Question 1

The Federal Reserve actively worked to keep the federal funds rate at nearly ________ percent for several years following the Great Recession.
A) 2.5
B) 25
C) 7
D) 0
E) 5

Accepted Answer

The Federal Reserve actively worked to keep the federal funds rate at nearly 0 percent for several years following the Great Recession in order to stimulate economic growth and encourage lending.

Question 2

From 1982 to 2008, the economy experienced only two recessions, and they were neither lengthy nor severe. This time period is known as the
A) Great Depression.
B) Great Recession.
C) great expansion.
D) great moderation.
E) great economy.

Accepted Answer

The term "great moderation" refers to the period from 1982 to 2008 characterized by low levels of inflation and volatility in the economy. It was a time of economic growth and stability, and the two recessions that occurred during this period were relatively short and mild compared to other historical recessions.

Question 3

Central banks can use monetary policy to
A) turn prices from inflexible to flexible.
B) force private banks to lend out reserves.
C) make it easier for people and businesses to borrow.
D) print money.
E) steer the economy out of overexpansion.

Accepted Answer

Central banks can adjust interest rates to make it easier or more difficult for people and businesses to borrow money. Lowering interest rates can encourage borrowing and stimulate economic activity, while raising interest rates can discourage borrowing and slow down inflation.

Question 4

Refer to the following figure to answer the next  questions.
 
-According to the figure, expansionary monetary policy will cause an economy that is initially at full-employment output to go from equilibrium to equilibrium in the short run.
A) A; C
B) A; B
C) A; D
D) C; B
E) C; D

Accepted Answer

Expansionary monetary policy increases aggregate demand, moving the economy from full-employment equilibrium (A) to a higher output and price level (B) in the short run.

Question 5

Expansionary monetary policy occurs when
A) a central bank acts to decrease the money supply in an effort to stimulate the economy.
B) Congress and the president increase taxes in an effort to stimulate the economy.
C) Congress and the president decrease taxes in an effort to stimulate the economy.
D) a central bank acts to increase the money supply in an effort to stimulate the economy.
E) a central bank acts to increase government spending in an effort to stimulate the economy.

Accepted Answer

Expansionary monetary policy occurs when a central bank acts to increase the money supply in an effort to stimulate the economy. This is typically achieved through actions such as lowering interest rates, purchasing government securities, or implementing quantitative easing programs. The goal is to make borrowing cheaper and more attractive for individuals and businesses, which in turn encourages spending and investment, ultimately stimulating economic growth.

Question 6

The Federal Reserve's response to the Great Recession was an attempt to
A) increase aggregate demand.
B) decrease aggregate demand.
C) decrease the price level.
D) increase short-run aggregate supply.
E) decrease short-run aggregate supply.

Accepted Answer

The Federal Reserve's response to the Great Recession involved implementing expansionary monetary policy, including lowering interest rates and engaging in large-scale asset purchases, in an attempt to increase aggregate demand and stimulate economic growth.

Question 7

If the interest rate on a loan is higher than the expected return from an investment,
A) a rational firm will take out a loan for the investment.
B) the Federal Reserve will conduct contractionary monetary policy.
C) a rational firm will not take out a loan for the investment.
D) the Federal Reserve will conduct expansionary monetary policy.
E) the government will conduct expansionary fiscal policy.

Accepted Answer

A rational firm will not take out a loan for an investment if the interest rate on the loan is higher than the expected return from the investment. This is because the firm would be losing money by taking out the loan and investing in the project. It would be more beneficial for the firm to wait until interest rates decrease or to find a different investment opportunity with a higher expected return.

Question 8

Central banks can use monetary policy to
A) reduce interest rates.
B) decrease taxes.
C) increase government spending.
D) steer the economy out of every recession.
E) prevent recessions.

Accepted Answer

Central banks can use monetary policy to reduce interest rates, making it cheaper for businesses and consumers to borrow money and stimulating economic activity. However, monetary policy alone may not always be enough to steer the economy out of a recession or prevent recessions entirely. Fiscal policy, such as government spending and tax cuts, may also be needed.

Question 9

The two types of monetary policy are
A) monetary and fiscal.
B) expansionary and contractionary.
C) countercyclical and pro-cyclical.
D) positive and negative.
E) pro and con.

Accepted Answer

The two types of monetary policy are expansionary and contractionary. Expansionary monetary policy is aimed at increasing the money supply to stimulate economic activity and promote growth, while contractionary monetary policy is aimed at decreasing the money supply to slow down the economy and prevent inflation. Monetary and fiscal policies are two separate types of policy, countercyclical and pro-cyclical are terms used to describe how policies respond to economic cycles, and positive and negative are not relevant to the definition of monetary policy.

