exam ch 35
A decrease in money supply growth will cause the:
AD curve to shift to the left
If the Federal Reserve wishes to avoid short-run increases in the unemployment rate, the correct response to a negative AD shock would be:
an increase in money supply growth
An open-market purchase of government bonds by the Fed results in ________ in bank reserves and ________ in the supply of money.
an increase; an increase
A potential problem with expansionary monetary policy is that banks can
be unwilling to lend.
What is the difference between disinflation and deflation?
Disinflation is a slower increase in prices, whereas deflation is a decrease in prices
Deflation is
a decrease in prices; that is, a negative inflation rate.
If the public's demand for holding cash increases, the growth rate of money velocity will:
decrease
Which of the following represents an action by the Federal Reserve that is designed to increase the money supply?
decrease in the discount rate
Economists who believe the Fed is likely to make lots of mistakes in the implementation of monetary policy believe:
in monetary policy rules
Many economists worry about the Federal Reserve overstimulating the economy because such overstimulation will lead to rising
inflation.
Uncertainty drives people away from
investment spending and toward more liquid assets.
Which of the following sequence of events follows an increase in the money supply?
↓ interest rate → ↑ investment spending → ↑ aggregate demand → ↑ real GDP
Monetary policy is used to stabilize the economy by changing factors that shift the
AD curve
If the Federal Reserve offsets a negative shock to aggregate demand with increased money growth:
both inflation and real GDP growth will rise
If the Fed wanted to reduce the market interest rate, it could
decrease the required reserve ratio
Assume that total deposits in the banking system are $200 million. If the the required reserve ratio is increased, then the money supply will:
decrease.
In the short run, a negative AD shock will cause the inflation rate to:
decrease.
A significant decrease in the rate of inflation is called:
disinflation.
One of the Federal Reserve's most powerful tools is its influence over _____, not its influence over _____.
expectations; the money supply
When people believe that a central bank will stick with its policy, monetary policy is likely to have
high credibility.
Which of the following is not a tool available to the Fed to change the supply of money?
printing new and shredding worn out currency
Increased uncertainty will cause the economy's AD curve to:
shift inward.
If uncertainty causes people to increase their demand for cash at the same time that the Fed raises money supply growth, then the Fed's action will:
shift the AD curve less to the right
The discount rate is
the interest rate that the Fed charges commercial banks for funds borrowed from the Fed
Which of the following "real world" problems is most difficult for the Fed's use of monetary policy?
the time that it takes for the economy to adjust to changes after a new policy is introduced.