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Quiz 3 Chapter 5 and 6
Chapter
5—Monetary Policy
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 money 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 disagreement
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 economic problem 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.
|
open-market lag.
|
18. The
time between when the Fed adjusts the money supply and when interest rates
change reflects the
|
a.
|
recognition lag.
|
|
b.
|
implementation lag.
|
|
c.
|
impact lag.
|
|
d.
|
open-market lag.
|
19. If
the Fed attempts to reduce inflation, it would likely increase money 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 receive 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 Administration must receive approval from the
Fed before implementing fiscal policy.
|
|
d.
|
A and C
|
|
e.
|
none of the above
|
21. A
high budget 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; upward
|
|
b.
|
upward; downward
|
|
c.
|
downward; downward
|
|
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 affect the Fed's monetary policy. For example, if there is
downward pressure on U.S. interest rates that can be offset by foreign ____ of
funds, the Fed may not feel compelled to use a ____ monetary policy.
|
a.
|
inflows; loose
|
|
b.
|
inflows; tight
|
|
c.
|
outflows; loose
|
|
d.
|
outflows; tight
|
|
e.
|
none of the above
|
24. Costner
National, 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 debt.
|
|
b.
|
maintains a stable money supply.
|
|
c.
|
uses a tight-money policy.
|
|
d.
|
uses a loose-money policy.
|
25. The
____ lag represents the time from when an economic problem exists until it is
recognized.
|
a.
|
recognition
|
|
b.
|
adjustment
|
|
c.
|
implementation
|
|
d.
|
none of the above
|
26. A
____ dollar tends to exert inflationary pressure in the U.S.
|
a.
|
stable
|
|
b.
|
strong
|
|
c.
|
weak
|
|
d.
|
both A and B
|
27. According
to the theory of rational expectations, ____ inflationary expectations
encourage businesses and households to ____ their demand for loanable funds in
order to borrow and make planned expenditures increase.
|
a.
|
higher; reduce
|
|
b.
|
higher; increase
|
|
c.
|
lower; reduce
|
|
d.
|
lower; increase
|
28. Historical
evidence has shown that, when the Fed significantly increases money supply,
U.S. inflation tends to ____ shortly thereafter which in turn places ____
pressure on U.S. interest rates.
|
a.
|
increase; upward
|
|
b.
|
increase; downward
|
|
c.
|
decrease; downward
|
|
d.
|
decrease; upward
|
29. If
the Fed uses a passive monetary policy during weak economic conditions,
|
a.
|
it increases money supply substantially.
|
|
b.
|
it reduces money supply substantially.
|
|
c.
|
it allows the economy to fix itself.
|
|
d.
|
it focuses on monetizing the debt.
|
30. Which
of the following is true?
|
a.
|
Federal deficits require that the Fed purchase
government securities.
|
|
b.
|
Federal deficits will always result in an increase
in money supply.
|
|
c.
|
The Federal Reserve monetizes debt by selling
securities which ultimately increases money supply.
|
|
d.
|
An agreement between the Fed and the Treasury
exists whereby the Fed is directly responsible for monetizing the debt
whenever the deficit increases.
|
|
e.
|
None of the above.
|
31. Inflation
is commonly the result of a
|
a.
|
large budget deficit.
|
|
b.
|
high level of interest rates.
|
|
c.
|
high level of unemployment.
|
|
d.
|
high level of aggregate demand.
|
32. According
to the theory of rational expectations, if the Fed uses open market operations
in order to increase the supply of loanable funds, the ultimate effect on
interest rates is definitely
|
a.
|
a reduction in interest rates.
|
|
b.
|
an increase in interest rates.
|
|
c.
|
no effect on the interest rates.
|
|
d.
|
the impact on interest rates cannot be determined.
|
33. The
Federal Reserve would be most inclined to use a stimulative monetary policy to
cure a recession if oil prices are
|
a.
|
low and steady.
|
|
b.
|
low, but rising.
|
|
c.
|
very high, but declining slightly.
|
|
d.
|
very high and rising.
|
34. Global
crowding out is described in the text to mean the impact of
|
a.
|
excessive U.S. population growth on interest
rates.
|
|
b.
|
excessive global population growth on interest
rates.
|
|
c.
|
an excessive budget deficit in one country on
interest rates of another country.
|
|
d.
|
an excessive budget deficit in one country on
exchange rates.
|
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