1)Monetary policy is conducted by the U. Treasury Department.

1)Monetary policy is conducted by the U.S. Treasury Department.

True

False

Flag this Question

Question 2

2 pts

In reality, the Fed is unable to use monetary policy to keep real GDP exactly at its potential level.

True

False

Flag this Question

Question 3

Inflation targeting, typically, has been accompanied by lower inflation.

True

False

Flag this Question

Question 4

When the Federal Reserve increases the money supply, people spend more because interest rates fall.

True

False

Flag this Question

Question 5

2 pts

Ceteris paribus, an increase in the money supply will lower short-term interest rates.

True

False

Flag this Question

Question 6

2 pts

Buying a house during a recession may be a good idea if your job seems secure because the Federal Reserve often lowers interest rates during a recession.

True

False

Flag this Question

Question 7

2 pts

Inflation targeting refers to conducting ________ policy so as to commit the central bank to achieving a ________.

fiscal; publicly announced level of inflation

monetary; publicly announced level of inflation

fiscal; zero inflation rate

monetary; zero inflation rate

Flag this Question

Question 8

2 pts

The Federal Reserve's two main ________ are the money supply and the interest rate.

policy tools

monetary policy targets

fiscal tools

fiscal policy targets

Flag this Question

Question 9

2 pts

A monetary policy target is a variable that

the Fed can affect directly.

the Fed has no ability to change.

equals one of the Fed's main policy goals.

the Fed cannot affect directly.

Flag this Question

Question 10

2 pts

The Taylor rule links the Federal Reserve's target for the

federal funds rate to economic variables.

money supply to shifts in money demand.

federal funds rate to the money supply.

money supply to changes in interest rates.

Flag this Question

Question 11

2 pts

The interest rate that banks charge other banks for overnight loans is the

prime rate.

discount rate.

Treasury bill rate.

federal funds rate.

Flag this Question

Question 12

2 pts

In which of the following situations would the Fed conduct contractionary monetary policy?

The Fed believes that aggregate demand was growing too slowly to keep up with potential GDP.

The Fed is worried that deflation will become a problem.

The Fed is concerned that aggregate demand would continue to exceed the growth in potential GDP.

The Fed fears that unemployment is climbing above the natural rate.

Flag this Question

Question 13

2 pts

During the turmoil in the market for subprime mortgages in 2007 and 2008, the Fed increased the volume of discount loans. The goal of the Fed was to

reduce the rate of inflation.

reduce the current account deficit.

stimulate economic growth.

reduce unemployment.

reassure financial markets and promote financial stability.

Flag this Question

Question 14

2 pts

Which of the following will lead to a decrease in the equilibrium interest rate in the economy?

an increase in the reserve requirement

a sale of government securities by the Fed

an increase in the discount rate

a decrease in GDP

Flag this Question

Question 15

2 pts

An increase in real GDP can shift

money demand to the left and decrease the equilibrium interest rate.

money demand to the left and increase the equilibrium interest rate.

money demand to the right and increase the equilibrium interest rate.

money demand to the right and decrease the equilibrium interest rate.

Flag this Question

Question 16

2 pts

Why doesn't the Fed have both a money supply target and an interest rate target?

The Fed cannot offset the impact of changes in cash management by the public or changes in lending policies of commercial banks on the money supply.

Only the level of interest rates matters when we consider rates of growth in real GDP, employment, and rates of price inflation.

Short-term interest rates do not respond to changes in the money supply, which the Fed can control.

The Fed does not control money demand.

Flag this Question

Question 17

2 pts

Your roommate is having trouble grasping how monetary policy works. Which of the following explanations could you use to correctly describe the mechanism by which the Fed can affect the economy through monetary policy? Increasing the money supply

causes people to spend more because they know prices will rise in the future.

lowers the interest rate, raises the value of the dollar, lowers the prices of exports, and raises net exports.

lowers the interest rate, and firms increase investment spending.

raises the interest rate and consumers decrease spending on durable goods.

