Macro Ch 15 Part 1

16 October 2022
4.7 (114 reviews)
116 test answers

Unlock all answers in this set

Unlock answers (112)
question
In‚Äč 2015, some banks in Europe had to make interest payments to borrowers rather than receive interest payments from borrowers. Which of the following statements describes this‚Äč situation?
answer
These banks were receiving negative nominal interest rates on these loans
question
If the probability of losing your job remains‚Äč _________, a recession would be a good time to purchase a home because the Fed usually‚Äč _________ interest rates during this time...
answer
low; lowers
question
Monetary policy refers to the actions the...
answer
Federal reserve takes to manage the money supply and interest rates to pursue its economic objective
question
The Federal‚Äč Reserve's four goals of monetary policy are...
answer
Price stability, high employment, economic growth, and stability of financial markets and institutions
question
When the Federal Reserve was established in‚Äč 1913, its main policy goal was...
answer
preventing bank panics
question
The top policy goal for Paul Volker when he became chair of the Federal‚Äč Reserve's Board of Governors in 1979 was ...
answer
price stability
question
When the Fed increased the volume of discount loans after the terrorist attacks of September‚Äč 11, 2001, it was trying to achieve...
answer
stability of the financial markets
question
The goals of monetary policy tend to be interrelated. For‚Äč example, when the Fed pursues the goal of‚Äč __________, it also can achieve the goal of‚Äč ________________ simultaneously....
answer
high employment; economic growth
question
Monetary policy refers to the actions the Federal Reserve takes to manage...
answer
the money supply and interest rates to pursue its economic objective
question
Which of the following are goals of monetary‚Äč policy?
answer
price stability, economic growth, and high employment
question
Rising prices erode the value of money as a‚Äč ________ and as a‚Äč ________.
answer
medium of exchange; store of value
question
Federal Reserve Board Chairmen Paul‚Äč Volcker, Alan‚Äč Greenspan, and Ben Bernanke all have focused on which of the following as their main goal of monetary‚Äč policy?
answer
price stability
question
The Fed seeks to promote stability of financial markets because...
answer
resources are lost when there is not an efficient matching of savers and borrowers
question
One of the monetary policy goals of the Federal Reserve is price stability.
answer
true
question
Since World War‚Äč II, the Federal Reserve has not been involved in carrying out monetary policy....
answer
false
question
Inflation rates during the years 1979minus‚ąí1981 were the highest the United States has ever experienced during peacetime....
answer
true
question
The main goal of monetary policy for recent Fed Chairmen has been to maintain high employment in labor markets....
answer
false
question
Monetary policy is conducted by the U.S. Treasury Department....
answer
false
question
Maintaining a strong dollar in international currency markets is not one of the four monetary policy goals of the Fed listed in the textbook....
answer
true
question
The Federal‚Äč Reserve's two main monetary policy targets are...
answer
the money supply and interest rates
question
The Federal Reserve can affect directly its monetary policy‚Äč ________, which then affect its monetary policy‚Äč ________.
answer
targets; goals
question
The money demand curve has a ...
answer
negative slope because an increase in the interest rate decreases the quantity of money demanded
question
An increase in the interest rate...
answer
increases the opportunity cost of holding money
question
An increase in the interest rate causes...
answer
a movement up along the money demand curve
question
An increase in the price level causes...
answer
the money demand curve to shift to the right
question
Which of the following would cause the money demand curve to shift to the‚Äč left?
answer
a decrease in real GDP
question
Using the money demand and money supply‚Äč model, an open market PURCHASE of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to...
answer
decrease
question
Using the money demand and money supply‚Äč model, an open market SALE of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to...
answer
increase
question
Suppose that households became mistrustful of the banking system and decide to decrease their checking account balances and increase their holdings of currency. Using the money demand and money supply model and assuming everything else is held‚Äč constant, the equilibrium interest rate should...
answer
increase
question
Using the money demand and money supply‚Äč model, an increase in money demand would cause the equilibrium interest rate to...
