Question 1

Which of the following is a problem in pursuing monetary policy?

Accepted Answer

The answer of Which of the following is a problem...

Question 2

According to the AS/AD model, in the short run an increase in the federal funds rate will

Accepted Answer

An increase in the federal funds rate typically leads to higher borrowing costs, reducing consumer spending and investment. This decrease in aggregate demand results in lower real GDP and a decrease in the price level in the short run.

Question 3

If the Fed wants to fight inflation, it will ____________the federal funds rate, which in the short run shifts the____________ .

Accepted Answer

If the Fed wants to fight inflation, it will raise the federal funds rate. When the Fed raises the federal funds rate, it becomes more expensive for banks to borrow money, which means they will lend less to households and businesses. This decrease in available credit will decrease consumption and investment, which will shift the Aggregate Demand (AD) curve leftward, resulting in a decrease in output and prices in the short run, eventually reducing inflation pressures.

Question 4

-In the above figure, the economy experiences an increase in aggregate demand so that the aggregate demand curve shifts from AD₀to AD₂. If the Fed wants to offset this change, it would____________

Accepted Answer

To offset an increase in aggregate demand, the Fed would sell government securities on the open market, which decreases the money supply and raises interest rates, thereby reducing aggregate demand.

Question 5

Suppose that initially real GDP equals potential GDP. Then an increase in aggregate demand occurs. According to the Taylor rule, the Fed should____________ the federal funds rate by ____________government securities in the open market.

Accepted Answer

According to the Taylor rule, when aggregate demand increases and real GDP exceeds potential GDP, the Fed should raise the federal funds rate to prevent inflation. This is achieved by selling government securities in the open market, which reduces the money supply and increases interest rates.

Question 6

-In the above figure, suppose the economy is at point D. If the Fed eases to fight the recession, the economy will move to

Accepted Answer

The answer of 
-In the above figure, suppose the economy...

Question 7

-In the above figure, if the economy is initially at point D, then if the Fed lowers the federal funds rate

Accepted Answer

Lowering the federal funds rate typically leads to a decrease in other short-term interest rates, making borrowing cheaper. This can increase net exports by making domestic goods cheaper for foreign buyers, thus shifting the Aggregate Demand (AD) curve to the right.

Question 8

-In the above figure, suppose point C is the original equilibrium. If the Fed hikes the federal funds rate, the new equilibrium is given by point

Accepted Answer

The answer of 
-In the above figure, suppose point C...

Question 9

Suppose that initially real GDP equals potential GDP. Then a decrease in aggregate demand occurs. According to the Taylor rule, the Fed should____________ the federal funds rate by ____________government securities in the open market.

Accepted Answer

According to the Taylor rule, when there is a decrease in aggregate demand, the Federal Reserve should lower the federal funds rate. To achieve this, they would need to increase the money supply, which can be done by buying government securities in the open market. Therefore, the correct choice is A) lower; buying.

Question 10

-In the above figure, suppose the economy is at point B. Which of the following policy options for the Fed will move the economy toward its LAS?

Accepted Answer

The answer of 
-In the above figure, suppose the economy...

Question 11

-Which aggregate supply-aggregate demand diagram above shows the effect on real GDP and the price level of monetary policy when it is used to fight a recession?

Accepted Answer

Figure A shows the effect of monetary policy when it is used to fight a recession. Monetary policy can be used to increase the money supply, which will lead to a decrease in interest rates. This will make it cheaper for businesses to borrow money and invest, and for consumers to borrow money and spend. This will lead to an increase in aggregate demand, which will shift the aggregate demand curve to the right. This will lead to an increase in real GDP and the price level.

Question 12

-In the above figure, the economy experiences a decrease in aggregate demand so that the aggregate demand curve shifts from AD₀to AD₁. If the Fed wants to offset this change, it would____________

Accepted Answer

Purchasing government securities on the open market increases the money supply, which lowers interest rates and stimulates aggregate demand, offsetting the decrease.

Question 13

In the short run, the Fedʹs actions to fight inflation shift the

Accepted Answer

In the short run, the Federal Reserve can fight inflation by increasing interest rates, which reduces consumer and business spending, leading to a leftward shift in the aggregate demand curve.