Question 10

Expansionary monetary policy makes the aggregate demand curve
A) shift to the left.
B) become flatter.
C) become steeper.
D) shift to the right.
E) remain static.

Accepted Answer

Expansionary monetary policy aims to increase the money supply and decrease interest rates, which will encourage borrowing and spending. This in turn increases overall demand for goods and services, shifting the aggregate demand (AD) curve to the right.

Question 11

Expansionary monetary policy
A) lowers interest rates, causing aggregate demand to shift to the right.
B) lowers interest rates, causing aggregate demand to shift to the left.
C) raises interest rates, causing aggregate demand to shift to the right.
D) raises interest rates, causing aggregate demand to shift to the left.
E) lowers interest rates, causing short-run aggregate supply to shift to the right.

Accepted Answer

Expansionary monetary policy involves increasing the money supply and lowering interest rates. Lower interest rates make it cheaper to borrow money, leading to increased spending by consumers and businesses. This increased spending leads to an increase in aggregate demand, causing the demand curve to shift to the right.

Question 12

________ policy  is when a central bank acts to increase the money supply in an effort to stimulate the economy.
A) Expansionary monetary
B) Expansionary fiscal
C) Contractionary monetary
D) Contractionary fiscal
E) Countercyclical monetary

Accepted Answer

Expansionary monetary policy involves actions taken by a central bank to increase the money supply, which then lowers interest rates and stimulates economic growth. This can include measures such as buying government securities, lowering reserve requirements for banks, and decreasing the discount rate at which banks can borrow from the central bank.

Question 13

Refer to the following figure to answer the next questions. -According to the figure, if the economy started at full-employment output, expansionary monetary policy would cause real gross domestic product (GDP) to ________ in the short run. A) increase from Y₁ to Y₂ B) increase from Y₁ to Y₃ C) decrease from Y₂ to Y₁ D) decrease from Y₃ to Y₂ E) increase from Y₂ to Y₃

Accepted Answer

The answer of Refer to the following figure to answer...

Question 14

In the short run, some prices are inflexible. Most often, the prices that are inflexible are
A) output prices.
B) energy prices.
C) food prices.
D) product prices.
E) wages for workers.

Accepted Answer

In the short run, wages for workers tend to be inflexible because they are often set by contracts or established norms within industries. This means that companies may have difficulty adjusting their labor costs in response to changes in demand or supply, which can lead to unemployment or reduced profits. Prices for output, energy, food, and products may also be inflexible in the short run, but they are generally more responsive to changes in market conditions than wages.

Question 15

Expansionary monetary policy ________ interest rates, which ________ the ________.
A) raises; increases; aggregate demand
B) raises; decreases; aggregate demand
C) lowers; decreases; demand for loanable funds
D) lowers; increases; quantity demanded for loanable funds
E) raises; increases; quantity demanded for loanable funds

Accepted Answer

The answer of Expansionary monetary policy ________ interest rates, which...

Question 16

When the Fed buys bonds from financial institutions, new money moves directly
A) out of the loanable funds market.
B) into the hands of consumers.
C) into the loanable funds market.
D) out of the hands of consumers.
E) into short-run aggregate supply.

Accepted Answer

When the Fed buys bonds from financial institutions, it injects new money directly into the loanable funds market. This increases the supply of loanable funds and reduces the interest rate, which in turn stimulates investment and economic growth.

Question 17

Which of the following best describes how expansionary monetary policy affects the aggregate demand curve in the aggregate demand-aggregate supply model?
A) Expansionary monetary policy directly pulls money out of the loanable funds market. This lowers the interest rate, which provides a larger incentive for firms to invest. Investment is a component of aggregate demand, so this shifts aggregate demand to the right.
B) Expansionary monetary policy directly puts money into the loanable funds market. This lowers the interest rate, which provides a larger incentive for firms to invest. Investment is a component of aggregate demand, so this shifts aggregate demand to the right.
C) Expansionary monetary policy directly puts money into the loanable funds market. This raises the interest rate, which provides a larger incentive for firms to invest. Investment is a component of aggregate demand, so this shifts aggregate demand to the right.
D) Expansionary monetary policy directly puts money into the loanable funds market. This lowers the interest rate, which provides a larger incentive for firms to invest. Investment is a component of aggregate demand, so this shifts aggregate demand to the left.
E) Expansionary monetary policy directly pulls money out of the loanable funds market. This raises the interest rate, which provides a larger incentive for firms to invest. Investment is a component of aggregate demand, so this shifts aggregate demand to the left.

Accepted Answer

Expansionary monetary policy, which involves increasing the money supply and lowering interest rates, encourages consumer and business spending, which increases both consumption and investment. This shift in demand increases overall economic output and raises the aggregate demand curve. Therefore, option B is the correct answer as it accurately describes the effect of expansionary monetary policy on the aggregate demand curve in the AD-AS model.

