Macro - Monetary Policy Practice Question Preview (ID: 51283)


This A Review Test On Monetary Policy. TEACHERS: click here for quick copy question ID numbers.

What are the 3 tools for Monetary Policy?
a) Discount rate, Reserve excess, open mitigation markets
b) Discount rate,Reserve requirements,Open Market Operations
c) Discount rate,Reserve liabilities, Overflow markets
d) Discount rate,Reserve investments,Overestimation market

During a recession the FED will most likely react by
a) A raising the discount rate to affect the monetary supply
b) easing monetary policy making easier to lend money
c) tightening the monetary policy making lending more difficult
d) reducing open market transactions to reduce the money supply

When would the use Open Market Operations to sell bonds?
a) Recession phase and high unemployment
b) Inflationary period and low unemployment
c) Recession phase and low inflation
d) During international trade to control the value of the dollar.

Crowding out occurs when:
a) increases in government spending become ineffective because tax revenues increase as income increases
b) Government borrowing to finance its spending decreases private sector investment
c) Monetary policy actions decrease the effectiveness of fiscal policy
d) restrictive monetary policy causes the interest rate to increase

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) The buying of bonds on the open market.
c) Reduction in agricultural subsidies and veterans' benefits.
d) Increasing the Discount Rate

The Federal Reserve can cause an increase in interest rates in an attempt to:
a) reduce cyclical unemployment
b) reduce inflation
c) reduce structural unemployment
d) increase aggregate demand

The loanable funds market is best described as bringing together:
a) investors and borrowers
b) savers and borrowers
c) financial institutions and investors
d) savers and lenders

Hyperinflation is typically caused by
a) high tax rates that discourage work effort
b) continuous expansion of the money supply to finance government budget deficits
c) trade surpluses that are caused by strong protectionist policies
d) bad harvests that lead to widespread shortages

If the central bank conducts an open-market purchase of bonds, which of the following will occur?
a) The price of bonds will increase.
b) The money supply will decrease.
c) Total bank reserves will decrease.
d) Consumption will decrease.

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

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