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Macro - Monetary Policy Practice
Test Description: This a review test on monetary policy
Instructions: Answer all questions to get your test result.
1) What are the 3 tools for Monetary Policy?
A
Discount rate,Reserve requirements,Open Market Operations
B
Discount rate, Reserve excess, open mitigation markets
C
Discount rate,Reserve investments,Overestimation market
D
Discount rate,Reserve liabilities, Overflow markets
2) During a recession the FED will most likely react by
A
easing monetary policy making easier to lend money
B
tightening the monetary policy making lending more difficult
C
A raising the discount rate to affect the monetary supply
D
reducing open market transactions to reduce the money supply
3) When would the use Open Market Operations to sell bonds?
A
Recession phase and high unemployment
B
During international trade to control the value of the dollar.
C
Recession phase and low inflation
D
Inflationary period and low unemployment
4) Crowding out occurs when:
A
restrictive monetary policy causes the interest rate to increase
B
increases in government spending become ineffective because tax revenues increase as income increases
C
Government borrowing to finance its spending decreases private sector investment
D
Monetary policy actions decrease the effectiveness of fiscal policy
5) Suppose that the economy is in the midst of a recession, which of the following policies would be consistent with active monetary policy?
A
The buying of bonds on the open market.
B
Congressional proposal to incur a Federal surplus to be used for the retirement of public debt.
C
Increasing the Discount Rate
D
Reduction in agricultural subsidies and veterans' benefits.
6) The Federal Reserve can cause an increase in interest rates in an attempt to:
A
reduce structural unemployment
B
reduce cyclical unemployment
C
reduce inflation
D
increase aggregate demand
7) The loanable funds market is best described as bringing together:
A
investors and borrowers
B
financial institutions and investors
C
savers and lenders
D
savers and borrowers
8) Hyperinflation is typically caused by
A
trade surpluses that are caused by strong protectionist policies
B
continuous expansion of the money supply to finance government budget deficits
C
bad harvests that lead to widespread shortages
D
high tax rates that discourage work effort
9) If the central bank conducts an open-market purchase of bonds, which of the following will occur?
A
The money supply will decrease.
B
The price of bonds will increase.
C
Total bank reserves will decrease.
D
Consumption will decrease.
10) According to the short-run Phillips curve, lower inflation rates are associated with?
A
higher government spending
B
higher unemployment rates
C
larger budget deficits
D
greater labor-force participation rates
*select an answer for all questions
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