final for money and banking
Supply shocks are exogenous events that cause
"shifts in"
Under constrained discretion, policymakers are likely to have more credibility through commitment and transparency. Thus, inflation and inflation expectations are likely to be lower than under pure discretion, without giving up much flexibility to address changes in the real economy.
.
What effect might a financial panic have on the money multiplier and the money supply? Why? In a financial panic, you would expect the money multiplier to ___decrease___ and the money supply to ___decrease___, which would cause the excess reserves ratio to ___increase___. Thus depositors are likely to ___increase___ their holdings of currency.
.
'The independence of the Fed has meant that it takes the long view and not the short view.' Assume this statement is correct and answer the following questions. 1)The Fed's personnel are not directly affected by the outcome of the next election; therefore, it has some level of independence: 2)The Fed can still be influenced by political pressure: 3)The Fed's lack of accountability may make the Fed more irresponsible: 4)The members of the board generally cannot be reappointed to their position; they do not need to do favors in order to keep their job in the future.
1)t 2)f 3)f 4)t
A shift from currency to deposits will increase the reserves in the banking system. If Steffi withdraws $400 in cash from her checking account, then A. the amount of reserves decline. B. it is impossible to tell what happens to the reserves. C. the amount of reserves rise. D. the amount of reserves stay the same.
A
An increase in the interest rate will cause A. investment spending to fall and net exports to fall. B. investment spending to rise and net exports to fall. ` C. investment spending to fall and net exports to rise. D. investment spending to rise and net exports to rise.
A
Any factor that shifts the __________ curve shifts the __________ curve in the __________ direction. A. IS; AD; same B. MP; IS; same C. MP; IS; opposite D. IS; AD; opposite
A
Assume that we currently have an inflation rate of 1%, a nominal federal funds rate of 2% and a real federal funds rate of 1%. Now assume that we expect inflation to increase to 3 %. With a 3% inflation rate it is determined that the real federal funds rate should be 3%, so in accordance to the Taylor rule, what should the nominal federal funds rate be changed to? A. 6% B. 1% C. 3% D. 10%
A
Critics of Fed independence argue that: A. it is undemocratic to have monetary policy controlled by an elite group responsible to no one B. the Fed, since it does not face a binding budget constraint, spends too much of its earnings C. an independent Fed conducts monetary policy with a consistent inflationary bias D. Only A and B are correct
A
Which of the following statements is true about the creation of the Federal Reserve Act of 1913? A. President Wilson later regretted signing the bill. B. It brought the fractional reserve system into being. C. All three of the other possible answers listed here are true. D. Public sentiment was still against a central bank in 1913.
A
Why does it slope downward? A. As the real interest rate rises, consumption expenditure, planned investment spending, and net exports fall, which in turn lowers planned expenditure. Aggregate output must be lower for it to equal planned expenditure and satisfy goods market equilibrium. Hence, the IS curve is downward-sloping. Your answer is correct. B. As the real interest rate falls, consumption expenditure, planned investment spending, and net exports rise, which in turn lowers planned expenditure. Aggregate output must be lower for it to equal planned expenditure and satisfy goods market equilibrium. Hence, the IS curve is downward-sloping. C. As the real interest rate rises, consumption expenditure, planned investment spending, and net exports rise, which in turn increases planned expenditure. Aggregate output must be higher for it to equal planned expenditure and satisfy goods market equilibrium. Hence, the IS curve is downward-sloping. D. None of the above are correct.
A
Why is paying interest on reserves an important tool for the Federal Reserve to manage crises? A. It allows the Fed to increase its lending as much as it wants without reducing the federal funds rate. B. It allows for fluctuations in the federal funds rate, making monetary policy more flexible. C. It allows the Fed to increase the money supply to support excessive demand for goods and services. D. It allows the Fed to increase the effective tax on deposits, thereby increasing economic efficiency.
A
According to Keynes's analysis of the speculative demand for money, which of the following shows that velocity will undergo substantial fluctuations and thus cannot be treated as constant? A. Since Keynes believed velocity is affected by interest rates and interest rates fluctuate a lot, velocity will as well. B. Keynes believed that money demand and hence velocity are affected by interest rates. C. Keynes believed that changes in people's expectations about what the normal level of interest rates are will cause money demand and hence velocity to fluctuate. D. All of the above are correct. E. None of the above are correct.