Question 14

-In the above figure, suppose the economy was initially in an equilibrium at point D. Where would the economy move if the Fed makes an open market purchase of government securities?

Accepted Answer

The answer of 
-In the above figure, suppose the economy...

Question 15

In order to combat inflation, the Fed will ____________the federal funds rate thereby the ____________quantity of money.

Accepted Answer

The answer of In order to combat inflation, the Fed...

Question 16

-In the above figure, suppose the economy is at point D. Which of the following occurs as a result of an open market purchase of government securities by the Fed?

Accepted Answer

An open market purchase of government securities by the Fed increases the money supply, leading to a decrease in the real interest rate. This lower interest rate encourages investment and can also lead to a depreciation of the currency, making exports more competitive.

Question 17

Suppose that several European countries enter a recession decreasing U.S. exports. To move U.S. GDP back to potential GDP, the Fed should

Accepted Answer

Lowering the federal funds rate would decrease interest rates, making borrowing cheaper and encouraging investment and consumption. This can help boost economic growth and move the economy back towards potential GDP. Increasing the government's budget deficit would also lead to increased spending, but may not be the best long-term solution and could lead to inflation in the future. Decreasing the government's budget deficit or raising the federal funds rate could both potentially exacerbate the recession and slow down growth.

Question 18

A worldwide recession reduces the amount of U.S. exports, and as a result, aggregate demand decreases. To move U.S. GDP back to potential GDP, the Fed should

Accepted Answer

Lowering the federal funds rate would make borrowing cheaper, leading to an increase in consumption and investment spending, ultimately increasing aggregate demand and potentially moving U.S. GDP back to potential GDP. Raising the federal funds rate or decreasing the quantity of money would have the opposite effect, further decreasing aggregate demand. Increasing the government's budget deficit would only be effective if the deficit spending was targeted towards increasing aggregate demand.

Question 19

Consumer confidence in the economy rises, and as a result, real GDP increases above potential GDP. To move U.S. GDP back to potential GDP, the Fed should

Accepted Answer

An increase in real GDP above potential GDP indicates an overheated economy and an increase in inflationary pressures. To combat this, the Fed should raise the federal funds rate to increase the cost of borrowing and slow down spending in the economy. This should help bring down demand and move GDP back to its potential level. Lowering the federal funds rate (A) would only exacerbate the overheating problem by encouraging more borrowing and spending. Increasing the government's budget deficit (B) would also exacerbate the problem by increasing aggregate demand in the economy. Decreasing the government's budget deficit (C) might help in the long run but would not immediately address the overheating problem.

Question 20

One problem with the ripple effect from the Fedʹs monetary policy is

Accepted Answer

The problem with the ripple effect from the Fed's monetary policy is that the monetary policy transmission process is long and drawn out. This means that it takes time for changes in the Federal funds rate to affect the overall economy and can lead to unintended consequences.

Quiz 14: Monetary Policy

Which of the following is a problem in pursuing monetary policy?

According to the AS/AD model, in the short run an increase in the federal funds rate will

If the Fed wants to fight inflation, it will the federal funds rate, which in the short run shifts the .

-In the above figure, the economy experiences an increase in aggregate demand so that the aggregate demand curve shifts from AD₀to AD₂. If the Fed wants to offset this change, it would____________

Suppose that initially real GDP equals potential GDP. Then an increase in aggregate demand occurs. According to the Taylor rule, the Fed should the federal funds rate by government securities in the open market.

-In the above figure, suppose the economy is at point D. If the Fed eases to fight the recession, the economy will move to

-In the above figure, if the economy is initially at point D, then if the Fed lowers the federal funds rate

-In the above figure, suppose point C is the original equilibrium. If the Fed hikes the federal funds rate, the new equilibrium is given by point

Suppose that initially real GDP equals potential GDP. Then a decrease in aggregate demand occurs. According to the Taylor rule, the Fed should the federal funds rate by government securities in the open market.

-In the above figure, suppose the economy is at point B. Which of the following policy options for the Fed will move the economy toward its LAS?

-Which aggregate supply-aggregate demand diagram above shows the effect on real GDP and the price level of monetary policy when it is used to fight a recession?

