Chapter 15 hw

What is a banking​ panic? A situation in which banks wish to recall all of their loans. B. A situation in which bank assets exceed liabilities. C. A situation in which there is no demand for​ loans, so banks cannot make a profit. D. A situation in which many banks experience runs at the same time.

A situation in which many banks experience runs at the same time.

Which of the following is a monetary policy target used by the​ Fed? Budget deficit. B. Interest rate. C. Growth rate of GDP. D. Unemployment rate.

Interest rate.

The Federal Reserve cannot affect the price levelthe price level ​directly; therefore, the Fed typically uses the following as its policy​ target: A. Taxes. B. Inflation. C. Government expenditures. D. Interest rates.

Interest rates.

Which one of the following is not one of the monetary policy goals of the​ Fed? Maintain price stability. B. Maintain stability of financial markets and institutions. C. Maintain high employment. D. Reduce income inequality.

Reduce income inequality.

The __________ is considered the most relevant interest rate when conducting monetary policy.

Short term nominal interest rate

What is the disadvantage of holding​ money? Money is not very​ "liquid." B. ​Money, in the form of currency or checking account​ deposits, earns either no interest or a very low rate of interest. C. Money can be easily stolen or lost. D. Money cannot be readily used to buy financial assets.

​Money, in the form of currency or checking account​ deposits, earns either no interest or a very low rate of interest.

Which of the following is not one of the monetary policy goals of the Federal Reserve​ ("the Fed")? high employment B. a high foreign exchange rate of the U.S. dollar relative to other currencies C. price stability D. stability of financial markets

a high foreign exchange rate of the U.S. dollar relative to other currencies

An increase in the money supply in the U.S. will not cause the value of investing in U.S. financial assets to become more desirable to foreign investors. B. cause the value of the dollar to decrease relative to other assets. C. cause the U.S. interest rate to decline relative to interest rates in other countries. D. cause the amount of net exports from the U.S. to​ increase, as exports rise and imports fall.

cause the value of investing in U.S. financial assets to become more desirable to foreign investors.

The federal funds rate is set by the Federal Reserve Bank. B. is the rate that banks charge each other for​ short-term loans of excess reserves. C. equals the discount rate. D. only matters to banks and has very little impact on individual consumers.

is the rate that banks charge each other for​ short-term loans of excess reserves.

​Additionally, the federal funds rate is very important for the​ Fed's monetary policy because individual borrowers pay this interest rate for mortgage loans. B. very important for the​ Fed's monetary policy because it is administratively set by the Fed. C. not important for the​ Fed's monetary policy since households and firms are not directly affected by any adjustment of this rate. D. very important for the​ Fed's monetary policy because the Fed uses the federal funds rate as a monetary policy target since it can control the rate through open market operations.

very important for the​ Fed's monetary policy because the Fed uses the federal funds rate as a monetary policy target since it can control the rate through open market operations.

The new equilibrium will be anywhere along the new money supply curve. B. where the new money supply curve intersects the original money demand curve. C. where the original money supply curve intersects the original money demand curve. D. where the new money supply curve intersects a new money demand curve.

where the new money supply curve intersects the original money demand curve.

When the Federal Reserve increases the discount rateincreases the discount rate as a part of a contractionary monetary​ policy, there​ is: A decrease in the money supply and an increase in the interest rate. B. An increase in the money supply and an increase in the interest rate. C. An increase in the money supply and a decrease in the interest rate. D. A decrease in the money supply and a decrease in the interest rate.

A decrease in the money supply and an increase in the interest rate.

Which of the following is not a correct comparison between an expansionary monetary policy in the basic aggregate demand and aggregate supply model and in the dynamic aggregate demand and aggregate supply​ model? A. In the dynamic​ model, expansionary policy would be used when demand does not grow​ sufficiently; in the basic​ model, expansionary policy would be used when demand falls. B. If the economy is below full​ employment, expansionary monetary policy will cause an increase in the price level in both models. C. The dynamic model assumes that potential GDP is constantly growing while the basic model assumes that it is static. D. All of the above are correct statements about the two models. E. None of the above are correct statements about the two models

All of the above are correct statements about the two models.