D
Advantages of the Fed's "just do it" approach include: A. the strong dependence on the preferences, skills, and trustworthiness of the individuals in charge of the central bank. B. its forward-looking behavior and stress on price stability that help to discourage overly expansionary monetary policy, thereby ameliorating the time-inconsistency problem. C. it does not rely on a stable money-inflation relationship. D. Only B and C are correct. E. All of the above are correct.
D
Assume that the currency in circulation is $400 billion, the reserve requirement is .10 and the excess reserves are $800 billion. With these numbers assume that the multiplier is 2.5. Which of the following would happen if cash in circulation increased to $450 billion all else the same? A. The excessive reserve ratio would increase and the multiplier would decrease. B. The currency ratio would increase and the multiplier would increase. C. The excessive reserve ratio would increase and the multiplier would increase D. The currency ratio would increase and the multiplier would decrease.
D
he financial crisis of 2008 and the eventual recession that occured caused the Fed to take drastic monetary policy action. Which of the following best describes what happened? A. The Fed's action shifted the MP curve down to the right, which lead to the aggregate demand curve shifting to the right. Your answer is correct. B. The Fed's action shifted the MP curve up to the left, which lead to the aggregate demand curve shifting to the right. C. The Fed's action shifted the MP curve down to the right, which lead to the aggregate demand curve shifting to the left. D. The Fed's action caused movement along the MP curve down to the right, which lead to the aggregate demand curve shifting to the right.
A
he graph to the right shows a fall in the vertical section of the supply curve of reserves. The fall in the supply curve is caused by: A. a decrease in the discount rate. B. an increase in the discount rate. C. a decrease in the federal funds rate. D. an increase in the federal funds rate. E. an increase in reserve requirements.
A
"The zero-lower-bound on short-term interest rates is not a problem, since the central bank can just use quantitative easing to lower intermediate and longer-term interest rates instead." Is this statement true, false, or uncertain? Explain your answer. A. False. The zero-lower-bound problem can be coupled with deflationary conditions, which can be hard to design effective policies for. B. True. Quantitative easing can be used once the zero-lower-bound is reached on short-term interest rates. C. Uncertain. The answer depends on whether quantitative easing is easy or difficult to implement under existing conditions.
A
During and in the aftermath of the financial crisis of 2007-2009, planned investment fell substantially, despite significant decreases in the real interest rate. Which of the following factors related to the planned spending function could explain this? (Check all that apply.) A. An increase in financial frictions. B. A decrease in the marginal propensity to consume. C. A decrease in autonomous net exports. D. A decrease in firms' planned autonomous investment.
A and D
Assume that the currency in curculation is $400 billion, the reserve requirement is .10 and the excess reserves are $800 billion. With these numbers assume that the multiplier is 2.5. Which of the following would happen if excess reserves increased to $900 billion all else the same? A. The currency ratio would increase and the multiplier would decrease. B. The excessive reserve ratio would increase and the multiplier would decrease. This is the correct answer. C. The currency ratio would increase and the multiplier would increase. D. The excessive reserve ratio would increase and the multiplier would increase
B
In regards to "The Great Inflation", during which time period was demand pull inflation more of the issue? A. Demand pull inflation was the primary issue during the entire Great Inflation period. B. For most of the 1960's. This is the correct answer. C. During 1980 and 1981. D. From about 1973 to 1978.
B
Increases in U.S. Treasury deposits at the Fed arise from A. the broblems associated with Brexit. B. the issuing of new government debt and tends to lower bank reserves. C. the issuing of new government debt and tends to increase bank reserves. D. the trade deficit and tends to lower bank reserves.
B
Keynes's liquidity preference theory implies that velocity A. is not constant but is predictable. B. has substantial fluctuations. C. is constant. D. is zero in the long-run.
