Question 1

U.S. banks did not offer interest on checking accounts until the beginning of the 1980s. Then banking regulations changed, allowing banks to pay interest on checking account funds. As a result, the _____ money _____ and shifted the money demand curve to the _____.

Accepted Answer

A)   supply of; fell; left
B)   demand for; fell; left
C)   demand for; rose; right
D)   supply of; rose; right

Question 2

When long-term rates are lower than short-term rates, the market is signaling that it expects short-term rates to fall.

Accepted Answer

A) True 
 B)False

Question 3

The main objective of contractionary monetary policy is to:

Accepted Answer

A)   decrease aggregate demand.
B)   close a recessionary gap.
C)   increase investment.
D)   raise the level of potential output.

Question 4

One advantage of inflation targeting over the Taylor rule is that the central bank's policy can be evaluated by seeing how close to the target actual inflation rates are.

Accepted Answer

A) True 
 B)False

Question 5

According to the liquidity preference model:

Accepted Answer

A)   an increase in the money supply lowers the equilibrium rate of interest.
B)   a decrease in the money supply lowers the equilibrium rate of interest.
C)   the money supply curve is a horizontal line.
D)   the demand for money curve is a vertical line.

Question 6

When the Federal Reserve buys Treasury bills, this leads to a(n) :

Accepted Answer

A)   decrease in the money supply.
B)   increase in the money supply.
C)   increase in short-term interest rates.
D)   increase in the Federal Reserve funds rate.

Question 7

Use the following to answer questions:
Figure: Economic Adjustments 1; SRAS2 B)  SRAS2; SRAS1 C)  AD1; AD2 D)  AD2; AD1" class="answers-bank-image d-inline" rel="preload" >
-(Figure: Economic Adjustments)  Refer to Figure: Economic Adjustments. Assume that the economy is at point b. The effect of a decrease in the money supply is represented by a shift of the _____ curve to _____.

Accepted Answer

A)   SRAS1; SRAS2
B)   SRAS2; SRAS1
C)   AD1; AD2
D)   AD2; AD1

Question 8

Use the following to answer questions:
Figure: Short-Run Determination of the Interest Rate 2 and the central bank sells Treasury bills, then in the short run the interest rate will: A)  decrease below r2. B)  remain at r2. C)  increase to r1. D)  fluctuate randomly." class="answers-bank-image d-inline" rel="preload" >
-(Figure: Short-Run Determination of the Interest Rate)  Refer to Figure: Short-Run Determination of the Interest Rate. If the money supply is at MS2 and the central bank sells Treasury bills, then in the short run the interest rate will:

Accepted Answer

A)   decrease below r2.
B)   remain at r2.
C)   increase to r1.
D)   fluctuate randomly.

Question 9

Which statement is FALSE?

Accepted Answer

A)   The Taylor rule sets the federal funds rate on the basis of both inflation rate and output gap, whereas inflation targeting is based on a desired inflation rate.
B)   The Taylor rule sets the federal funds rate on the basis of past inflation rates, whereas inflation targeting is based on a forecast of the inflation rate.
C)   The Taylor rule can be more flexible, whereas inflation targeting provides more transparency and accountability.
D)   The Taylor rule sets the federal funds rate on the basis of only past inflation rates, whereas inflation targeting is based on a target interest rate and business cycles.

Question 10

When the Fed uses quantitative easing, it is:

Accepted Answer

A)   buying three-month Treasury bills.
B)   selling three-month Treasury bills.
C)   buying longer-term government debt.
D)   selling longer-term government debt.

Question 11

If the Federal Reserve sets the federal funds rate on the basis of inflation and the output gap, then the Federal Reserve is following:

Accepted Answer

A)   inflation targeting.
B)   the Taylor rule.
C)   money illusion.
D)   the quantity theory.

Question 12

Quantitative easing occurs when instead of purchasing only short-term government debt, the Fed buys long-term government debt as well.

Accepted Answer

A) True 
 B)False

Question 13

Use the following to answer questions:
Figure: Economic Adjustments 1; SRAS2 B)  SRAS2; SRAS1 C)  AD1; AD2 D)  AD2; AD1" class="answers-bank-image d-inline" rel="preload" >
-(Figure: Economic Adjustments)  Refer to Figure: Economic Adjustments. Assume that the economy is at point c. The effect of an increase in the money supply is represented by a shift of the _____ curve to _____.

Accepted Answer

A)   SRAS1; SRAS2
B)   SRAS2; SRAS1
C)   AD1; AD2
D)   AD2; AD1

Question 14

If the economy is at potential output and the Fed increases the money supply, in the long run the price level will likely:

Accepted Answer

A)   fluctuate randomly.
B)   remain the same.
C)   decrease.
D)   increase.