Flag this Question

Question 18

2 pts

The goals of monetary policy tend to be interrelated. For example, when the Fed pursues the goal of ________, it also can achieve the goal of ________ simultaneously.

high employment; economic growth

stability of financial markets; a low current account deficit

economic growth; a low current account deficit

high employment; lowering government spending

Flag this Question

Question 19

2 pts

Which of the following is true about the Federal Reserve and its ability to prevent recessions? The Federal Reserve

cannot realistically fine tune the economy and has little to no effect on the magnitude and length of recessions.

does not try to eliminate recessions, but instead focuses on preventing inflation.

can fine tune the economy and realistically hope to keep the economy from experiencing recessions.

cannot realistically fine tune the economy, but seeks to keep recessions shorter and milder than they would otherwise be.

Flag this Question

Question 20

2 pts

With a monetary growth rule as proposed by the monetarists, during a recession the rate of growth of the money supply would

not change.

decrease.

increase.

Flag this Question

Question 21

2 pts

Most of the pressure for a monetary growth rule has disappeared because since 1980,

the relationship between movements in interest rates and movements in real GDP and the price level have become much stronger.

the relationship between movements in the money supply and movements in real GDP and the price level have become much weaker.

the relationship between movements in interest rates and movements in real GDP and the price level have become much weaker.

the relationship between movements in the money supply and movements in real GDP and the price level have become much stronger.

Flag this Question

Question 22

2 pts

Which of the following situations is one in which the Fed will potentially pursue expansionary monetary policy?

Aggregate demand is growing too slowly and the economy is in danger of producing GDP above full employment.

Aggregate demand is growing too fast to keep the economy at full employment.

Potential GDP is forecasted to be higher than equilibrium GDP.

Potential GDP is forecasted to be lower than equilibrium GDP.

Flag this Question

Question 23

2 pts

Suppose that the Federal Reserve Open Market Committee adheres to the ideas expressed by ________. If the economy moves into a recession, the Fed would recommend that the federal funds target rate decrease as long as the inflation rate did not rise above the publicly announced goal for inflation.

the Taylor Rule

the gold standard

inflation targeting

the monetarist school of thought

Flag this Question

Question 24

2 pts

Article Summary

Concerned about slow economic growth, the Fed announced in September 2013 that it would postpone winding down its $85 billion a month bond purchasing program which has been a key component of its monetary stimulus package. Fed Chairman Ben Bernanke would not commit to a timeline for reducing the bond purchases, stating that the program was "not on a preset course." The Fed's forecasts of economic growth have been lowered for 2013 and 2014, and the Fed does not expect to raise interest rates until 2015. Since late 2008, the Fed has held its benchmark interest rate near zero, while its balance sheet has tripled to more than $3.6 trillion. The Fed also stated that so long as inflation did not become a threat, it would not raise interest rates until the unemployment rate dropped to 6.5 percent. At the time of the announcement, the unemployment rate was 7.3 percent.

Source: Pedro da Costa and Alister Bull, "Fed Surprises, sticks to stimulus as it cuts growth outlook," Reuters, September 18, 2013.

Refer to the Article Summary. When the Fed announced it did not expect to raise its benchmark interest rate until 2015, it was referring to the

federal funds rate.

required reserve rate.

long-term real rate of interest.

prime rate.

Flag this Question

Question 25

2 pts

Article Summary

Concerned about slow economic growth, the Fed announced in September 2013 that it would postpone winding down its $85 billion a month bond purchasing program which has been a key component of its monetary stimulus package. Fed Chairman Ben Bernanke would not commit to a timeline for reducing the bond purchases, stating that the program was "not on a preset course." The Fed's forecasts of economic growth have been lowered for 2013 and 2014, and the Fed does not expect to raise interest rates until 2015. Since late 2008, the Fed has held its benchmark interest rate near zero, while its balance sheet has tripled to more than $3.6 trillion. The Fed also stated that so long as inflation did not become a threat, it would not raise interest rates until the unemployment rate dropped to 6.5 percent. At the time of the announcement, the unemployment rate was 7.3 percent.

Source: Pedro da Costa and Alister Bull, "Fed Surprises, sticks to stimulus as it cuts growth outlook," Reuters, September 18, 2013.

Refer to the Article Summary. The Fed announced that it would postpone winding down its $85 billion per month bond purchasing program. The Fed's purchasing of long-term treasury bonds and other government-backed securities in an effort to keep long-term interest rates low is a strategy known as

securitization.

quantitative easing.

indirect finance.

contractionary spending.