B
Predict what will happen to the money supply if there is a sharp rise in the currency ratio. A. The money supply increases B. The money supply falls C. The money supply stays the same D. The effect on the money supply is ambiguous
B
Suppose the economy is producing at the natural rate of output. An increase in consumer and business confidence will cause ________ in real GDP in the short run and ________ in inflation in the short run, everything else held constant. A. no change; an increase B. an increase; an increase C. a decrease; a decrease D. no change; a decrease
B
When financial frictions decrease, the real cost of borrowing __________, and the AD curve __________. A. increases, shifts right B. decreases, shifts right C. decreases, shifts left D. increases comma shifts left
B
Which of the following is not an advantage of the monetary strategy used at the Federal Reserve under Alan Greenspan and Ben Bernanke in which the nominal anchor is only implicit? A. It does not rely on a stable money-inflation relationship. B. It has a lack of transparency. Your answer is correct. C. It enables monetary policy to focus on domestic considerations. D. All of the above are advantages.
B
Which of the following will cause the IS curve to have a shallower slope? A. All of these 3 options will B. An increase in the marginal propensity to consume C. An increase in the tax rates D. A decrease in interest sensitivity
B
Which one of the following events would most likely lead to stagflation? A. A large sudden decrease in the tax rate. B. A large sudden increase in the price of oil. C. A large sudden increase in expectations of consumers and businesses. D. A large sudden increase in the tax rate.
B
Among the numerous effects that low interest rates have on our economy, two of them are A. The Discount Rate will fall and unemployment will increase B. Housing prices will decline and the Federal Funds Rate will increase C. Assets like stocks will increase in value and we could experience favorable exchange rates for exports. This is the correct answer. D. Assets like stocks will decrease in value and we could experience unfavorable exchange rates for exports.
C
An increase in the float will lead to which of the following? A. An increase in excess reserves B. Will have no effect on excess reserves C. A decrease in excess reserves This is the correct answer. D. Will reduce the repo rate
C
If policymakers pursue expansionary policies that reduce unemployment below the natural rate, the probable result is: A. hyperinflation. B. cost-push inflation. C. demand-pull inflation. Your answer is correct. D. a supply shock.
C
If the government provides tax incentives for research and development programs for firms the government provides tax incentives for research and development programs for firms, explain whether the IS curve shifts to the right or left, does not shift, or is indeterminate in the direction of the shift. A. The IS curve shifts to the left.shifts to the left. B. The IS curve does not shift.does not shift. C. The IS curve shifts to the right.shifts to the right. D. The IS curve is indeterminate in the direction of the shift.
C
In Keynes's analysis of the transactions demand for money, what will happen to money demand if people's incomes increase? A. The demand for money will decrease because Keynes believed that wealthier people are more likely to use credit cards instead of money. B. The demand for money will not change because Keynes believed the transactions motive for holding money is not related to income. C. The demand for money will increase because Keynes believed that people would require more money for more transactions. D. The demand for money will decrease because Keynes believed the transactions motive for holding money is inversely related to income.
C
Did the Fed's policy work? A. No. The aggregate demand shock from the global financial crisis was so large that the Fed's policies were insufficient to fully stabilize economic activity and shift output back to potential. Your answer is correct. B. Yes. Even though nominal interest rates had reached the zero-lower bound, the Fed's policies were successful in stabilizing the economy and shifting output back to potential. C. Yes. Even though the economy suffered a severe recession, the Fed's policies prevented the economy from entering a depression; thus, the policies can be viewed as successful. D. Uncertain. The effectiveness of the Fed's policy cannot be determined until output and unemployment per
A
Which of the following is a disadvantage of the monetary strategy used at the Federal Reserve under Alan Greenspan and Ben Bernanke in which the nominal anchor is only implicit? A. It forces the Federal Reserve to focus on foreign considerations rather than domestic considerations. B. It does not rely on a stable money-inflation relationship. C. It is dependent on the preferences, skills, and trustworthiness of individuals in the central bank and the government. D. All of the above are disadvantages.
C
Which of the following is an important lession that the Fed learned from the 2008 crisis? A. It is very harmful to keep the public informed about the Fed's policy and actions. B. The high inflation that was experienced during 2008 and 2009 was more harmful than expected. C. It is good to keep the public informed about the Fed's policy and actions. Your answer is correct. D. Stagflation is not as harmful as previously believed.
C
Which of the following represents a movement along a given AD curve? A. Inflation increases, the real interest rate increases, and aggregate output increases. B. Inflation decreases, the real interest rate decreases, and aggregate output decreases. C. Inflation decreases, the real interest rate decreases, and aggregate output increases. D. Inflation increases, the real interest rate decreases, and aggregate output increases.