Question 15

If during 2016 the interest rate on one-month Treasury bills was 2.5% and during 2017 it was 2%, the opportunity cost of holding money, assuming the inflation rate remained constant,:

Accepted Answer

A)   decreased.
B)   became negative.
C)   increased.
D)   did not change.

Question 16

Which reason is NOT one for which the Japanese tend to keep large amounts of cash?

Accepted Answer

A)   Banks have invested heavily in credit card technology.
B)   Japan has a low crime rate.
C)   Interest rates in Japan have been below 1% since the 1990s.
D)   Japan's retail sector is dominated by mom-and-pop stores that don't accept credit cards.

Question 17

Monetary policy that lowers the interest rate is called _____ because it _____.

Accepted Answer

A)   contractionary; aims to head off inflation
B)   expansionary; increases short-run aggregate supply
C)   contractionary; reduces saving and increases consumption
D)   expansionary; increases aggregate demand

Question 18

An increase in the money supply causes _____ in output in the short run and _____ in output in the long run.

Accepted Answer

A)   an increase; no change
B)   an increase; an increase
C)   no change; an increase
D)   no change; no change

Question 19

Use the following to answer questions:
Figure: Changes in the Money Supply 1 to S2, the Federal Reserve must have _____ Treasury bills in the open market. A)  sold B)  bought C)  issued new D)  borrowed" class="answers-bank-image d-inline" rel="preload" >
-(Figure: Changes in the Money Supply)  Refer to Figure: Changes in the Money Supply. If the supply of money shifts from S1 to S2, the Federal Reserve must have _____ Treasury bills in the open market.

Accepted Answer

A)   sold
B)   bought
C)   issued new
D)   borrowed

Question 20

If the quantity of money demanded is $100 billion and the quantity of money supplied is $200 billion, then the interest rate will:

Accepted Answer

A)   fall.
B)   rise.
C)   remain unchanged.
D)   be in equilibrium.

Exam 15: Monetary Policy

Which reason is NOT one for which the Japanese tend to keep large amounts of cash?

Correct Answer
verified

Use the following to answer questions: Figure: Economic Adjustments -(Figure: Economic Adjustments) Refer to Figure: Economic Adjustments. Assume that the economy is at point c. The effect of an increase in the money supply is represented by a shift of the _ curve to _.

Correct Answer
verified

Quantitative easing occurs when instead of purchasing only short-term government debt, the Fed buys long-term government debt as well.

Correct Answer
verified

One advantage of inflation targeting over the Taylor rule is that the central bank's policy can be evaluated by seeing how close to the target actual inflation rates are.

Correct Answer
verified

When the Fed uses quantitative easing, it is:

Correct Answer
verified

When long-term rates are lower than short-term rates, the market is signaling that it expects short-term rates to fall.

Correct Answer
verified

According to the liquidity preference model:

Correct Answer
verified

Correct Answer
verified

If the quantity of money demanded is $100 billion and the quantity of money supplied is $200 billion, then the interest rate will:

Correct Answer
verified

U.S. banks did not offer interest on checking accounts until the beginning of the 1980s. Then banking regulations changed, allowing banks to pay interest on checking account funds. As a result, the ___ money _ and shifted the money demand curve to the ___.

Correct Answer
verified

If the Federal Reserve sets the federal funds rate on the basis of inflation and the output gap, then the Federal Reserve is following:

Correct Answer
verified

The main objective of contractionary monetary policy is to:

Correct Answer
verified

Use the following to answer questions: Figure: Changes in the Money Supply -(Figure: Changes in the Money Supply) Refer to Figure: Changes in the Money Supply. If the supply of money shifts from S₁ to S₂, the Federal Reserve must have _____ Treasury bills in the open market.

Correct Answer
verified

If the economy is at potential output and the Fed increases the money supply, in the long run the price level will likely:

Correct Answer
verified

Monetary policy that lowers the interest rate is called _ because it _.

Correct Answer
verified

When the Federal Reserve buys Treasury bills, this leads to a(n) :

Correct Answer
verified

An increase in the money supply causes _ in output in the short run and _ in output in the long run.

Correct Answer
verified

Which statement is FALSE?

Correct Answer
verified

Use the following to answer questions: Figure: Economic Adjustments -(Figure: Economic Adjustments) Refer to Figure: Economic Adjustments. Assume that the economy is at point b. The effect of a decrease in the money supply is represented by a shift of the _ curve to _.