The decline in housing prices that began in 2006 led to rising defaults among which​ borrowers? A. ​alt-A and subprime borrowers B. borrowers who had made only small down payments C. borrowers with​ adjustable-rate mortgages D. All of the above.

All of the above.

When the Fed conducts monetary​ policy, it uses several policy targets to indicate how effectively policy decisions are working. Which of the following makes it less likely an economic variable would be a good policy​ target? An economic variable that has data identified and determined quickly and accurately. B. An economic variable that is one of the Federal Reserve goals such as the unemployment rate or real GDP. C. An economic variable that affects other​ variables, such as​ GDP, that are closely related with Federal Reserve goals. D. An economic variable can be directly affected by the Federal Reserve.

An economic variable that is one of the Federal Reserve goals such as the unemployment rate or real GDP.

Who borrows money and who lends money at this​ "target interest​ rate"? The Fed borrows and banks lend. B. Banks borrow and the Fed lends. C. Banks borrow and investors lend. D. Banks borrow and banks lend.

Banks borrow and banks lend

Consider the following​ statement: ​"In the dynamic AD and AS​ model, contractionary monetary policy causes the price level to​ fall." The statement is A. True. When the AD curve shifts to the​ left, the price level falls and real GDP increases. B. False. Contractionary monetary policy shifts the AD curve to the​ right: the price level and real GDP rise. C. False. Contractionary policy causes the price level to rise by less than it would have without the policy. D. True. When the AD curve shifts to the​ left, the price level and real GDP fall.

False. Contractionary policy causes the price level to rise by less than it would have without the policy.

The Fed buys and sells bonds as a part of its policy to reach all of the following objectives​ except: Price stability. B. High unemployment. C. Economic growth. D. Stability of financial markets and institutions.

High unemployment.

What do economists mean by the demand for​ money? A. It is the amount of money—currency and checking account deposits—that individuals hold. B. It is the amount of​ currency, checking account deposits and stocks and bonds that individuals hold. C. It is the monetary value of total wealth of individuals. D. It is the amount of money—currency and checking account deposits—that individuals use to pay for one transaction per day.

It is the amount of moneylong dash—currency and checking account depositslong dash—that individuals hold.

What is the advantage of holding​ money? Currency and checkinng account deposits held by individuals earn substantial interest income. B. Money can be used to buy​ goods, services, or financial assets. C. An individual pays little or no taxes on the amount of money he holds. D. Money held by an individual can be used to measure​ one's wealth.

Money can be used to buy​ goods, services, or financial assets.

Which of the following best explains how the Federal Reserve acts to help prevent banking​ panics? The Fed can make it illegal to withdraw deposits from​ banks, preventing bank panics. B. The Fed insures deposits of banks and thus reduces the chance of a panic. C. The Fed acts as a lender of last​ resort, making loans to banks so that they can pay off depositors. D. The Fed regulates asset markets and prevents damaging speculation.

The Fed acts as a lender of last​ resort, making loans to banks so that they can pay off depositors.

What is the discount​ rate? The discount rate is the rate at which banks lend to each other. B. The discount rate is the rate at which banks lend to their best customers. C. The discount rate is the rate at which auto loans and mortgages are made. D. The discount rate is the rate at which the Fed lends to banks.

The discount rate is the rate at which the Fed lends to banks.

In​ 2015, one article in the Wall Street Journal discussed the possibility of​ "a September​ quarter-point increase in the​ Fed's range for overnight target​ rates," while another article​ noted, "the U.S. central​ bank's discount rate...has been set at​ 0.75% since February​ 2010." ​What is the name of the​ "target interest​ rate" mentioned in this​ article? The prime rate. B. The federal funds rate. C. The mortgage rate. D. The discount rate.