C
Which of the following will cause the IS curve to have steeper slope? A. An increase in the marginal propensity to consume B. An decrease in the tax rates C. A decrease in interest rate sensitivity D. All of these 3 options will
C
Which of the following would cause the suggested Taylor Rule Rate to increase? A. A reduction in the actual inflation rate B. All three of these listed options would increase it. C. An increase in the inflation gap D. An increase in the output gap
C
Which one of the following statements is correct? A. A change in the current inflation rate causes a shift of the MP curve and a change in expected inflation causes movement along the MP curve. B. A change in both the current inflation rate and expected inflation will cause a shift of the MP curve. C. A change in the current inflation rate causes a movement along the MP curve and a change in expected inflation causes the MP curve to shift. D. A change in both the current inflation rate and expected inflation will cause movement along the MP curve.
C
Keynes's liquidity preference theory explains why velocity is expected to rise when A. wealth increases. B. income increases. C. interest rates increase. D. brokerage commissions increase.
C
How is constrained discretion different from discretion in monetary policy?
Constrained discretion is a type of discretion that is less flexible with monetary policy.a type of discretion that is less flexible with monetary policy.
A general decrease in real interest rates from 10% to 8% would have which of the following effects on the IS curve? A. Shift it to the right B. Would move our equilibrium point along the IS curve towards the left C. Shift it to the left D. Would move our equilibrium point along the IS curve towards the right
D
When output is below potential and the policy rate has hit the floor of zero, the resulting fall in inflation leads to ________ real interest rates, which ________ output further, which causes inflation to fall further. A. higher; depress B. lower; depress C. lower; increase D. higher; increase
A
When the Federal Reserve reduces its policy interest rate, how, if at all, is the IS curve affected? A. Changes in interest rates represent a movement along the IS curve, and so the IS curve does not shift. B. The IS curve shifts to the left. C. The IS curve shifts to the right. D. The change in the IS curve is uncertain, as it depends on the total amount of the interest rate reduction.
A
Which of the following describes why the aggregate demand curve is downward sloping? A. The interest rate effect B. The wealth effect C. The federal funds rate effect D. Both the wealth effect and interest rate effect
D
Which of the following would cause the suggested Taylor Rule Rate to decrease? A. An increase in the inflation gap B. A increase in the actual inflation rate C. All three of these listed options would increase it. D. An increase in the output gap
D
Which of the following would have a tendency to increase the actual money multiplier? A. A positive economic forecast by the Chairman of the Fed B. An increase in the required reserve ratio C. An increase in the excess reserves ratio D. A decrease in the excess reserves ratio
D
Why are repurchase agreements used to conduct most short-term monetary policy operations, rather than simply buying and selling securities outright? A. Repurchase agreements allow the Fed to easily adjust open market operations in response to daily conditions. B. Repurchase agreements are temporary open market purchases that can be reversed. C. They are effective in dealing with persistent shortages in reserves, and thus have a more permanent impact. D. Only A and B are correct. E. All of the above are correct.
D
The European system of central banks uses similar monetary policy tools to that of the Federal reserve. These tools involve: A. open market operations B. lending to banks C. reserve requirements D. Both A and C are correct E. All of the above are correct
E
When the economy suffers a permanent negative supply shock and the central bank does not respond by changing the autonomous component of monetary policy, then A. inflation will be lower. B. output will be at its potential. C. output will be lower. Your answer is not correct. D. inflation will not change. E. both B and C.
E
Which of the following criteria must be satisfied when selecting a policy instrument? A. The instrument must be observable and measurable. B. The instrument must be controllable by the central bank. C. The instrument must have a predictable impact on the policy goal. D. Only B and C are correct. E. All of the above are correct.
E
From before the financial crisis began in September of 2007 to when the crisis was over at the end of 2009, amount of Federal Reserve assets rose, leading to A. an economic expansion. B. a huge expansion of the money supply. C. a huge increase in the monetary base. D. a high inflation.
a huge increase in the monetary base.
