Chapter 15 Macro

Most economists believe that the best monetary policy target is A. total bank reserves. B. the money supply. C. an interest rate. D. the discount rate.

C

The federal funds rate A. is determined directly by firm demand for funds. B. is determined administratively by the Fed. C. is determined by the supply of and demand for bank reserves. D. is determined directly by household demand for funds.

C

When the Fed uses contractionary​ policy, A. it causes inflation. B. it does not change the price level. C. the price level rises less than it would if the Fed did not pursue policy. D. the price level rises higher than it would if the Fed did not pursue policy.

C

If the​ Fed's policy is​ contractionary, it will A. lower the discount rate. B. use open market operations to buy Treasury bills. C. lower the reserve requirement. D. use open market operations to sell Treasury bills.

D

The Fed A. never intends to engage in countercyclical policy. B. always intends to engage in procyclical policy. C. always engages in countercyclical policy. D. can engage in procyclical policy if it mistimes its policy response.

D

The Federal Reserve responded to the 2008 financial crisis in several ways. Which of the following is not one of the ways the Fed​ responded? A. The Fed lent investment banks Treasury securities in exchange for​ mortgage-backed securities. B. The Fed made investment banks eligible for discount loans. C. The Fed helped JP Morgan to acquire Bear​ Stearns, a nearly bankrupt investment bank. D. The Fed lowered the required reserve ratio on demand deposit accounts in order to increase the amount of bank reserves.

D

The​ Fed's two main monetary policy targets are A. the money supply and the inflation rate. B. the inflation rate and real GDP. C. the interest rate and real GDP. D. the money supply and the interest rate.

D

When calculating​ GDP, the Bureau of Economic Analysis releases its​ "advanced estimate" of a​ quarter's GDP approximately A. three months before the quarter has ended. B. one year after the quarter has ended. C. three months after the quarter has ended. D. one month after the quarter has ended.

D

The Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association were established by Congress in order to regulate banks that buy and sell​ mortgage-backed securities. True or False

False

Monetary policy is conducted by the U.S. Treasury Department. True or False

false

A borrower defaults on a loan when he stops making payments on the loan. True or False

true

By the height of the housing bubble in 2005 and early​ 2006, lenders had greatly loosened the standards for obtaining a mortgage​ loan, with many mortgages being granted to sub−prime borrowers​ ________ and ​"Alt−​A" borrowers​ ________. A. with flawed credit​ histories; who did not document their incomes B. who borrowed money at rates below the prime interest​ rate; who had AAA credit ratings C. who borrowed more than 120 percent of the value of the​ house; with no proof of U.S. citizenship D. who purchased homes in depressed housing​ markets; who purchased homes which were repossessed by government agencies.

A

In June​ 2017, the Federal Open Market Committee raised the target for the federal funds rate to a range of 1.00 to 1.25 percent. To keep the federal funds rate in this target​ band, the Fed set the interest rate it pays on reverse repurchase agreements to A. 1.00 percent. B. 1.125​ percent, the mid−point of the target range. C. 1.25 percent. D. 2.25 percent.

A

Inflation targeting refers to conducting​ ________ policy so as to commit the central bank to achieving a​ ________. A. ​monetary; publicly announced level of inflation B. ​monetary; zero inflation rate C. ​fiscal; zero inflation rate D. ​fiscal; publicly announced level of inflation

A

Monetary policy refers to the actions the A. Federal Reserve takes to manage the money supply and interest rates to pursue its economic objectives. B. Federal Reserve takes to manage government spending and taxes to pursue its economic objectives. C. President and Congress take to manage government spending and taxes to pursue their economic objectives. D. President and Congress take to manage the money supply and interest rates to pursue their economic objectives.

A

The consumer price index​ (CPI), the personal consumption expenditures price index​ (PCE), and the core PCE have over the last 15 years A. moved roughly together with the core PCE being the most stable. B. not moved​ together, with the CPI being the most stable. C. moved roughly together with the CPI being the most stable. D. moved roughly together with the PCE being the most stable.

A

When the Fed buys a security from a financial firm and the financial firm agrees to buy back the security the next​ day, the transaction is known as A. a repurchase agreement. B. a federal funds swap. C. an open market flipminus−flop. D. a reverse repurchase agreement.

