) All of the above

Question 18

Monetary policy is used to stabilize the economy by changing factors that shift the:

Accepted Answer

A)   AD curve.
B)   SRAS curve.
C)   LRAS curve.
D)   aggregate demand,short-run aggregate supply,and LRAS curves.E) B) and C)
F) A) and D)

Question 19

In 2006,house prices started to _____,making homeowners feel _____.

Accepted Answer

A)   rise;poorer
B)   rise;richer
C)   fall;richer
D)   fall;poorerE) B) and D)
F) B) and C)

Question 20

When a central bank reacts the same way to a shock every time,it is likely using:

Accepted Answer

A)   policy discretion.
B)   a policy rule.
C)   a bandwagon policy.
D)   a wait-and-see policy.E) A) and C)
F) B) and D)

Exam 16: Monetary Policy

One of the Fed's greatest powers is its ability to:

Correct Answer
verified

If businesses react to a pessimistic outlook and decrease spending,the Fed can counteract this by:

Correct Answer
verified

Correct Answer
verified

In the best case scenario,the Federal Reserve is most successful at counteracting a negative:

Correct Answer
verified

In the best case scenario,the Federal Reserve can increase the money supply after a negative shock to AD and restore the growth rate.

Correct Answer
verified

If the Fed reacts to a negative real shock by raising aggregate demand,it can keep the inflation rate stable.

Correct Answer
verified

Explain what factors led to the 2006 decrease in housing prices causing a reduction in aggregate demand.

Correct Answer
verified
Several factors attributable to the fall...
View Answer

Following the terrorist attacks of September 11,2001,the Federal Reserve increased:

Correct Answer
verified

Uncertainty always causes:

Correct Answer
verified

The Fed's job in manipulating monetary policy is made harder by the fact that:

Correct Answer
verified

When a central bank reacts the same way to a shock every time,it is likely using:

Correct Answer
verified

Monetary policy is used to stabilize the economy by changing factors that shift the:

Correct Answer
verified

If uncertainty causes people to increase their demand for cash at the same time that the Fed raises money supply growth,then the Fed's action will:

Correct Answer
verified

The central bank should respond to a negative shock to AD with a decrease in money growth.

Correct Answer
verified

Monetary policy is more effective at combating real shocks than AD shocks.

Correct Answer
verified

A nominal GDP rule says _____ should always grow at a constant rate.

Correct Answer
verified

In 2003-2004,the Fed kept the Federal Funds rate:

Correct Answer
verified

What was Milton Friedman's reasoning behind the 3% growth rule for money supply?

Correct Answer
verified

If the Federal Reserve reduces the growth rate of the money supply to combat a negative real shock,the inflation rate will be:

Correct Answer
verified

In 2006,house prices started to _,making homeowners feel _.

Correct Answer
verified

Exam 16: Monetary Policy

One of the Fed's greatest powers is its ability to:

Correct AnswerverifiedShow Answer

If businesses react to a pessimistic outlook and decrease spending,the Fed can counteract this by:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the best case scenario,the Federal Reserve is most successful at counteracting a negative:

Correct AnswerverifiedShow Answer

In the best case scenario,the Federal Reserve can increase the money supply after a negative shock to AD and restore the growth rate.

Correct AnswerverifiedShow Answer

If the Fed reacts to a negative real shock by raising aggregate demand,it can keep the inflation rate stable.

Correct AnswerverifiedShow Answer

Explain what factors led to the 2006 decrease in housing prices causing a reduction in aggregate demand.

Correct AnswerverifiedSeveral factors attributable to the fall...View AnswerShow Answer

Following the terrorist attacks of September 11,2001,the Federal Reserve increased:

Correct AnswerverifiedShow Answer

Uncertainty always causes:

Correct AnswerverifiedShow Answer

The Fed's job in manipulating monetary policy is made harder by the fact that:

Correct AnswerverifiedShow Answer

When a central bank reacts the same way to a shock every time,it is likely using:

Correct AnswerverifiedShow Answer

Monetary policy is used to stabilize the economy by changing factors that shift the:

Correct AnswerverifiedShow Answer

If uncertainty causes people to increase their demand for cash at the same time that the Fed raises money supply growth,then the Fed's action will:

Correct AnswerverifiedShow Answer

The central bank should respond to a negative shock to AD with a decrease in money growth.

Correct AnswerverifiedShow Answer

Monetary policy is more effective at combating real shocks than AD shocks.

Correct AnswerverifiedShow Answer

A nominal GDP rule says _____ should always grow at a constant rate.

Correct AnswerverifiedShow Answer

In 2003-2004,the Fed kept the Federal Funds rate:

Correct AnswerverifiedShow Answer

What was Milton Friedman's reasoning behind the 3% growth rule for money supply?

Correct AnswerverifiedShow Answer

If the Federal Reserve reduces the growth rate of the money supply to combat a negative real shock,the inflation rate will be:

Correct AnswerverifiedShow Answer

In 2006,house prices started to _____,making homeowners feel _____.

Correct AnswerverifiedShow Answer

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
verified
Several factors attributable to the fall...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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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In 2006,house prices started to _,making homeowners feel _.

Correct Answer
verified