Ch 15: Monetary Policy

Which of these will shift the money demand curve to the right? An increase in real GDP A decrease in interest rates An increase in interest rates

An increase in real GDP

Which of these is not one of the four main goals of monetary policy? Home ownership High employment Economic growth

Home ownership

Monetarism is a school of economic thought that favors: a monetary growth rule. active and aggressive monetary intervention during recessions. leaving the money supply fixed at all times.

a monetary growth rule.

One of the criticisms of the Fed's active intervention to stabilize the economy is that: it is difficult to time monetary policy because of the impact lags. monetary policy has been shown to be ineffective. fiscal policy has always proven to be a better policy tool to fine tune the economy.

it is difficult to time monetary policy because of the impact lags.

How did the FOMC react to the recession of 2007-2009? The FOMC reduced the target for the fed funds rate steadily in 2008. The FOMC increased the target for the fed funds rate steadily in 2008. The FOMC decided to leave interest rates unchanged in 2008.

The FOMC reduced the target for the fed funds rate steadily in 2008.

As interest rates decline, stocks become a __________ attractive investment relative to bonds, and this causes the demand for stocks and their prices to __________. more, rise more, fall less, rise

more, rise

One of the primary goals of the Federal Reserve is __________. price level stability higher interest rates low interest rates

price level stability

If the FOMC orders the trading desk to sell Treasury securities: the money supply curve will shift to the left and the equilibrium interest rates will rise. the money supply curve will shift to the right and the equilibrium interest rates will rise. the money supply curve will shift to the left and the equilibrium interest rates will fall.

the money supply curve will shift to the left and the equilibrium interest rates will rise.

Which of these factors were primary cause of the recession of 2007-2009? Falling housing prices Growth in welfare payments Stock market crash

Falling housing prices

The Taylor rule for federal funds rate targeting does which of these things? It links the Fed's target for the federal funds rate to economic variables. It multiplies the inflation gap by the output gap to obtain a target fed funds rate. It sets the target fed funds rate to the sum of the inflation rate and the unemployment rate.

It links the Fed's target for the federal funds rate to economic variables.

Why would the Fed intentionally use contractionary monetary policy to reduce real GDP? To reduce real GDP in order to reduce inflation, which occurs if real GDP is above potential GDP. To reduce unemployment in order to reduce inflation, which occurs if real GDP is above potential GDP. To reduce real GDP so that real GDP will grow again but at a faster pace.

To reduce real GDP in order to reduce inflation, which occurs if real GDP is above potential GDP.

When is the opportunity cost of holding money higher? When interest rates are high When interest rates are low When the inflation rate is lower

When interest rates are high

If the Federal Reserve wishes to decrease the money supply to slow the economy, it will conduct: an open market sale. an open market purchase. a decrease in the discount rate.

an open market sale.

The federal funds rate is the rate: at which banks lend to each other. at which banks can borrow from the Fed. that commercial banks offer to their best customers.

at which banks lend to each other.

If the FOMC decides to increase the money supply, it orders the trading desk at the Federal Reserve Bank of New York to: buy U.S. Treasury securities. sell U.S. Treasury securities. buy stocks.

buy U.S. Treasury securities.

If the Fed decreases the money supply and increases interest rates in order to reduce inflation, it is engaging in __________. contractionary monetary policy expansionary monetary policy contractionary fiscal policy

contractionary monetary policy

Because of the __________ in forecasting the economy, many economists believe the Fed __________ take a very active role in trying to stabilize the economy. difficulties, should not advances, should advances, should not

difficulties, should not

All of these will most likely increase as a result of expansionary monetary policy except: government purchases. consumption. investment.

government purchases.

If the economy moves into a recession, monetarists argue that the Fed should: keep the money supply growing at a constant rate. increase the money supply. decrease the money supply.

keep the money supply growing at a constant rate.

When interest rates on Treasury bills and other financial assets are low, the opportunity cost of holding money is __________ , so the quantity of money demanded will be __________. low, high high, high high, low

low, high

If the price level increases, __________. the money demand curve shifts to the right the money demand curve shifts to the left there is movement along a stationary money demand curve

the money demand curve shifts to the right

If real GDP increases: the money demand curve shifts to the right. the money demand curve shifts to the left. there is a movement down along a stationary money demand curve.

the money demand curve shifts to the right.

When the interest rate decreases, __________. there is movement down a stationary money demand curve the money demand curve shifts to the right the money demand curve shifts to the left

there is movement down a stationary money demand curve