A

When the Fed embarked on a policy known as quantitative​ easing, they A. bought​ longer-term securities than are usually bought in open market operations. B. slowly lowered the federal funds rate target until it was equal to zero. C. opened up lending to primary​ dealers, commercial​ banks, and investment banks. D. reduced the required reserve ratio by​ one-quarter point per month for 12 months.

A

he​ Fed's two main monetary policy targets are A. the money supply and the interest rate. B. the interest rate and real GDP. C. the inflation rate and real GDP. D. the money supply and the inflation rate.

A

A financial asset is considered a security if A. the owner of the security receives dividends and realizes a capital gain when the asset is sold. B. it can be sold in a secondary market. C. its value increases after it is sold in a primary market. D. its value is​ secure; that​ is, the owner will not suffer a financial loss when the asset is sold.

B

Although the Federal Reserve had traditionally made discount loans only to​ ________, in response to the financial crisis in 2008 the Fed made primary dealers eligible for discount loans as well. A. government agencies B. commercial banks C. mortgage lenders D. investment banks

B

If money demand is extremely sensitive to changes in the interest​ rate, the money demand curve becomes almost horizontal. If the Fed expands the money supply under these​ circumstances, then the interest rate will A. fall substantially and investment and consumer spending will fall substantially. B. change very little and investment and consumer spending will change very little. C. rise substantially and investment and consumer spending will rise substantially. D. fall substantially and investment and consumer spending will change very little.

B

Suppose the Fed increases the money supply. Which of the following is​ true? A. At the original interest​ rate, the quantity of money demanded is greater than the quantity of money supplied. B. At the original interest​ rate, the quantity of money demanded is less than the quantity of money supplied. C. The interest rate must rise for the money market to clear. D. At the original interest​ rate, the quantity of money demanded is equal to the quantity of money supplied.

B

The Federal Reserve does not target both the money supply and an interest rate because A. it would be illegal according to the Federal Reserve Act. B. the Fed cannot achieve a target for both the money supply and an interest rate at the same time. C. it would be too easy for Wall Street to determine what policy the Fed is following and this would destabilize the economy. D. it would be too confusing to Wall Street and would disrupt the financial markets.

B

The leader of the monetarist school and major proponent of a monetary growth rule was A. Paul Volcker. B. Milton Friedman C. Ben Bernanke. D. Alan Greenspan.

B

The​ Fed's preferred measure of inflation is A. the index of leading economic indicators. B. the core personal consumption expenditures index. C. the GDP deflator. D. the consumer price index. E. the producer price index.

B

When the price of a financial asset​ ________ its interest rate will​ ________. A. ​rises; remain the same B. ​falls; rise C. ​rises; rise D. ​falls; fall

B

An increase in the interest rate A. decreases the percentage yield of holding money. B. decreases the opportunity cost of holding money. C. increases the percentage yield of holding money. D. increases the opportunity cost of holding money.

D

Which of the following are goals of monetary​ policy? A. price​ stability, economic​ growth, and maximizing the value of the dollar relative to other currencies B. maximizing the value of the dollar relative to other​ currencies, economic​ growth, and high employment C. price​ stability, maximizing the value of the dollar relative to other​ currencies, and high employment D. price​ stability, economic​ growth, and high employment

D

Which of the following would be most likely to induce the Federal Reserve to conduct expansionary monetary​ policy? A significant decrease in A. business taxes. B. income tax rates. C. oil prices. D. investment spending.

D

While many analysts defended the actions taken by the Fed and the Treasury to respond to the financial crisis in​ 2008, others were critical of these actions. The critics were concerned that by not allowing large firms to​ fail, A. stockholders and bondholders of these firms were not allowed to receive the proceeds from the sale of assets that would have occurred if the firms had declared bankruptcy. B. smaller firms will resent not receiving similar assistance. C. there will be less competition in the U.S.​ economy, which could led to higher prices for consumers. D. there is an increased likelihood that other firms will engage in risky behavior in the future with the expectation that they will also not be allowed to fail.

D

A repurchase agreement is the same as an open market purchase of Treasury securities. True or False

false

Changes in interest rates affect all four components of aggregate demand. True or False

false