Monetary Policy Quiz

If the Fed fears​ inflation, it​ ________ by​ ________ government securities. A. decreases aggregate​ demand; selling B. decreases aggregate​ supply; selling C. decreases aggregate​ supply; buying D. increases aggregate​ demand; selling E. increases aggregate​ supply; buying

A

If velocity does not change and the quantity of money grows at the same rate as does real​ GDP, then in the long run A. the inflation rate equals zero. B. the nominal interest rate equals zero. C. the real interest rate is less than the nominal interest rate. D. the inflation rate equals the growth rate of the quantity of money. E. the nominal interest rate is less than the real interest rate.

A

Control of monetary policy rests with A. the President. B. the Federal Reserve. C. Congress. D. the U.S. Treasury. E. the Comptroller of the Currency.

B

Discretionary monetary policy is monetary policy that is based on A. the ups and downs of the stock market. B. the judgment of the monetary policymakers about the current needs of the economy. C. the judgment of Congress about the current needs of the economy. D. a rule that allows no discretion in how policymakers respond to the state of the economy. E. rules that depend upon the state of the economy.

B

If the Fed is concerned about​ inflation, its actions​ ________ longminus−term interest rates so that investment​ ________ and net exports​ ________. A. ​lower; increases; decrease B. ​raise; decreases; decrease C. ​raise; increases; increase D. ​lower; increases; increase E. ​lower; decreases; decrease

B

If the quantity of money is​ $6 billion and nominal GDP is​ $9 billion, the velocity of circulation is A.36. B.1.5. C.3. D.54. E.0.67.

B

In an open market​ purchase, the Fed​ ________ government​ securities, which​ ________ bank reserves and​ ________ the federal funds rate. A. ​sells; increases; lowers B. ​buys; increases; lowers C. ​buys; decreases; raises D. ​buys; increases; raises E. ​sells; decreases; lowers

B

In the short​ run, if the Fed wants to raise the federal funds​ rate, it A. instructs the New York Fed to buy government securities in the open market. B. instructs the New York Fed to sell government securities in the open market. C. instructs large commercial banks to sell government securities in the open market. D. instructs the New York Fed to sell government securities in the foreign exchange market. E. tells large commercial banks to raise their interest rates.

B

The Federal Reserve monetary policy goals of maximum employment means A. aiming for an amount of employment that exceeds full employment. B. keeping the unemployment rate close to the natural unemployment rate. C. cyclical unemployment should not necessarily be minimized. D. a zero percent unemployment rate. E. a zero percent natural unemployment rate.

B

To change the federal funds​ rate, the Fed A. changes the income tax rate on interest income. B. uses open market operations to change the quantity of reserves. C. increases or removes money from the stock market. D. coordinates with banks on establishing the new rate. E. tells banks how much to charge.

B

To fight a​ recession, an appropriate monetary policy would be that the Fed conducts an open market operation that​ ________ government​ securities, ________ the federal funds​ rate, and​ ________ aggregate demand. A. ​sells; raises; decreases B. ​buys; lowers; increases C. ​sells; raises; increases D. ​sells; lowers; increases E. ​buys; lowers; decreases

B

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

B

A change in monetary policy affects A. government expenditures on goods and services because it affects the​ government's budget balance. B. consumption​ expenditure, productivity, and net exports. C. consumption​ expenditure, investment, and net exports. D. consumption​ expenditure, government expenditures on goods and​ services, and net exports. E. ​investment, government expenditures on goods and​ services, and net exports.

C

According to the equation of​ exchange, if velocity and real GDP do not​ change, a 3 percent increase in the quantity of money A. lowers the price level by 3 divided by ÷ ​(real GDP). B. raises the price level by 3 divided by ÷ ​(velocity). C. raises the price level by 3 percent. D. raises the price level by less than 3 percent. E. lowers the price level by 3 percent.

C

According to the equation of​ exchange, the A. quantity of money multiplied by the inflation rate equals nominal GDP. B. quantity of money divided by the inflation rate equals real GDP. C. quantity of money multiplied by the velocity of circulation equals nominal GDP. D. velocity of circulation is always smaller than the inflation rate. E. quantity of money minus the velocity of circulation equals real GDP minus the price level.

C

If the Fed lowers the federal funds​ rate, which of the following​ occurs? A. Government expenditures on goods and services increases. B. The price of the dollar on the foreign exchange market increases. C. Investment increases. D. Consumption expenditure decreases. E. Net exports decreases.

C

If the Federal Reserve uses open market operations to offset a​ recession, the Fed​ ________ government securities in order to​ ________ the federal funds rate. A. ​sells; lower B. ​buys; lower C. ​buys; raise D. ​buys; not change E. ​sells; raise

C

Monetary policy decisions are made by the A. Congress of the United States. B. Federal Reserve Economic Committee. C. Federal Open Market Committee. D. U.S. Mint. E. Council of Economic Advisors.

C

Suppose monetary policy results in the exchange rate falling. As a​ result, A. exports do not change because they are autonomous and imports decrease. B. net exports decrease. C. net exports increase. D. exports increase and imports increase. E. exports decrease and imports decrease.

C

Which of the following are policy instruments available to the Fed as it tries to achieve its macroeconomic​ goals? i. government expenditure on goods and services and taxes ii. the government budget deficit or surplus iii. changes in the federal funds rate A. ii only B. i and ii C. iii only D. i and iii E. ii and iii

C

If the Fed buys U.S. government​ securities, A. the discount rate will rise. B. the discount rate will fall C. the federal funds rate will rise. D. the federal funds rate will fall. E. bank reserves will decrease.

D

If the Fed is concerned about a possible​ recession, it​ ________ the federal funds​ rate, which​ ________ the quantity of reserves and​ ________ the amount of bank loans. A. ​lowers; decreases; decreases B. ​raises; decreases; decreases C. ​raises; increases; increases D. ​lowers; increases; increases E. ​lowers; increases; decreases

D

The federal funds rate is A. controlled by the​ nation's banks, so the Fed observes it carefully. B. paid by the Fed to banks. C. paid by banks to the Fed. D. a monetary policy target of the Federal Reserve. E. None of the above are correct.

D

The interest rate banks charge each other on loans of reserves is called the A. coupon rate. B. real interest rate. C. required reserve rate. D. federal funds rate. E. discount rate.

D

The steps in the transmission of monetary policy are A. Congress increases government expenditures on goods and​ services, leading to an increase in aggregate demand. B. Congress increases the budget​ deficit, which increases the money​ supply, which increases aggregate supply. C. Congress increases the money​ supply, which lowers the interest​ rate, and leads to an increase in aggregate demand. D. the Federal Reserve lowers the federal funds​ rate, which lowers the real interest​ rate, and leads to an increase in aggregate demand. E. the Federal Reserve increases government expenditures on goods and​ services, leading to an increase in aggregate demand.

D

If real GDP is​ $200, the price level is​ 2.5, and velocity is​ 5, then the quantity of money is A. ​$750. B. ​$200. C. ​$500. D. ​$1,000. E. ​$100.

E

Which of the following is NOT an effect from a change in the federal funds​ rate? A. change in the real interest rate B. change in investment C. change in aggregate demand D. change in the quantity of money E. change in government expenditures

E