Question 18

The Federal Reserve generally uses ________ to implement monetary policy.
A) reserve requirements
B) open market operations
C) fiscal policy
D) discount policies
E) government spending and taxes

Accepted Answer

The Federal Reserve primarily uses open market operations, which involve buying or selling government securities on the open market, to implement monetary policy. Reserve requirements and discount policies are other tools that the Fed can use, but they are less frequently used. Fiscal policy, including government spending and taxes, is the responsibility of the federal government, not the Federal Reserve.

Question 19

In the short run, expansionary monetary policy ________ real gross domestic product (GDP),
________ unemployment, and ________ the price level.
A) raises; lowers; raises
B) raises; raises; raises
C) lowers; lowers; raises
D) lowers; lowers; lowers
E) raises; lowers; lowers

Accepted Answer

Expansionary monetary policy increases the money supply, which typically lowers interest rates, stimulates investment and consumption, raises real GDP, reduces unemployment, and increases the price level due to higher demand.

Question 20

Holding all else constant, in the short run, an increase in the money supply can cause an)
A) increase in unemployment.
B) lower rate of inflation.
C) decrease in the price level.
D) decrease in real gross domestic product GDP).
E) increase in real gross domestic product GDP).

Accepted Answer

In the short run, an increase in the money supply can lead to a decrease in interest rates and an increase in investment, consumption, and net exports. This stimulates aggregate demand and can lead to an increase in real gross domestic product (GDP).

Quiz 18: Monetary Policy Learning Objectives

The Federal Reserve actively worked to keep the federal funds rate at nearly ________ percent for several years following the Great Recession.

From 1982 to 2008, the economy experienced only two recessions, and they were neither lengthy nor severe. This time period is known as the

Central banks can use monetary policy to

Refer to the following figure to answer the next questions. -According to the figure, expansionary monetary policy will cause an economy that is initially at full-employment output to go from equilibrium to equilibrium in the short run.

Expansionary monetary policy occurs when

The Federal Reserve's response to the Great Recession was an attempt to

If the interest rate on a loan is higher than the expected return from an investment,

Central banks can use monetary policy to

The two types of monetary policy are

Expansionary monetary policy makes the aggregate demand curve

Expansionary monetary policy

________ policy is when a central bank acts to increase the money supply in an effort to stimulate the economy.

Refer to the following figure to answer the next questions. -According to the figure, if the economy started at full-employment output, expansionary monetary policy would cause real gross domestic product (GDP) to ________ in the short run.

In the short run, some prices are inflexible. Most often, the prices that are inflexible are

Expansionary monetary policy interest rates, which the .

When the Fed buys bonds from financial institutions, new money moves directly

Which of the following best describes how expansionary monetary policy affects the aggregate demand curve in the aggregate demand-aggregate supply model?

The Federal Reserve generally uses ________ to implement monetary policy.

In the short run, expansionary monetary policy real gross domestic product (GDP) , unemployment, and the price level.

Holding all else constant, in the short run, an increase in the money supply can cause an)

Quiz 18: Monetary Policy Learning Objectives

The Federal Reserve actively worked to keep the federal funds rate at nearly ________ percent for several years following the Great Recession.

From 1982 to 2008, the economy experienced only two recessions, and they were neither lengthy nor severe. This time period is known as the

Central banks can use monetary policy to

Refer to the following figure to answer the next questions. -According to the figure, expansionary monetary policy will cause an economy that is initially at full-employment output to go from equilibrium to equilibrium in the short run.

Expansionary monetary policy occurs when

The Federal Reserve's response to the Great Recession was an attempt to

If the interest rate on a loan is higher than the expected return from an investment,

Central banks can use monetary policy to

The two types of monetary policy are

Expansionary monetary policy makes the aggregate demand curve

Expansionary monetary policy

________ policy is when a central bank acts to increase the money supply in an effort to stimulate the economy.

Refer to the following figure to answer the next questions. -According to the figure, if the economy started at full-employment output, expansionary monetary policy would cause real gross domestic product (GDP) to ________ in the short run.

In the short run, some prices are inflexible. Most often, the prices that are inflexible are

Expansionary monetary policy ________ interest rates, which ________ the ________.

When the Fed buys bonds from financial institutions, new money moves directly

Which of the following best describes how expansionary monetary policy affects the aggregate demand curve in the aggregate demand-aggregate supply model?

The Federal Reserve generally uses ________ to implement monetary policy.

In the short run, expansionary monetary policy ________ real gross domestic product (GDP) , ________ unemployment, and ________ the price level.

Holding all else constant, in the short run, an increase in the money supply can cause an)

Expansionary monetary policy interest rates, which the .

In the short run, expansionary monetary policy real gross domestic product (GDP) , unemployment, and the price level.