1. The Fed can affect the interaction between the demand for money and the supply of money to influence interest rates, the aggregate level of spending, and therefore economic growth. a. True b. False 2. The Fed can the level of spending as a means of stimulating the economy by the money supply. a. increase; decreasing b. decrease; increasing c. decrease; decreasing d. increase; increasing 3. A credit crunch occurs when: a. interest rates decline. b. interest rates rise. c. creditors restrict the amount of loans they are willing to provide. d. the economy is strong. 4. According to the theory of rational expectations, higher inflationary expectations encourage businesses and households to reduce their demand for loanable funds. a. True b. False 5. A passive monetary policy adjusts money supply automatically in response to economic conditions. a. True b. False 6. If the Fed implemented a policy of inflation targeting, and if the U.S. inflation rate deviated substantially from the Fed's target inflation rate, the Fed could lose credibility. a. True b. False 7. In general, there is: a. a positive relationship between unemployment and inflation. b. an inverse relationship between unemployment and inflation. c. an inverse relationship between GNP and inflation. d. a positive relationship between GNP and unemployment. 8. A -money policy can reduce unemployment, and a -money policy can reduce inflation. a. tight; loose b. loose; tight c. tight; tight d. loose; loose 9. A loose moncy policy tends to economic growth and the inflation rate. a. stimulate; place downward pressure on b. stimulate; place upward pressure on c. dampen; place upward pressure on d. dampen; place downward pressure on 10. When both inflation and unemployment are relatively high, there is more disagreenent among FOMC members about the proper monetary policy to implement. a. True b. False 11. serves as the most direct indicator of economic growth in the United States. a. Gross domestic product (GDP) b. National income c. The unemployment rate d. The industrial production index 12. Which of the following is not an indicator of inflation? a. housing price indexes b. wage rates c. oil prices d. consumer confidence surveys 13. The indicators tend to occur before a business cycle. a. leading b. lagging c. coincident d. none of the above 14. The indicators tend to occur after a business cycle. a. leading b. lagging c. coincident d. none of the above 15. The indicators tend to occur before a business cycle. a. leading b. lagging c. coincident d. none of the above 16. The time lag between when an economic problem arises and when it is reported in economic statistics is the a. recognition lag. b. implementation lag. c. impact lag. d. open-market lag. 17. The time between when an ecosonic problen is realized and when the Fed tries to correct it with its policies is the a. recognition lag. b. implementation lag. c. impact lag d. epen-market las. 18. The time between when the Fed adjusts the moncy sapply and when isterest rates change reflects the a. recognitive lag. b. implensentation lag. c. impact lag. d. open-market las. 19. If the Fed aftempts to reduce inflation, it would likely increase mency supply growth. a. True b. False 20. Which of the following best describes the relationship between the Fed and the Administration? a. The Fed must peeeive approval by the Administration before conducting monetary policy. b. The Fed must implement a monetary policy specifically to the support the Administration's policy. c. The Adrninistration must receive aporoval from the Fod before implementing fiscal polisy. d. \\( A \\) and \\( C \\) c. pone of the above 21. A high budet deficit tends to place pressure on interest rates: the Fed's tightening of the money supply tends to place pressure on interest rates. a. upward, upaard b. upward donnward c. downward; dowmoard d. downward, upward 22. The Fed is usually more willing to monetize the debt when inflation is relatively high. a. True b. False 23. International flows of funds can aflect the Fed's monetary policy. For example, if there is downaand peessure co U.S. interest rates that can be offset by foccign of funds the Fed may not feel compelled to use a monetary policy. a. inflows; loose b. inflows; tight c. outilaws loose d. outllows, tight c. bone of the above 24. Costner Nativeal, a commercial bank, obtains short-term deposits and makes long-term fixed-rate loans. It should be adversely affected when the Fed. a. monetizes the debe. b. maintains a stable moncy supply. c. uses a tightmoney policy. d. uses a bose-money policy. 22. The Fed is easally moee willag wo mastise the dete when infation is relatively high a. True b. False 23. Inemational flows of funds can affect the Feof monetary policy. For evample, if there is downwand pressure on U.S, inicrest rates that can be offet by forcignt of funks, the Fed may not foct cermpelled to use a mosetary policy. a, inflows; loose b. inflows; tight c. outflows; loose d. ouflows; tight c. nore of the ahore 24. Costrer National, a comnercial bank, ebtains short-term deposits and makes lone-term fixed nate louns. It should be adversely affectod when the Fed: a. monotiass the delo. b. maintains a stable money woply. c. uses a tight-mutey policy. d. ukes a loone-tnoney policy. 