A general increase in real interest rates from 8% to 10% would have which of the following effects on the IS curve? A. Shift it to the left B. Shift it to the right C. Would move our equilibrium point along the IS curve towards the left D. Would move our equilibrium point along the IS curve towards the right
c
Which of the following statements best describes how the fractional reserve system came into being? A. The Federal Reserve Act of 1913 brought it into being. B. It came into existance because of the US winning independence from England. C. Goldsmiths eventually realized that they did not have to keep 100% of the value of gold on hand at any time. D. Ben Franklin brought the idea back from one of his trips to France.
c
When inflation increases, the AD curve ------
does not shift
If the Fed increases i Subscript orior enough, such that it will raise the intersection point with the vertical portion of reserve supply, then the equilibrium fed funds rate will
increase
A rise in the real interest rate will cause exports to ____ an imports to ___
increase dec
What is the advantage of quantitative easing as an alternative to conventional monetary policy when short-term interest rates are at the zero lower-bound?
purchases of longer-term securities could reduce longer-term interest rates and lead to expansion
The Corona Virus crisis has created the following problem in the world wide oil market? A. The crisis has caused world demand for oil to decrease, causing the price to decrease well below $40 a barrel and this very low price has a negative impact on domestic US oil producers. Your answer is correct. B. The crisis has caused world demand for oil to decrease, causing the price to decrease well below $40 a barrel and this very low price has a very positive impact on domestic US oil producers. C. The crisis has caused world demand for oil to increase, causing the price to decrease well below $40 a barrel and this very low price has a negative impact on domestic US oil producers. D. The crisis has caused world demand for oil to increase, causing the price to increase well above $40 a barrel and this very high price has a negative impact on domestic US oil producers.
A
The Federal Reserve SystemLOADING... resembles the U.S. Constitution in that it was designed with many checks and balances." Is this statement true, false, or uncertain? Explain your answer. A. True. Because of public hostility and the centralization of power, the Federal Reserve System was created with many checks and balances to diffuse power. B. False. The Federal Reserve System was created to affect monetary policy only, and thus does not fall under the same checks and balances as the executive or legislative branches of government. C. False. Because the Federal Reserve acts independently from the government, it is not subject to a system of checks and balances. D. Uncertain. Because every Federal Reserve chairman has a different style, checks and balances may vary with each administration.
A
The First National Bank receives an extra $100 of reserves but decides not to lend any of these reserves. How much deposit creation takes place for the entire banking system? A. $0. B. $100. C. $1,000. D. There is not enough information provided to determine the answer.
A
The discount rate is kept ________ the federal funds rate because the Fed prefers that ___ A. above; banks borrow reserves from each other. B. below ; banks borrow reserves from each other. C. above; banks borrow reserves from the Fed. D. below; banks borrow reserves from the Fed.
A
The quantity theory of inflation indicates that the inflation rate equals A. the growth rate of the money supply minus the growth rate of aggregate output. B. the growth rate of the money supply plus the growth rate of aggregate output. C. the level of the money supply minus the level of aggregate output. D. the level of the money supply plus the level of aggregate output.
A
There are two types of mandates: _________ mandates, which prioritise price stability above all other objectives, and _________ mandates, which place different objectives on equal footing. A. hierarchical; dual B. dual; hierarchical C. hierarchical; double D. policy; dual
A
n regards to "The Great Inflation", during which time period was cost push inflation more of the issue? A. From about 1973 to 1978. B. Specifically between 1962 and 1965. C. Demand pull inflation was the primary issue during the entire Great Inflation period. D. For most of the 1960's..
A.
According to aggregate demand and supply analysis, the favorable supply shock of 1995minus−1999 had the effect of A. decreasing aggregate output, raising unemployment, and lowering inflation. B. increasing aggregate output, lowering unemployment, and lowering inflation. C. decreasing aggregate output, raising unemployment, and raising inflation. D. increasing aggregate output, lowering unemployment, and raising inflation.