Correct Answer
verified

If during 2016 the interest rate on one-month Treasury bills was 2.5% and during 2017 it was 2%, the opportunity cost of holding money, assuming the inflation rate remained constant,:

Correct Answer
verified

Exam 15: Monetary Policy

Which reason is NOT one for which the Japanese tend to keep large amounts of cash?

Correct AnswerverifiedShow Answer

Use the following to answer questions: Figure: Economic Adjustments -(Figure: Economic Adjustments) Refer to Figure: Economic Adjustments. Assume that the economy is at point c. The effect of an increase in the money supply is represented by a shift of the _____ curve to _____.

Correct AnswerverifiedShow Answer

Quantitative easing occurs when instead of purchasing only short-term government debt, the Fed buys long-term government debt as well.

Correct AnswerverifiedShow Answer

One advantage of inflation targeting over the Taylor rule is that the central bank's policy can be evaluated by seeing how close to the target actual inflation rates are.

Correct AnswerverifiedShow Answer

When the Fed uses quantitative easing, it is:

Correct AnswerverifiedShow Answer

When long-term rates are lower than short-term rates, the market is signaling that it expects short-term rates to fall.

Correct AnswerverifiedShow Answer

According to the liquidity preference model:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the quantity of money demanded is $100 billion and the quantity of money supplied is $200 billion, then the interest rate will:

Correct AnswerverifiedShow Answer

U.S. banks did not offer interest on checking accounts until the beginning of the 1980s. Then banking regulations changed, allowing banks to pay interest on checking account funds. As a result, the _____ money _____ and shifted the money demand curve to the _____.

Correct AnswerverifiedShow Answer

If the Federal Reserve sets the federal funds rate on the basis of inflation and the output gap, then the Federal Reserve is following:

Correct AnswerverifiedShow Answer

The main objective of contractionary monetary policy is to:

Correct AnswerverifiedShow Answer

Use the following to answer questions: Figure: Changes in the Money Supply -(Figure: Changes in the Money Supply) Refer to Figure: Changes in the Money Supply. If the supply of money shifts from S1 to S2, the Federal Reserve must have _____ Treasury bills in the open market.

Correct AnswerverifiedShow Answer

If the economy is at potential output and the Fed increases the money supply, in the long run the price level will likely:

Correct AnswerverifiedShow Answer

Monetary policy that lowers the interest rate is called _____ because it _____.

Correct AnswerverifiedShow Answer

When the Federal Reserve buys Treasury bills, this leads to a(n) :

Correct AnswerverifiedShow Answer

An increase in the money supply causes _____ in output in the short run and _____ in output in the long run.

Correct AnswerverifiedShow Answer

Which statement is FALSE?

Correct AnswerverifiedShow Answer

Use the following to answer questions: Figure: Economic Adjustments -(Figure: Economic Adjustments) Refer to Figure: Economic Adjustments. Assume that the economy is at point b. The effect of a decrease in the money supply is represented by a shift of the _____ curve to _____.

Correct AnswerverifiedShow Answer

If during 2016 the interest rate on one-month Treasury bills was 2.5% and during 2017 it was 2%, the opportunity cost of holding money, assuming the inflation rate remained constant,:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Use the following to answer questions: Figure: Economic Adjustments -(Figure: Economic Adjustments) Refer to Figure: Economic Adjustments. Assume that the economy is at point c. The effect of an increase in the money supply is represented by a shift of the _ curve to _.

Correct Answer
verified

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
verified

Correct Answer
verified

U.S. banks did not offer interest on checking accounts until the beginning of the 1980s. Then banking regulations changed, allowing banks to pay interest on checking account funds. As a result, the ___ money _ and shifted the money demand curve to the ___.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Use the following to answer questions: Figure: Changes in the Money Supply -(Figure: Changes in the Money Supply) Refer to Figure: Changes in the Money Supply. If the supply of money shifts from S₁ to S₂, the Federal Reserve must have _____ Treasury bills in the open market.

Correct Answer
verified

Correct Answer
verified

Monetary policy that lowers the interest rate is called _ because it _.

Correct Answer
verified

Correct Answer
verified

An increase in the money supply causes _ in output in the short run and _ in output in the long run.

Correct Answer
verified

Correct Answer
verified

Use the following to answer questions: Figure: Economic Adjustments -(Figure: Economic Adjustments) Refer to Figure: Economic Adjustments. Assume that the economy is at point b. The effect of a decrease in the money supply is represented by a shift of the _ curve to _.

Correct Answer
verified

Correct Answer
verified