Chapter 15 Quiz

If the inflation rate is at its target rate of 2 percent and the unemployment rate is close to or at the target rate of 3.5 percent, the Fed would likely choose

a neutral monetary policy.

The purpose of an expansionary monetary policy is to shift the

aggregate demand curve rightward.

$600 $800 2% $90 $600 $740 3% $80 $600 $600 4% $70 $600 $500 5% $50 $600 $400 6% $40 Answer the question based on the information in the table. If the Fed wished to reduce the interest rate by 1 percentage point, in the open market it could

buy enough bonds to increase the money supply by $140. EX: This occurs at $600 = $600 where the interest rate is 4 percent. To lower the interest rate by 1 percent down to 3 percent, notice the money demanded is $740, that means the money supply needs to increase from $600 to $740. So the Fed can buy enough bonds to increase the money supply by $140 in order to sustain an interest rate of 3 percent.

$500 $700 2% $80 $500 $650 3% $70 $500 $500 4% $60 $500 $400 5% $40 $500 $300 6% $30 Answer the question based on the information in the table. The amount of investment that will be forthcoming in this economy at equilibrium is

buy enough bonds to increase the money supply by $150.

All else equal, when the Federal Reserve Banks engage in an expansionary monetary policy, interest rates

fall

The purpose of a restrictive monetary policy is to

increase interest rates to rein in spending.

- - - Refer to the diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve, respectively. All numbers are in billions of dollars. If the interest rate is 4 percent and the Fed desires to reduce or eliminate demand-pull inflation, it should

increase the interest rate from 4 percent to 6 percent.

A decrease in the money supply

increases the interest rate and decreases aggregate demand.

- - - Refer to the diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve, respectively. All numbers are in billions of dollars. If the interest rate is 6 percent and the goal of the Fed is full-employment output of Qf, it should

maintain the interest rate at 6 percent.

Actions or communications by a central bank intended to help it achieve its macroeconomic policy objectives defines

monetary policy.

If the inflation rate was on target at 2 percent and the unemployment rate was 3.4 percent, the Fed would likely adopt a(n)

neutral monetary policy.

Which of the following is a tool of monetary policy?

open-market operations

Open-market operations include

quantitative easing.

A neutral monetary policy is a Fed policy in which

the money supply and interest rates are left as they are.

A restrictive monetary policy is a Fed policy in which

the money supply is decreased and interest rates are increased.

An expansionary monetary policy is a Fed policy in which

the money supply is increased and interest rates are decreased.

The sale of government securities by the Fed will cause

the money supply to decrease.

If the Federal Reserve System buys government securities,

the money supply will increase.

$500 $700 2% $80 $500 $600 3% $70 $500 $500 4% $60 $500 $400 5% $40 $500 $300 6% $30 Answer the question based on the information in the table. The amount of investment that will be forthcoming in this economy at equilibrium is

$60.

$800 $1000 2% $100 $800 $900 3% $100 $800 $800 4% $90 $800 $700 5% $70 $800 $600 6% $60 Answer the question based on the information in the table. The amount of investment that will be forthcoming in this economy at equilibrium is

$90.