B
During financial crises, financial frictions __________, leading to a __________ shift of the IS curve. A. decrease; leftward B. increase; leftward C. increase; rightward D. decrease; rightward
B
During the global financial crisis, how was the Fed able to help offset the sharp increase in financial frictions, without the ability to lower interest rates further? A. The Fed increased the real cost of borrowing to households and businesses to avoid deflation. B. The Fed engaged in asset purchases and liquidity provision, lowering interest rates and increasing aggregate demand. Your answer is correct. C. The Fed increased the interest rate and then lowered it back to start the self-correcting mechanism. D. When the fed funds rate hit the zero-lower bound, there were no other policy objectives available to the Fe
B
If a bank decides that it wants to hold $1 million of excess reserves, what effect will this have on checkable deposits in the banking system? Assume that the required reserve ratio on checkable deposits is 10% and the public's holdings of currency do not change. A. Checkable deposits decline by $1 million. B. Checkable deposits decline by $10 million. C. Checkable deposits decline by $100,000. D. Checkable deposits do not change.
B
If government spending increases while taxes are raised to balance the budget, which of the following is true? A. Two components of aggregate demand will increase. B. One component of aggregate demand will increase and another will decrease. C. Two components of aggregate demand will decrease.
B
If taxes increase and autonomous consumption expenditure decrease, the IS curve A. may shift right, left, or not shift at all. B. will shift left. C. will not shift. D. will shift right. will shift right.
B
Why does the self-correcting mechanism stop working when the policy rate hits the zero lower bound? A. The self-correcting mechanism stops working because the rising inflation produced by a positive output gap produces lower rather than higher real interest rates when the policy rate hits the zero lower bound, and this decrease enhances planned spending and further widens the output gap. B. The self-correcting mechanism stops working because the falling inflation produced by a negative output gap produces higher rather than lower real interest rates when the policy rate hits the zero lower bound, and this increase depresses planned spending and further widens the output gap. This is the correct answer. C. The self-correcting mechanism stops working because the falling inflation produced by a negative output gap produces lower rather than higher real interest rates when the policy rate hits the zero lower bound, and this decrease depresses saving and investment and therefore further widens the output gap. Your answer is not correct. D. The self-correcting mechanism stops working because the rising inflation produced by a negative output gap produces lower rather than higher real interest rates when the policy rate hits the zero lower bound, and this decrease depresses planned spending and
B
Why is it necessary for the MP curve to have an upward slope? A. An upward-sloping MP curve encourages consumer and business spending. B. An upward-sloping MP curve keeps inflation from spinning out of control. C. If the MP curve has an upward slope, then more liquidity will occur in the banking system. D. If the MP curve has an upward slope, it indicates an increase in output and a decrease in unemployment.
B
a decrease in reserve requirements a) increase non borrowed reserve and increases the fed funds rate b)leaves non borrowed reserve unchanged and decreases the fed funds rate c)decrease non borrowed reserves and dec fed funds
B
f net exports were not sensitive to changes in the real interest rate, would monetary policy be more or less effective in changing output? Monetary policy would be less effective in changing output because net exports: A. are negatively correlated with the real interest rate and output. B. represent an additional channel through which interest rate changes can affect output. C. are usually insensitive to changes in the real interest rate. D. do not have any significant impact on output.
B
he divine coincidence occurs when: A. an event causes both deflation and an increase in output. B. monetary policies accomplish the dual objectives of stabilizing inflation and economic activity. Your answer is correct. C. an increase in the inflation rate produces no change in the quantity supplied of output. D. there is a tradeoff between the pursuit of economic stability and inflation stability.
B
Suppose a new "payment technology" allows individuals to make payments using U.S. Treasury bonds (i.e., U.S. Treasury bonds are immediately cashed when needed to make a payment and that balance is transferred to the payee). How do you think this payment technology would affect the transactions component of the demand for money? A. This would lead to a decreased need to hold cash for transactions; however, the transactions demand for money would remain unchanged. B. This would lead to an increased need to hold cash for transactions, thus the transactions demand for money would increase. C. This would lead to a decreased need to hold cash for transactions, thus the transactions demand for money would decrease. D. This technology would not change the transactions component of the demand for money.
C
Suppose that taxes are decreased and the central bank conducts an autonomous easing of monetary policy. What will be the result? A. The IS curve shifts left, the MP curve shifts down, and the AD curve shifts right. B. The IS curve shifts left, the MP curve shifts up, and the AD curve shifts left . C. The IS curve shifts right, the MP curve shifts down, and the AD curve shifts right. D. The IS curve shifts right, the MP curve shifts up, and there is an ambiguous effect on the AD curve.
