Question

Multiple Choise question:

QUESTION 1

Which of the following is a monetary policy goal?

i.keeping the inflation rate low

ii.attaining maximum employment

iii.keeping the long-term interest rate at a moderate level

		i, ii, and iii
		ii only
		i only
		iii only

1 points

QUESTION 2

When the Fed ________ the federal funds rate, the opportunity cost of firms' investment ________ and so the quantity of investment ________.

		decreases; rises; decreases
		increases; rises; increases
		increases; rises; decreases
		decreases; falls; decreases

1 points

QUESTION 3

If the Fed carries out an open market operation and sells U.S. government securities, the federal funds rate ________ and the quantity of reserves ________.

		rises; decreases
		falls; increases
		rises; increases
		rises; does not change

1 points

QUESTION 4

In the United States,

		the Federal Reserve sets monetary and fiscal policies.
		Congress initializes changes in monetary policy and the Fed approves the changes.
		Congress must approve monetary policy changes.
		the Federal Reserve sets monetary policy.

1 points

QUESTION 5

When the economy is in a recession, the Fed can ________ the federal funds rate, which ________ aggregate demand and ________ real GDP.

		lower; increases; increases
		raise; decreases; increases
		lower; increases; decreases
		raise; increases; decreases

1 points

QUESTION 6

The steps in the transmission of monetary policy are

		Congress increases the money supply, which lowers the interest rate, and leads to an increase in aggregate demand.
		the Federal Reserve increases government expenditures on goods and services, leading to an increase in aggregate demand.
		the Federal Reserve lowers the federal funds rate, which lowers the real interest rate, and leads to an increase in aggregate demand.
		Congress increases government expenditures on goods and services, leading to an increase in aggregate demand.

1 points

QUESTION 7

Monetary policy decisions are made by the

		Council of Economic Advisors.
		Federal Open Market Committee.
		Congress of the United States.
		Federal Reserve Economic Committee.

1 points

QUESTION 8

The Federal Reserve fears that the United States economy is growing too slowly and is stuck in a recession. To move the economy back to its potential GDP, the most likely policy action for the Fed is to ________ the federal funds and thus ________.

		lower; increase aggregate supply
		raise; increase aggregate demand
		raise; decrease aggregate demand
		lower; increase aggregate demand

1 points

QUESTION 9

The interest rate banks charge each other on overnight loans is called the

		discount rate.
		federal funds rate.
		required reserve rate.
		coupon rate.

1 points

QUESTION 10

Which of the following are policy instruments available to the Fed as it tries to achieve its macroeconomic goals?

i.government expenditure on goods and services and taxes

ii.the government budget deficit or surplus

iii.changes in the federal funds rate

		iii only
		i and ii
		i and iii
		ii and iii

1 points

QUESTION 11

If the Fed is concerned about a possible recession, it ________ the federal funds rate, which ________ the quantity of money and ________ the amount of bank loans.

		lowers; decreases; decreases
		lowers; increases; increases
		lowers; increases; decreases
		raises; decreases; decreases

1 points

QUESTION 12

If the Fed carries out an open market operation and buys U.S. government securities, the federal funds rate ________ and the quantity of reserves ________.

		falls; increases
		falls; decreases
		rises; does not change
		rises; increases

1 points

QUESTION 13

Which of the following statements are correct?

i.Congress does not play a role in making monetary policy decisions

ii.The FOMC meets eight times a year to make monetary policy decisions

iii.The President of the United States appoints members and the Chairman of the Board of governors but has little other formal authority over monetary policy

		i, ii, and iii
		ii only
		i and ii
		i and iii

1 points

QUESTION 14

Suppose the Fed raises the federal funds rate. Put the following changes in order in which they occur, starting with the changes that take place almost immediately and ending with the changes that may occur up to two years afterwards:

i.short-term interest rates rise

ii. long-term interest real interest rate rises

iii.aggregate demand decreases

iv.inflation rate decreases

		ii-i-iii-iv
		i-iii-ii-iv
		i-ii-iv-iii
		i-ii-iii-iv

1 points

QUESTION 15

If the Fed lowers the federal funds rate, which of the following occurs?

		The price of the dollar on the foreign exchange market increases.
		Net exports decreases.
		Investment increases.
		Consumption expenditure decreases.

1 points

QUESTION 16

When the exchange rate falls, imports ________ and exports ________.

		increase; increase
		increase; decrease
		decrease; decrease
		decrease; increase

1 points

QUESTION 17

The Fed is concerned about inflation. Its policy will ________ U.S. short-term interest rates and, in the foreign exchange market, lead to the value of the U.S. dollar ________.

		lower; rising
		lower; falling
		raise; not changing
		raise; rising

1 points

QUESTION 18

Inflation targeting requires that the central bank

		avoid changing the amount of the monetary base.
		use a short-term interest rate as its policy instrument.
		adopt a k-percent rule for the inflation rate.
		publicize its targeted inflation rate.

1 points

QUESTION 19

The Fed ________ influence the real interest rate in the short run and ________ influence the real interest rate in the long run.

		cannot; cannot
		can; can
		can; cannot
		cannot; can

1 points

QUESTION 20

To fight a recession, an appropriate monetary policy would be that the Fed conducts an open market operation that ________ government securities, ________ the federal funds rate, and ________ aggregate demand.

		sells; raises; decreases
		buys; lowers; decreases
		buys; lowers; increases
		sells; raises; increases

1 points

QUESTION 21

If the Fed is concerned about a possible recession, it ________ the federal funds rate and, in response, long-term interest rates ________ by a ________ amount than the change in short-term rates.

		lowers; increase; smaller
		raises; increase; larger
		raises; decrease; larger
		lowers; decrease; smaller

1 points

QUESTION 22

If the Fed's policies aim to increase aggregate demand, the Fed must fear

		a supply shock that decreases potential GDP.
		stagflation.
		recession.
		inflation.

1 points

QUESTION 23

When the Federal Reserve increases the federal funds rate, bank loans ________, the supply of loanable funds ________, and the real interest rate ________.

		decrease; decreases; rises
		increase; increases; rises
		increase; increases; falls
		does not change; decreases; rises

1 points

QUESTION 24

If the Fed increases interest rates, other things remaining the same, foreigners demand ________ dollars thereby ________ the exchange rate.

		fewer; increasing
		more; increasing
		fewer; decreasing
		more; decreasing

1 points

QUESTION 25

Under a gold standard, the central bank is willing to

		make the monetary base consistent of only gold.
		use the federal funds rate to conduct monetary policy.
		let the price of gold be determined on the free and open market.
		convert its currency into gold on demand.