The federal funds rate

The Federal Reserve has multiple economic goals for monetary policy to​ achieve, ​ However, it can be difficult to manage all of the goals at once. Which of the following is not true regarding the multiple goals of the​ Fed? As the Fed tries to ensure economic​ growth, it can also focus on financial market stability because efficient financial markets make it easier for investment to occur and create additional economic growth. B. Achieving the goals of price stability and economic growth can be difficult because often the forces that lead to economic growth also can make prices increase at a rate higher than the Fed would desire. C. Having dual goals of high employment and economic growth does not create many issues because most of the time when the economy experiences economic​ growth, the economy also achieves higher rates of employment. D. The goal of financial market stability means that the Fed tries to ensure that asset​ prices, such as stock​ prices, increase at a very high rate so investors can make more money.

The goal of financial market stability means that the Fed tries to ensure that asset​ prices, such as stock​ prices, increase at a very high rate so investors can make more money.

Which of the following is not a viable monetary policy target for the​ Fed? The money demand. B. The money supply. C. The inflation rate. D. The interest rate.

The money demand.

What are the​ Fed's main monetary policy​ targets? High employment and economic growth B. Price stability and economic growth C. Taxes and government spending D. The money supply and interest rates

The money supply and interest rates

What is the relationship between the federal funds rate falling and the money supply​ increasing? A. Cutting the federal funds rate increases the money supply. B. Cutting the federal funds rate increases bank​ reserves, which increases the money supply. C. To decrease the federal funds​ rate, the Fed must increase the money supply. D. Cutting the federal funds rate increases​ saving, which increases the money supply.

To decrease the federal funds​ rate, the Fed must increase the money supply.

How does lowering the target for the federal funds rate​ "pour money" into the banking​ system? To increase the money​ supply, the Fed buys bonds on the open​ market, which increases bank reserves. B. To increase the money​ supply, the Fed increases government​ spending, which increases aggregate demand. C. To increase the money​ supply, the Fed decreases​ taxes, which increases consumer spending. D. To increase the money​ supply, the Fed sells bonds on the open​ market, which increases bank reserves.

To increase the money​ supply, the Fed buys bonds on the open​ market, which increases bank reserves.

A housing bubble occurs when A. housing prices rise by more than the value of housing​ services, as measured by rental prices. B. there is an increase in the number of buyers who do not intend to live in the houses they​ purchase, but are using them as investments. C. the value of housing​ services, as measured by rental​ prices, rises by more than housing prices. D. rental prices rise by more than the value of housing services.

housing prices rise by more than the value of housing​ services, as measured by rental prices.

The Fed uses policy targets of interest rate​ and/or money supply because it can affect the interest rate and the money supply directly and these in turn can affect​ unemployment, GDP​ growth, and the price level. B. the target for the GDP growth rate is set by Congress. C. it is difficult to set a target for the unemployment​ rate, which constantly fluctuates. D. the inflation rate is controlled by Congress and the White House.

it can affect the interest rate and the money supply directly and these in turn can affect​ unemployment, GDP​ growth, and the price level.

Why is the Fed sometimes said to have a​ "dual mandate"? The Fed is said to have​ a" dual​ mandate" because the two most important goals of the Fed are controlling inflation and the budget deficit. B. the Fed is entrusted by Congress to maintain price stability and low taxes. C. maintaining price stability and high employment are the two most important goals of the Fed that are explicitly mentioned in the Employment Act of 1946. D. the Employment Act of 1946 empowers the Fed to maintain low taxes and high employment.

maintaining price stability and high employment are the two most important goals of the Fed that are explicitly mentioned in the Employment Act of 1946.

Imagine a graph shows equilibrium in the money market. The equilibrium interest rate is determined at point E where the​ downward-sloping money demand and vertical money supply curves intersect. Suppose the Fed wants to lower the equilibrium interest rate. To lower the equilibrium interest​ rate, the Fed will take actions that will A. shift the money supply curve to the right. B. shift the money demand curve to the right. C. shift the money supply curve to the left. D. shift the money demand curve to the left.

shift the money supply curve to the right.