C
The finance of government spending through a Treasury sale of bonds which are then purchased by the Fed A. has no net effect on the monetary base. B. causes both reserves and the monetary base to decline. C. causes both reserves and the monetary base to rise. D. causes reserves to rise, but the monetary base to decline.
C
The goals of a dual mandate can sometimes conflict because: A. low and stable rates of inflation detract from economic growth B. it is difficult to achieve both long-run price stability and the natural rate of unemployment C. policies that increase output and employment in the short run can create excessive inflation in the long run
C
The price of a barrel of oil doubled between 2007 and the middle of 2008. To make matters worse, a financial crisis hit the U.S. economy starting in August of 2007. Which of the following is an appropriate description of the mechanism that would have ensued? A. The increase in the price of oil would have immediately shifted the AS curve to the right. B. The financial crisis would have led to a sharp contraction in spending shifting the AD curve to the right. C. Shifts in both the AD and the AS curve would have ensued in the shortminus−run but as long as neither shock had an impact on potential output, ultimately unemployment will have been unaffected in the long run. D. All of the above. E. None of the above.
C
Suppose that a new Fed chair is appointed, and his or her approach to monetary policy can be summarized by the following statement: "I care only about increasing employment; inflation has been at very low levels for quite some time; my priority is to ease monetary policy to promote employment." How would you expect the monetary policy curve to be affected, if at all? A. The MP curve will shift downward because decreasing unemployment results in a tightening of monetary policy. B. The MP curve will shift upward because decreasing unemployment results in a tightening of monetary policy. C. The MP curve will shift downward because decreasing unemployment results in a loosening of monetary policy. Your answer is correct. D. The MP curve will shift upward because decreasing unemployment results in a loosening of monetary policy. What would be the effect on the aggregate demand curve? A. The AD curve will not change. B. The AD curve will shift to the left. C. The slope of the AD curve will increase. D. The AD curve will shift to the right.
C d
Everything else held constant, an increase in autonomous planned investment spending will cause the IS curve to shift to the ________ and aggregate demand will ________. A. right; decrease B. left; decrease C. left; increase D. right; increase
D
Everything else held constant, in the market for reserves, when the supply for federal funds intersects the reserve demand curve on the downward sloping section, decreasing the interest rate paid on excess reserves A. has an indeterminate effect on the federal funds rate. B. lowers the federal funds rate. C. increases the federal funds rate. D. has no effect on the federal funds rate.
D
How does the policy rate hitting a floor of zero lead to an upward sloping aggregate demand curve? A. When the policy rate hits a floor of the zero, the negative relationship between planned spending and the real interest rate embodied by the IS curve becomes positive, and this reversal results in lower inflation producing a lower real interest rate, and hence lower planned spending, i.e., an upward sloping AD curve. B. When the policy rate hits a floor of the zero, the negative relationship between inflation and the real interest rate embodied by the MP curve becomes positive, and this reversal results in lower inflation producing a higher real interest rate, and hence lower planned spending, i.e., an upward sloping AD curve. Your answer is not correct. C. When the policy rate hits a floor of the zero, the positive relationship between inflation and the real interest rate embodied by the MP curve becomes negative, and this reversal results in higher inflation producing a higher real interest rate, and hence lower planned spending, i.e., an upward sloping AD curve. D. When the policy rate hits a floor of the zero, the positive relationship between inflation and the real interest rate embodied by the MP curve becomes negative, and this reversal results in lower inflation producing a higher real interest rate, and hence lower planned sp
D
If temporary supply shocks are more common, then a central bank: A. must choose between the two stabilization objectives in the long run. B. should choose to stabilize inflation and economic activity in the short run. C. should choose to not engage in any stabilization activity in the short run. D. must choose between the two stabilization objectives in the short run.
D
If the government deficit is financed by an increase in bond holdings by the public: A. the monetary base falls, but due to excess reserves, the money supply rises. B. the monetary base falls, but due to required reserves, the money supply is unchanged. C. the monetary base rises, but due to excess reserves, the money supply is unchanged. D. there is no effect on the monetary base or the money supply.
