Multiple Choice Questions:
1. In a recession, appropriate monetary policy would tend to be for the Fed to _______________ bonds to _______________AD.
a. Buy; increase.
b. Buy; decrease.
c. Sell; increase.
d. Sell; decrease.
2. To offset an inflationary boom, appropriate Fed policy could be to _______________ reserve requirements to _______________ AD.
a. Increase; increase.
b. Increase; decrease.
c. Decrease; increase.
d. Decrease; decrease.
3. The quantity of money that households and businesses will demand?
a. Increases if income rises but decreases if interest rates rise.
b. Increases if income rises and increases if interest rates rise.
c. Decreases if income rises but increases if interest rates rise.
d. Decreases if income rises and decreases if interest rates rise.
e. None of the above is true.
4. Starting from an initial long-run equilibrium, an unanticipated shift to more expansionary monetary policy would tend to increase?
a. Prices and unemployment in the long run.
b. Real output in the short run, but not in the long run.
c. Real output in the long run, but not the short run.
d. Real output in both the long run and short run.
5. The Fed unexpectedly increasing the money supply will cause an increase in aggregate demand because?
a. Real interest rates will fall, stimulating business investment and consumer purchases.
b. The dollar will depreciate on the foreign exchange market, leading to an increase in net exports.
c. Lower interest rates will tend to increase asset prices, which increases wealth and thereby stimulates current consumption.
d. Of all the above reasons.
6. Which one of the following would be the most appropriate stabilization policy if the economy is operating beyond its long-run potential capacity?
a. An increase in the discount rate.
b. An increase in government purchases, holding taxes constant.
c. A reduction in reserve requirements.
d. A reduction in taxes, holding government purchases constant.
7. In the long run, a sustained increase in growth of the money supply relative to the growth rate of potential real output will most likely?
a. Cause the nominal interest rate to fall.
b. Cause the real interest rate to fall.
c. Reduce the natural rate of unemployment.
d. Increase real output growth.
e. Do none of the above.
8. Which of the following is true?
a. An unanticipated shift to a more expansionary monetary policy will temporarily stimulate real output and employment.
b. Once decision makers come to anticipate the inflationary side effects, expansionary monetary policy will fail to stimulate either real output or employment.
c. The primary long-run effect of persistent growth of the money supply at a rapid rate will be inflation.
d. All of the above are true.
9. Which of the following would cause the U.S. money supply to expand?
a. A commercial bank calling in a loan to build up more excess reserves.
b. A commercial bank purchasing U.S. bonds from the Fed as an investment.
c. A decrease in reserve requirements.
d. An increase in the discount rate.
10. Which of the following would tend to reduce the price level?
a. A commercial bank using excess reserves to extend a loan to a customer.
b. A commercial bank purchasing U.S. bonds from an individual as an investment.
c. An increase in reserve requirements.
d. An increase in the discount rate.
e. A purchase of U.S. government bonds by the Fed.