answer
increase
question
Which of the following will lead to a decrease in the equilibrium interest rate in the‚Äč economy?
answer
a decrease in GDP
question
An increase in real GDP can shift...
answer
money demanded to the right and increase the equilibrium interest rate
question
When the Federal Reserve increases the money‚Äč supply, at the previous equilibrium interest rate households and firms will now have...
answer
more money than they want to hold
question
When the Federal Reserve decreases the money‚Äč supply, at the previous equilibrium interest rate households and firms will now want to...
answer
sell treasury bills
question
An increase in the demand for Treasury bills will...
answer
decrease the interest rate on treasury bills
question
Which of the following is‚Äč true?
answer
the money market model is essentially a model of that determines the short term nominal rate of interest
question
For purposes of monetary‚Äč policy, the Federal Reserve has targeted the interest rate known as the...
answer
federal funds rate
question
The monetary policy target the Federal Reserve focuses primarily on today is ...
answer
the interest rate
question
The interest rate that banks charge other banks for overnight loans is the...
answer
federal funds rate
question
Changes in the federal funds rate usually result in...
answer
changes in both short-term and long-term interest rates with more of an effect on short-term interest rates
question
The Fed can increase the federal funds rate by...
answer
selling treasury bills which decreases bank reserves
question
The‚Äč Fed's two main monetary policy targets are...
answer
the money supply and the interest rate
question
If the Fed raises the interest‚Äč rate, this will‚Äč ________ inflation and‚Äč ________ real GDP in the short run.
answer
reduce; lower
question
A monetary policy target is a variable that
answer
the fed can affect directly
question
The money demand‚Äč curve, against possible levels of interest‚Äč rates, has a ...
answer
negative slope
question
The money demand curve has a negative slope because...
answer
lower interest rates cause households and firms to switch from financial assets to money
question
An increase in real GDP...
answer
increases the buying and selling of goods and increases the demand for money as a medium of exchange
question
Increases in the price level...
answer
increase the quantity of money needed for buying and selling
question
The money supply curve is vertical if...
answer
the fed is bale to completely determine the money supply
question
Suppose the Fed increases the money supply. Which of the following is‚Äč true?
answer
at the original interest rate, the quantity of money demanded is less than the quantity of money supplied
question
When the price of a financial asset‚Äč ________ its interest rate will‚Äč ________.
answer
falls; rise
question
Suppose the Fed decreases the money supply. In response households and firms will‚Äč ________ short term assets and this will drive‚Äč ________ interest rates.
answer
sell; up
question
If the Fed buys Treasury‚Äč bills, this will shift the...
answer
money supply curves to the right
question
An increase in the money supply will...
answer
decrease the interest rate
question
A decrease in real GDP can...
answer
shift money demanded to the left and decrease the interest rate
question
The money market model is concerned with‚Äč ________ and the loanable funds market model is concerned with‚Äč ________.
answer
short-term nominal interest rates; long-term real interest rates
question
Which of the following correctly describes what the Fed used as monetary targets in the‚Äč past?
answer
the fed increased its reliance on interest rate targets since the mid- 1990s
question
The federal funds rate is...
answer
the interest rate banks charge each other for overnight loans
question
The rate of interest banks charge other banks for overnight loans of reserves is the...
answer
federal funds rate
question
The federal funds rate...
answer
is determined by the supply of and demand for bank reserves
question
Buying a house during a recession may be a good idea if your job is secure because the Federal Reserve often...
answer
lowers interest rates during recessions
question
The Fed can directly lower the inflation rate..
answer
false
question
The Fed can simultaneously reduce the inflation rate and stimulate growth through lowering interest rates...
answer
false
question
A monetary policy target is a variable that the Fed can affect‚Äč directly, which then affects one or more of the‚Äč Fed's policy goals...
answer
true
question
Ceteris paribus‚Äč, an increase in the money supply will lower shortminus‚ąíterm interest rates....