An increase in interest rates affects aggregate demand by . shifting the aggregate supply curve to the​ right, increasing real GDP and lowering the price level. B. shifting the aggregate demand curve to the​ left, reducing real GDP and lowering the price level. C. shifting the aggregate demand curve to the​ right, increasing real GDP and lowering the price level. D. shifting the aggregate supply curve to the​ left, decreasing real GDP and increasing the price level.

shifting the aggregate demand curve to the​ left, reducing real GDP and lowering the price level.

A former Federal Reserve official argued that at the​ Fed, ​"the objectives of price stability and low​ long-term interest rates are essentially the same​ objective." stable prices make it easier to plan for the​ future, so expectations can be​ stable, which makes it less costly to make loans. B. stable prices create an environment in which it is difficult to plan for the future and more difficult to loan funds. C. stable prices reduce the value of money and therefore money is worth less in the future. D. none of the above.

stable prices make it easier to plan for the​ future, so expectations can be​ stable, which makes it less costly to make loans.

Congress broadened the​ Fed's responsibility since 1987 when Alan Greenspan was appointed the chair of the Fed. B. the end of World War II. C. World War I. D. the 1930s as a result of the Great Depression.

the 1930s as a result of the Great Depression.

Which of the following events was an important cause of the 2007dash-2009 ​recession? the collapse of a housing bubble B. a federal budget crisis C. a financial crisis in Europe D. monetary policy that was contractionary

the collapse of a housing bubble

The federal funds rate is the interest rate that the banks charge for loans to its important commercial borrowers. B. the interest rate that the Federal Reserve charges for its loans to banks. C. the required reserve ratio that the Federal Reserve requires banks to maintain. D. the interest rate that banks charge each other for overnight loans.

the interest rate that banks charge each other for overnight loans.

One of the goals of the Federal Reserve is price stability. For the Fed to achieve this​ goal, the rate of inflation should be​ low, such as​ 1% to​ 3%, and should be fairly consistent. B. prices should not be increasing and the inflation rate should be near zero percent. C. the level of unemployment should be​ low, less than​ 6%, and the inflation rate should be near zero percent. D. the inflation rate should be consistent but the rate of inflation can be​ zero, low​ (such as​ 1-3%), or high​ (such as​ 8-10%).

the rate of inflation should be​ low, such as​ 1% to​ 3%, and should be fairly consistent.

When Congress established the Federal Reserve in​ 1913, its main responsibility was to make discount loans to banks suffering from large withdrawals by depositors. B. to adjust interest rates. C. to design tax policies. D. to control the money supply.

to make discount loans to banks suffering from large withdrawals by depositors.

If the Fed believes the inflation rate is about to​ increase, it should use a contractionary monetary policy to increase the interest rate and shift AD to the left. B. use an expansionary monetary policy to lower the interest rate and shift AD to the right. C. use a contractionary fiscal policy to increase the interest rate and shift AD to the left. D. use a combination of tax increases and spending cuts to keep the budget balanced.

use a contractionary monetary policy to increase the interest rate and shift AD to the left.

If the Fed believes the economy is about to fall into​ recession, it should use a contractionary monetary policy to lower the interest rate and shift AD to the left. B. use its judgment to do nothing and let the economy make the self adjustment back to potential GDP. C. use an expansionary monetary policy to lower the interest rate and shift AD to the right. .D. use an expansionary fiscal policy to increase the interest rate and shift AD to the right.

use an expansionary monetary policy to lower the interest rate and shift AD to the right.

As the interest rate​ increases, A. ​consumption, investment, and net exports​ increase, and aggregate demand increases. B. ​consumption, investment, and net exports fall but government spending​ increases, and aggregate demand increases. C. ​consumption, investment, and net exports​ decrease; aggregate demand decreases. D. consumption increases but investment and net exports​ decrease; aggregate demand remains unchanged.

​consumption, investment, and net exports​ decrease; aggregate demand decreases.