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