21 . The most important factor influencing long run potential GDP growth is

Multiple Choice

• monetary policy
• fiscal policy
• productivity growth
• stock market prices

22 . The likelihood that the Fed will implement a change that will seriously harm the economy is minimized by the fact that:

Multiple Choice

• only bright, well-intentioned people are appointed to key roles at the Fed.
• Congress can remove the Chairman of the Fed at any time.
• the Board of Governors ultimately must answer to the U.S. President since he can replace them.
• there is decision making by committee.

23 . One valuable lesson investors should learn from the stock market behavior during the late 1990s and early 2000s is that the Fed:

Multiple Choice

• can control the stock market.
• can reduce the idiosyncratic risk of investing but not the systematic risk.
• can eliminate the risk from investing.
• cannot prevent a stock market decline.

24 . The short-run ups and downs of real GDP are called

Multiple Choice

• statistical errors
• accounting errors
• business cycles
• the Phillips curve

25 . ________ is a bank regulator's choice not to shut down an insolvent bank.

Multiple Choice

• Forbearance
• Reassurance
• Relief
• Decision

26 . _____ banks are required to join the federal reserve system; for _____ banks, it is ______.

Multiple Choice

• National; state; optional
• Federal; national; mandatory
• State; federal; optional
• National; investment; mandatory

27 . What is the primary method the Fed uses to change the money supply?

Multiple Choice

• changing the required reserve ratio
• changing the fed funds rate
• changing the level of discount loans
• open market operations

28 . According to classical economists

Multiple Choice

• the long run equilibrium is never at full employment
• monetary and fiscal policy arenot needed because prices are flexible
• at times, government intervention is needed to reduce the severity of the business cycle
• the short run equilibrium is always at full employment

29 . Which of the following statements is true?

Multiple Choice

• During severe recessions the Fed should increase spending
• Fiscal policy becomes completely ineffective when interest rates are close to zero
• Policy makers cannot use monetary and fiscal policy at the same time
• none of the above are true