1) Suppose that currently the economic underutilizing resources
Which of the following correctly describe what type of monetary policy the Fed might choose and how the policy would change the economy?
A) The fed could use a contractionary monetary policy to reduce aggregate demand and GDP
B) The fed could use a contractionary monetary policy to reduce short-run aggregate supply and GDP
C) The fed could use a expansinary monetary policy to increase short-run aggregate supply and GDP
D) The Fed could use an expansionary monetary policy to increase aggregate demand and GDP
2)Suppose that the Fed pursues an expansionary monetary policy:
Which of the following statement best explains the transmission mechanism is an open economy
A) The increase in interest rates will cause capital inflow, increasing the value of the dollar and decreasing net export
B) The increase in interest rates will cause capital outflow, increasing the value of the dollar and increasing net export
C) The decrease in interest rates will cause capital outflow, lowering the value of the dollar and increasing net export
D) The decrease in interest rates will cause capital inflow, lowering the value of the dollar and decreasing net export
3) Decreases in the money supply affect the economy indirectly because
A) Interest rate decrease causing planned investment to increase, which causes an increase in aggregate demand.
B) People spend excess money balances and thus aggregate demand increases.
C) Interest rates increase causing planned investment to decrease which causes a decrease in aggregate demand.
D) People have insufficient money balances and thus aggregate demand decreases.
E) There is no indirect effect of the money supply on the economy
4) Which of the following would be likely to decrease the supply of money?
A) The Fed decreases reserve requirements for banks
B) Banks perceive loans to be less risky and are willing to hold fewer excess reserves.
C) The Fed increases the discount rate relatively to federal funds rate.
D) The Fed conducts an open market purchase of bonds
1) Suppose that currently the economic underutilizing resources
Which of the following correctly describe what type of monetary policy the Fed might choose and how the policy would change the economy?
A) The fed could use a contractionary monetary policy to reduce aggregate demand and GDP
B) The fed could use a contractionary monetary policy to reduce short-run aggregate supply and GDP
C) The fed could use a expansinary monetary policy to increase short-run aggregate supply and GDP
D) The Fed could use an expansionary monetary policy to increase aggregate demand and GDP
2)Suppose that the Fed pursues an expansionary monetary policy:
Which of the following statement best explains the transmission mechanism is an open economy
A) The increase in interest rates will cause capital inflow, increasing the value of the dollar and decreasing net export
B) The increase in interest rates will cause capital outflow, increasing the value of the dollar and increasing net export
C) The decrease in interest rates will cause capital outflow, lowering the value of the dollar and increasing net export
D) The decrease in interest rates will cause capital inflow, lowering the value of the dollar and decreasing net export
3) Decreases in the money supply affect the economy indirectly because
A) Interest rate decrease causing planned investment to increase, which causes an increase in aggregate demand.
B) People spend excess money balances and thus aggregate demand increases.
C) Interest rates increase causing planned investment to decrease which causes a decrease in aggregate demand.
D) People have insufficient money balances and thus aggregate demand decreases.
E) There is no indirect effect of the money supply on the economy
4) Which of the following would be likely to decrease the supply of money?
A) The Fed decreases reserve requirements for banks
B) Banks perceive loans to be less risky and are willing to hold fewer excess reserves.
C) The Fed increases the discount rate relatively to federal funds rate.
D) The Fed conducts an open market purchase of bonds
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