answer
true
question
Rising nominal GDP will increase the demand for money and shortminus‚ąíterm interest rates...
answer
true
question
Buying a house during a recession may be a good idea if your job seems secure because the Federal Reserve often lowers interest rates during a recession...
answer
true
question
The ability of the Federal Reserve to use monetary policy to affect economic variables such as real GDP ultimately depends upon its ability to affect...
answer
real interest rate
question
An increase in interest rates...
answer
decrease investment spending on machinery, equipment, factories, consumption spending on durable goods, and net exports.
question
A decrease in interest rates can‚Äč _________ the demand for stocks as stocks become relatively‚Äč _______ attractive investments as compared to bonds...
answer
increase; more
question
An increase in the interest rate should‚Äč ____________ the demand for dollars and the value of the‚Äč dollar, and net exports should‚Äč __________...
answer
increase;decrease
question
The situation in which‚Äč short-term interest rates are pushed to‚Äč zero, leaving the central bank unable to lower them further is known as...
answer
a liquidity trap
question
With the federal funds rate near zero and the economy still‚Äč struggling, the Fed began buying‚Äč 10-year Treasury notes and certain‚Äč mortgage-backed securities to keep interest rates low. This policy is known as...
answer
quantitative easing
question
In November‚Äč 2008, the Fed began its first round of quantitative easing. In‚Äč total, the Fed conducted‚Äč ________ rounds of quantitative easing before ending the program in October 2014.
answer
3
question
From an initial longminus‚ąírun macroeconomic‚Äč equilibrium, if the Federal Reserve anticipated that next year aggregate demand would grow significantly slower than longminus‚ąírun aggregate‚Äč supply, then the Federal Reserve would most likely...
answer
decrease interest rates
question
Expansionary monetary policy refers to the‚Äč ________ to increase real GDP.
answer
federal reserve's increasing the money supply and decreasing interest rates
question
Expansionary monetary policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be relatively‚Äč ________ and real GDP to be relatively‚Äč ________.
answer
higher; higher
question
Which of the following describes what the Fed would do to pursue an expansionary monetary‚Äč policy?
answer
use open market operations to buy treasury bills
question
Contractionary monetary policy on the part of the Fed results in...
answer
a decrease in the money supply, an increase in interest rates, and a decrease in GDP
question
When the Fed uses contractionary‚Äč policy,
answer
the price level rises less than it would if the fed did not pursue policy
question
Which of the following would be most likely to induce the Federal Reserve to conduct expansionary monetary‚Äč policy? A significant decrease in...
answer
investment spending
question
The economy suffered a mild recession in 2001. Despite the‚Äč recession, home sales and durable goods sales remained high. Which of the following is a plausible‚Äč explanation?
answer
the fed causes a reduction in the federal funds rate to its lowest level in 40 years
question
Which of the following is true about the Federal Reserve and its ability to prevent‚Äč recessions? The Federal Reserve...
answer
cannot realistically fine tune the economy, but seeks to keep recessions shorter and milder than they would otherwise be.
question
Your roommate is having trouble grasping how monetary policy works. Which of the following explanations could you use to correctly describe the mechanism in which the Fed can affect the economy through monetary‚Äč policy? Increasing the money supply...
answer
lowers the interest rate and firms increase investment spending
question
If the Federal Reserve raises or lowers interest rates too‚Äč late, it could result in a‚Äč ________ policy that destabilizes the economy.
answer
procyclical
question
Monetary policy could be procyclical if the Federal Reserve...
answer
is late recognizing that a recession has begun and conducts expansionary monetary policy
question
When calculating‚Äč GDP, the Bureau of Economic Analysis revises its quarterly data...
answer
many times over the next several years
question
Lowering the interest rate will...
answer
increase investment projects by firms
question
If money demand is extremely sensitive to changes in the interest‚Äč rate, the money demand curve becomes almost horizontal. If the Fed expands the money supply under these‚Äč circumstances, then the interest rate will ...