25. The lag reporsents the tims frem when an coonomic problem exists untal it is recegnizod. a. recognition b. adjustment c. impilementation d. nore of the abre 26. A dollar tends to exent inflaticnary prowsese is the U.S. a. stable b. strong c. weak d. boet \\( \\mathrm{A} \\) and \\( \\mathrm{B} \\) infleticenary cypeciations enoourape hoinesse. and houscholds to their demand foe loanable finds in eeder bo borrow and make planed expendeures increase. a. higher, tesuce b. hipler, increase c. lower, reluce d. lower, inctease 28. Historical evidence has shown that, when the Fed suppificantly increases money supply, U.S. inflation tends to shorty thereafter which is turn places a. increase; upwand b. increase, downwand c. decreatit: downwand d. decatasc, upward 29. If the Fod uses a pasive monetary policy during weak coonomic conditions, a. it increases money septy subetantially, b. it feduces muncy supply sebotartially. c. it allows the economy to fis itself. d. it focuse on menetizing the deld. 30. Which of the following is trae? a. Foderal deficits require that the Fed puchase govemment secarities. b. Federal deficits will always result is at increase in nsoney supply. c. The Federal Reserve monetixes debe by selling securities which ultimitely incrases moery supply. 4. Aa agreement betweea the Fed and the Treavery exiats whereby the Fed bs directly respenalble for monetiniag the delot whenever the defieit increases. c. Nione of the above. 30. Which of the follewing is true? a. Foderal deficits require that the Fod parchase povemneat securitics. b. Fodcral deficits will always rosult in an increbe in moecy supply. c. The Federal Reserve monetizes dater by selling seouriaies which whimalefy increases money supply. d. An agreement between the Fed and the Tresery exists whereby the Fed is directly responsible for munctiring the debe whenever the deficit increases. c. Nooe of the above. 31. Inflation is commonly the resalt of a a. large bodget deficit b. high kevel of interes rates. c. high level of unemployment. d. high level of ageregate demand. 32. According to the theory of rational capectution, if the Fed wes oper market eperations in order to increase the nupply of loanuble funds, the uliminte effect as interes nates is definitely a. a reduction in imerest rates. b. an increase in interest rates. c. no effect on the interes rates. d. the impact en interest rates cannot be determined. 33. The Federal Reserve would be most inclined to me a stimulative monetary policy to cure a rocesion if ol prices are a. low and stendy. b. low, but rising. c. very high, but declining slightly. d. very high and rising. 34. Global enowding out is describod in the teur so mean the impast of a. execsive U.S. population gowth on intreat ras. b. excesive global popelation growth on interent rates. d. an excessive bodpet deficit in ope poentry on cachuage nates. 35. If the federal governnets is willing to pay whatever is nocessary to borrow lounable finds, but the privine sector is not, this reflects a. the crowding-out eflest. b. dymamic open marict opcrations. c. defenive open market uperatioes d. monetizing the debe. 36. When the Fed ues open market cperatioes by parckaing Treasury securities from various financial institutions in the US, there will he a. an extward sthift in the supply schedule of loumble findt. b. an inward shit in the supply schedule of lounuble finds. c. no shift is the supply sechedale of loanable finds. d. an inward shift in the demand schedule for kounhle finck. 37. When the Fed uses open marker cepcrations by selling some of is Treasury securities to investions in the U.S, there will be a. an outward ahis in the supply schedule of hounuble flands. b. an inward shitt in the supply schedule of lounable fund: c. no shift in the supply schodale of loatable functs. d. an cotward shiff in the demand schebule for lounitle fands. 38. Which of the following is not a disadvantage of inflation targeting? a. If the U.S. inflation rate deviates substantially from the Fed's target inflation rate, the Fed could lose credibility. b. The Fed's complete focus on inflation could result in a much higher unemployment level. c. The Fed's complete focus on inflation could result in much higher interest rates, which would discourage economic growth. d. All of the above are disadvantages of inflation targeting. 39. Financial institutions such as commercial banks, bond mutual funds, insurance companies, and pension funds maintain large portfolios of bonds, so their portfolio is affected when the Fed interest rates. a. unfavorably; decreases b. unfavorably; increases c. favorably; increases d. Answer \\( \\mathrm{A} \\) and \\( \\mathrm{C} \\) are correct. 40. According to the theory of rational expectations, higher inflationary expectations encourage businesses and houscholds to reduce their demand for loanable funds. a. True b. False