-In the above figure, the economy experiences a decrease in aggregate demand so that the aggregate demand curve shifts from AD₀to AD₁. If the Fed wants to offset this change, it would____________

In the short run, the Fedʹs actions to fight inflation shift the

-In the above figure, suppose the economy was initially in an equilibrium at point D. Where would the economy move if the Fed makes an open market purchase of government securities?

In order to combat inflation, the Fed will the federal funds rate thereby the quantity of money.

-In the above figure, suppose the economy is at point D. Which of the following occurs as a result of an open market purchase of government securities by the Fed?

Suppose that several European countries enter a recession decreasing U.S. exports. To move U.S. GDP back to potential GDP, the Fed should

A worldwide recession reduces the amount of U.S. exports, and as a result, aggregate demand decreases. To move U.S. GDP back to potential GDP, the Fed should

Consumer confidence in the economy rises, and as a result, real GDP increases above potential GDP. To move U.S. GDP back to potential GDP, the Fed should

One problem with the ripple effect from the Fedʹs monetary policy is

Quiz 14: Monetary Policy

Which of the following is a problem in pursuing monetary policy?

According to the AS/AD model, in the short run an increase in the federal funds rate will

If the Fed wants to fight inflation, it will ____________the federal funds rate, which in the short run shifts the____________ .

-In the above figure, the economy experiences an increase in aggregate demand so that the aggregate demand curve shifts from AD0 to AD2. If the Fed wants to offset this change, it would____________

Suppose that initially real GDP equals potential GDP. Then an increase in aggregate demand occurs. According to the Taylor rule, the Fed should____________ the federal funds rate by ____________government securities in the open market.

-In the above figure, suppose the economy is at point D. If the Fed eases to fight the recession, the economy will move to

-In the above figure, if the economy is initially at point D, then if the Fed lowers the federal funds rate

-In the above figure, suppose point C is the original equilibrium. If the Fed hikes the federal funds rate, the new equilibrium is given by point

Suppose that initially real GDP equals potential GDP. Then a decrease in aggregate demand occurs. According to the Taylor rule, the Fed should____________ the federal funds rate by ____________government securities in the open market.

-In the above figure, suppose the economy is at point B. Which of the following policy options for the Fed will move the economy toward its LAS?

-Which aggregate supply-aggregate demand diagram above shows the effect on real GDP and the price level of monetary policy when it is used to fight a recession?

-In the above figure, the economy experiences a decrease in aggregate demand so that the aggregate demand curve shifts from AD0 to AD1. If the Fed wants to offset this change, it would____________

In the short run, the Fedʹs actions to fight inflation shift the

-In the above figure, suppose the economy was initially in an equilibrium at point D. Where would the economy move if the Fed makes an open market purchase of government securities?

In order to combat inflation, the Fed will ____________the federal funds rate thereby the ____________quantity of money.

-In the above figure, suppose the economy is at point D. Which of the following occurs as a result of an open market purchase of government securities by the Fed?

Suppose that several European countries enter a recession decreasing U.S. exports. To move U.S. GDP back to potential GDP, the Fed should

A worldwide recession reduces the amount of U.S. exports, and as a result, aggregate demand decreases. To move U.S. GDP back to potential GDP, the Fed should

Consumer confidence in the economy rises, and as a result, real GDP increases above potential GDP. To move U.S. GDP back to potential GDP, the Fed should

One problem with the ripple effect from the Fedʹs monetary policy is

If the Fed wants to fight inflation, it will the federal funds rate, which in the short run shifts the .

-In the above figure, the economy experiences an increase in aggregate demand so that the aggregate demand curve shifts from AD₀to AD₂. If the Fed wants to offset this change, it would____________

Suppose that initially real GDP equals potential GDP. Then an increase in aggregate demand occurs. According to the Taylor rule, the Fed should the federal funds rate by government securities in the open market.

Suppose that initially real GDP equals potential GDP. Then a decrease in aggregate demand occurs. According to the Taylor rule, the Fed should the federal funds rate by government securities in the open market.

-In the above figure, the economy experiences a decrease in aggregate demand so that the aggregate demand curve shifts from AD₀to AD₁. If the Fed wants to offset this change, it would____________

In order to combat inflation, the Fed will the federal funds rate thereby the quantity of money.