D
In what ways is the Volcker disinflation considered a success? What are the negative aspects of it? A. The Volcker disinflation was successful in lowering inflation in the short run, but two negative supply shocks occurred as a result. B. The Volcker disinflation prevented negative supply shocks, such as those in 1973 and 1974; however, inflation remained high and unemployment remained above the natural rate level. C. The Volcker disinflation moved unemployment toward its natural rate level; however, inflation remained high and fluctuations in external financial markets still strongly influenced the U.S. economy. D. The Volcker disinflation was successful in bringing inflation down with contractionary policies; however, these policies resulted in two recessions and a significant increase in unemployment.
D
In Keynes's analysis of the precautionary demand for money, what will happen to money demand if people's incomes increase? A. The demand for money will decrease because Keynes believed that people will save more for the future. B. The demand for money will not change because Keynes believed the precautionary motive for holding money is not related to income. C. The demand for money will decrease because Keynes believed the precautionary motive for holding money is inversely related to income. D. The demand for money will increase because Keynes believed that people would require more money for more transactions in the future.
D
Policy makers at the Fed have been very concerned about the effect that the Corona Virus will have on our economy. Since the beginning of March what have they done and what are they rumered to do in the near future? A. On March 3 they lowered the federal funds rate by .5 of a percent and may increase it by atleast .75 of a percent in the near future. B. On March 3 they increased the federal funds rate by .5 of a percent and may increase it by another .75 of a percent in the near future. C. On March 3 they lowered the federal funds rate by .75 of a percent and may lower it by another .75 of a percent in the near future. D. On March 3 they lowered the federal funds rate by .5 of a percent and may lower it by another .75 of a percent in the near future.
D
Today we see a very low unemployment rate with a controlled and acceptable inflation rate. Which of the following statements could be a reason for inflation being low during this expansion? A. Last year's tax cuts. B. The contractionary policy that the Fed has followed this year.. C. All of these 3 other possible answers that are listed here are true reasons. D. The public's view of the the Fed's credibility has increased..
D
What does Keynes's liquidity preference theory predict about the relationship between interest rates and the velocity of money? A. As interest rates rise, people will increase their money holdings and therefore velocity will decrease. B. As interest rates rise, people will reduce their money holdings and therefore velocity will decrease. C. As interest rates rise, people will increase their money holdings and therefore velocity will rise. D. As interest rates rise, people will reduce their money holdings and therefore velocity will rise
D
What is the monetary policy curve? A. It indicates the relationship between consumption expenditure and the real interest rate. B. It indicates the relationship between net exports and the real interest rate. C. It traces out the points at which the goods market is in equilibrium. D. It indicates the relationship between the inflation rate and the real interest rate.
D
What would be the effect of a stock market crash on the demand for money according to the portfolio theories of money demand? (Hint: Consider both the increase in stock price volatility following a market crash and the decrease in wealth of stockholders.) A. The demand for money increases. B. The demand for money decreases. C. The demand for money does not change. D. There is not enough information available to determine the effect on money demand.
D
Why does the monetary policy curve slope upward? (Check all that apply.) A. When inflation increases, the supply of real money balances increases. This increases the equilibrium nominal interest rate in the money market, which also increases the real interest rate in the short run. B. When inflation increases, the supply of real money balances declines. This increases the equilibrium nominal interest rate in the money market, which also increases the real interest rate in the short run. Your answer is correct. C. Monetary policymakers will follow the Taylor principle and respond aggressively to a decrease in the inflation rate by raising nominal interest rates by an even greater amount so that the real interest rate also rises. D. Monetary policymakers will follow the Taylor principle and respond aggressively to an increase in the inflation rate by raising nominal interest rates by an even greater amount so that the real interest rate also rises.
D
Disadvantages of inflation targeting include: A. too much rigidity. B. low economic growth. C. delayed signaling. D. Only A and B are correct. E. All of the above are correct.
E
Which well known banker was known to of said, "loaning money to government is more profitable than loaning to private individuals"? A. Ben Bernanke B. Janet Yellen C. Paul Volker D. Amshell Rothchild
D. Amshell Rothchild
The Taylor rule for the federal funds rate implies that the central bank is concerned with: A. neither the GDP gap nor inflation. B. only inflation. C. only the GDP gap. D. both the GDP gap and inflation.
D. both the GDP gap and inflation.