answer
change very little and investment and consumer spending will change very little
question
An increase in the domestic interest rate relative to other interest rates should..
answer
decrease consumption spending
question
Falling interest rates can...
answer
increase a firm's stock price, which causes firms to issue more stock shares, and thus increases fund to investment
question
When the Fed embarked on a policy known as quantitative‚Äč easing, they...
answer
bought longer-term securities than are usually bought in open market operations
question
Implementing a negative interest rate‚Äč policy, as was advocated by the president of the Federal Reserve Bank of‚Äč Minneapolis, would be an example of‚Äč ________ monetary policy designed to‚Äč ________ aggregate demand.
answer
expansionary; increase
question
Implementing a negative interest rate‚Äč policy, as was advocated by the president of the Federal Reserve Bank of‚Äč Minneapolis, would be designed to‚Äč ________ the price level and‚Äč ________ real GDP.
answer
increase; increase
question
When Fed Chair Janet Yellen announced that a rate increase would be warranted by the end of the‚Äč year, she was was referring to the...
answer
federal funds rate
question
If the Fed lowers its target for the federal funds‚Äč rate, this indicates that...
answer
the fed is pursuing an expansionary monetary policy
question
If the Fed pursues expansionary monetary‚Äč policy,...
answer
aggregate demand will rise, and the price level will rise
question
Which of the following situations is one in which the Fed will potentially pursue expansionary monetary‚Äč policy?
answer
Potential GDP is forecasted to be higher than equilibrium GDP
question
Which of the following characterizes the‚Äč Fed's ability to prevent‚Äč recessions?
answer
the fed is able to keep a recession shorter and milder than it would otherwise be
question
If the Fed raises its target for the federal fund‚Äč rate, this indicates that...
answer
the fed is pursuing a contractionary monetary policy
question
Contractionary monetary policy causes...
answer
aggregate demand to fall and the price level to fall
question
If the‚Äč Fed's policy is‚Äč contractionary, it will..
answer
use open market operations to sell Treasury bills
question
In which of the following situations would the Fed conduct contractionary monetary‚Äč policy?
answer
the Fed is concerned that aggregate demand would continue to exceed the growth in potential GDP
question
When the Fed increases the money‚Äč supply,...
answer
the interest rate falls and this stimulates investment spending
question
Suppose that the economy is producing below potential GDP and the Fed implements the correct change in monetary‚Äč policy, but not until after the economy has passed the trough of the recession. Then...
answer
the fed's expansionary policy will result in too large of an increase in GDP
question
Suppose that the economy is producing above potential GDP and the Fed implements the correct change in monetary‚Äč policy, but not until after the economy has passed the peak of the boom. Then...
answer
te feds contractionary policy will result in too large of a decrease in GDP
question
The Fed...
answer
can engage in pro cyclical policy if it mistimes its policy response
question
The Fed...
answer
can have difficulty distinguishing the mirror ups and downs of the economy from a recession
question
The body that is responsible for dating the beginning and ending dates for a recession is...
answer
the National Bureau of Economic Research
question
When calculating‚Äč GDP, the Bureau of Economic Analysis releases its‚Äč "advanced estimate" of a‚Äč quarter's GDP approximately...
answer
one month after the quarter has ended
question
Changes in interest rates affect all four components of aggregate demand.
answer
false
question
Expansionary monetary policy refers to the‚Äč Fed's increasing the money supply and increasing interest rates to increase real GDP.
answer
false
question
When the Federal Reserve increases the money‚Äč supply, people spend more because interest rates fall.
answer
true
question
Contractionary monetary policy refers to the‚Äč Fed's decreasing the money supply and decreasing interest rates to decrease real GDP.
answer
false
question
Your income will increase if the Federal Reserve buys a Treasury bill from you and pays you with a check from the Fed.
answer
false
question
When the Federal Reserve increases the money‚Äč supply, people spend more because they now have more money.
answer
false