Macroeconimic HW7 (Ch14)
If the Fed wished to eliminate an inflationary gap, which of the following would be an appropriate policy? A) raise the federal funds rate B) lower the federal funds rate C) buy government securities D) decease the government budget deficit
Answer: A) raise the federal funds rate Topic: Fed Tightens to Fight Inflation Skill: Conceptual Question history: Previous edition, Chapter 14
A rise in the federal funds rate A) raises the long-term real interest rate. B) does not change the long-term real interest rate. C) lowers the long-term real interest rate. D) may raise or lower the long-term real interest rate, depending on whether the demand for loanable funds curve has a negative or a positive slope.
Answer: A) raises the long-term real interest rate. Topic: Study Guide Question, Changing the Interest Rate Skill: Conceptual Question history: Previous edition, Chapter 14
If the Fed buys U.S. government securities, A) the federal funds rate will fall. B) the federal funds rate will rise. C) bank reserves will decrease. D) the discount rate will rise.
Answer: A) the federal funds rate will fall. Topic: Changing the Interest Rate, Fed Policy Skill: Conceptual Question history: Previous edition, Chapter 14
In October 2008, central banks around the world coordinated a decrease in interest rates. Ben Bernanke, Chairman of the Federal Reserve stated that ʺpolicy makers will remain in close contact, monitor developments closely and stand ready to take additional steps should conditions warrant.ʺ If all the banks enacted the policy simultaneously, which of the following expenditure components would increase in the United States? i. exports ii. consumption iii. investment A) i, ii and iii. B) ii and iii only. C) ii only. D) i and iii only.
Answer: B) ii and iii only. Topic: The Ripple Effects of Monetary Policy Skill: Analytical Question history: Previous edition, Chapter 14
Consumer confidence in the economy rises, and as a result, real GDP increases above potential GDP. To move U.S. GDP back to potential GDP, the Fed should A) lower the federal funds rate. B) raise the federal funds rate. C) increase the governmentʹs budget deficit. D) decrease the governmentʹs budget deficit.
Answer: B) raise the federal funds rate. Topic: Stabilizing Aggregate Demand Shocks Skill: Conceptual Question history: Previous edition, Chapter 14
An increase in government expenditure shifts the AD curve ________ and an increase in taxes shifts the AD curve ________. A) rightward; rightward B) rightward; leftward C) leftward; rightward D) leftward; leftward
Answer: B) rightward; leftward Topic: Fiscal Stimulus Skill: Analytical Question history: Previous edition, Chapter 13
If the Fed fears inflation it will undertake an open market ________ of securities, the federal funds rate will ________ and the long-term real interest rate will ________. A) sale; rise; fall B) sale; rise; rise C) purchase; rise; fall D) purchase; fall; rise
Answer: B) sale; rise; rise Topic: Fed Tightens to Fight Inflation Skill: Conceptual Question history: Previous edition, Chapter 14
An open market purchase of government securities by the Federal Reserve shifts the ________ reserves curve ________. A) supply of; leftward B) supply of; rightward C) demand for; rightward D) demand for; leftward
Answer: B) supply of; rightward Topic: Changing the Interest Rate, Fed Policy Skill: Conceptual Question history: Previous edition, Chapter 14
Monetary policy affects real GDP by A) changing aggregate supply. B) creating budget surpluses. C) changing aggregate demand. D) creating budget deficits.
Answer: C) changing aggregate demand. Topic: Monetary Policy Skill: Conceptual Question history: Previous edition, Chapter 14
Monetary policy is controlled by A) Congress. B) the president. C) the Federal Reserve. D) the Treasury Department.
Answer: C) the Federal Reserve. Topic: The Federal Reserve System Skill: Recognition Question history: Previous edition, Chapter 14
In the above figure, which fiscal policy could help move the economy to potential GDP? A) decreasing government expenditure B) decreasing autonomous taxes C) increasing government expenditure D) Both answers A and B are correct.
Answer: A) decreasing government expenditure Topic: Equilibrium GDP and the Price Level Skill: Analytical Question history: Previous edition, Chapter 13
An increase in the quantity of reserves leads to a A) fall in the federal funds rate. B) decrease in the price level. C) reduction in the velocity of circulation. D) leftward shift in the demand curve for reserves.
Answer: A) fall in the federal funds rate. Topic: Changing the Interest Rate, Fed Policy Skill: Conceptual Question history: Modified 10th edition
A worldwide recession reduces the amount of U.S. exports, and as a result, aggregate demand decreases. To move U.S. GDP back to potential GDP, the Fed should A) lower the federal funds rate. B) raise the federal funds rate. C) increase the governmentʹs budget deficit. D) decreasing the quantity of money of money.
Answer: A) lower the federal funds rate. Topic: Stabilizing Aggregate Demand Shocks Skill: Conceptual Question history: Previous edition, Chapter 14
Suppose that several European countries enter a recession decreasing U.S. exports. To move U.S. GDP back to potential GDP, the Fed should A) lower the federal funds rate. B) raise the federal funds rate. C) increase the governmentʹs budget deficit. D) decrease the governmentʹs budget deficit.
Answer: A) lower the federal funds rate. Topic: Stabilizing Aggregate Demand Shocks Skill: Conceptual Question history: Previous edition, Chapter 14
During the financial crisis of 2008-2009, the Fedʹs actions to supply reserves to the banking system was an attempt to A) limit the troubling rise in asset prices. B) increase the publicʹs belief that their deposits were insured. C) help the U.S. Treasury finance the TARP. D) make certain that banks had enough liquidity to avoid collapse.
Answer: D) make certain that banks had enough liquidity to avoid collapse. Topic: Financial Crisis Skill: Recognition Question history: New 10th edition
