Economics Study Guide
Refer to the diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve, respectively. All numbers are in billionsof dollars. If the interestrate is 6 percentand the goal of the Fed is full-employment output of Qf,it should
increase the interest rate from 6 percentto 8 percent.
decrease the interest rate from 6 percentto 4 percent.
decrease the interest rate from 6 percentto 2 percent.
D. maintain the interest rate at 6 percent.
AACSB: Knowledge Application
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-05 Identify the mechanisms by which monetarypolicy affects GDP and the price level.
Test Bank: I Topic: MonetaryPolicy, RealGDP, and the Price Level
Type: Graph
189. The purpose of an expansionary monetary policy is to shift the
A. aggregate demand curve leftward.
B. aggregate demand curve rightward.
aggregate supply curve leftward.
investment demand curve leftward.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-05 Identify the mechanisms by which monetarypolicy affects GDP and the price level.
Test Bank: I Topic: MonetaryPolicy, RealGDP, and the Price Level
190.
Refer to the diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve. All figures are in billions. If the money supply is MS1 and the goal of the monetary authorities is full-employment output Qf, they should
A. increase the money supply from $80 to $100.
increase the money supply from $80 to $120.
maintain the money supply at $80.
decrease the money supply from $80 to $60.
AACSB: Knowledge Application
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-05 Identify the mechanisms by which monetarypolicy affects GDP and the price level.
Test Bank: I Topic: MonetaryPolicy, RealGDP, and the Price Level
Type: Graph
191.
Refer to the diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve. All figures are in billions. If aggregate demand is AD3 and the monetary authorities desire to reduce it to AD2, they should
increase the interest rate from 3 percentto 9 percent.
increase the money supply from $100 to $120.
C. decrease the money supply from $120 to $100.
D. decrease the interestrate from 3 percentto 9 percent.
AACSB: Knowledge Application
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-05 Identify the mechanisms by which monetarypolicy affects GDP and the price level.
Test Bank: I Topic: MonetaryPolicy, RealGDP, and the Price Level
Type: Graph
192.
Refer to the diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve. All figuresare in billions.Which of the followingwould shift the money supply curve from MS1 to MS3?
A. an increasein the discount rate
B. purchases of U.S. securities by the Fed in the open market
sales of U.S. securities by the Fed in the open market
an increase in the reserveratio
AACSB: Knowledge Application
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-05 Identify the mechanisms by which monetarypolicy affects GDP and the price level.
Test Bank: I Topic: MonetaryPolicy, RealGDP, and the Price Level
Type: Graph
193.
Refer to the diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve. Allfigures are in billions. If the MPC for the economy describedby the figuresis 0.8,
A. an increase in the money supply from $80 to $100 willshift the aggregate demand curve rightward by $50 billion at each price level.
an increase in the money supply from $80 to $100 will shift the aggregate demand curve leftwardby $40 billion at each price level.
a decrease in the interestrate from 9 percent to 6 percentwill shift the aggregatedemand curve leftwardby $100 billion at each price level.
a decrease in the interestrate from 6 percentto 3 percent willshift the aggregate demand curve leftwardby $50 billionat each price level.
AACSB: Knowledge Application
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-05 Identify the mechanisms by which monetarypolicy affects GDP and the price level.
Test Bank: I Topic: MonetaryPolicy, RealGDP, and the Price Level
Type: Graph
An increase in the money supply will
A. lower interest rates and lower the equilibrium GDP.
B. lower interest rates and increase the equilibrium GDP.
increase interest rates and increase the equilibrium GDP.
increase interest rates and lower the equilibrium GDP.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-05 Identify the mechanisms by which monetarypolicy affects GDP and the price level.
Test Bank: I Topic: MonetaryPolicy, RealGDP, and the Price Level
All else equal, when the FederalReserve Banks engage in a restrictive monetary policy, the prices of government bonds usually
A. fall.
rise.
remain constant.
move in the same direction as the bonds' interest rate yield.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-05 Identify the mechanisms by which monetarypolicy affects GDP and the price level.
Test Bank: I Topic: MonetaryPolicy, RealGDP, and the Price Level
All else equal, when the Federal Reserve Banks engage in an expansionary monetary policy, the interest rates receivedon government bonds usually
A. fall.
rise.
remain constant.
move in the same direction as the bonds' price.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-05 Identify the mechanisms by which monetarypolicy affects GDP and the price level.
Test Bank: I Topic: MonetaryPolicy, RealGDP, and the Price Level
Money Supply Money Demand Interest RateInvestment (at Interest Rate Shown)$400$6002%$700$4005003600$4004004500$4003005300$4002006200 197.
Answer the questionon the basis of the information in the table. The equilibrium interest rate in this economy is
A. 3 percent.
B. 4 percent.
5 percent.
6 percent.
AACSB: Knowledge Application
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-05 Identify the mechanisms by which monetarypolicy affects GDP and the price level.
Test Bank: I Topic: MonetaryPolicy, RealGDP, and the Price Level
Type: Table
Money Supply Money Demand Interest RateInvestment (at Interest Rate Shown)$400$6002%$700$4005003600$4004004500$4003005300$4002006200 198.
Answer the question on the basis of the information in the table. An interest rate of 2 percent is not sustainable because
the demand for bonds in the bond market will fall and the interest rate will fall.
the demand for bonds in the bond market will rise and the interest rate will fall.
the supply of bonds in the bond market will decline and the interestrate will rise.
D. the supply of bonds in the bond market will rise and the interest rate will rise.
AACSB: Knowledge Application
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-05 Identify the mechanisms by which monetarypolicy affects GDP and the price level.
Test Bank: I Topic: MonetaryPolicy, RealGDP, and the Price Level
Type: Table
Money Supply Money Demand Interest RateInvestment (at Interest Rate Shown)$400$6002%$700$4005003600$4004004500$4003005300$4002006200 199.
Answer the question on the basis of the information in the table. The amount of investment that will be forthcoming in thiseconomy at equilibrium is
A. $700. B. $600. C. $500. D. $300.
AACSB: Knowledge Application
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-05 Identify the mechanisms by which monetarypolicy affects GDP and the price level.
Test Bank: I Topic: MonetaryPolicy, RealGDP, and the Price Level
Type: Table
Money Supply Money Demand Interest RateInvestment (at Interest Rate Shown)$400$6002%$700$4005003600$4004004500$4003005300$4002006200 200.
Answer the question on the basis of the information in the table. Suppose the legalreserve requirement is 10 percent and initially there are no excess reserves in the banking system. If the Fed wished to reducethe interest rate by 1 percentage point, it would
sell $10 of governmentbonds in the open market.
buy $100 of government bondsin the open market.
sell $100of government bonds in the open market.
D. buy $10 of government bondsinthe open market.
AACSB: Knowledge Application
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-05 Identify the mechanisms by which monetarypolicy affects GDP and the price level.
Test Bank: I Topic: MonetaryPolicy, RealGDP, and the Price Level
Type: Table
The price of government bonds and the interestrate received by a bond buyer are
positively related.
unrelated.
C. inversely related.
D. independent of Federal Reserveopen-market operations.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-05 Identify the mechanisms by which monetarypolicy affects GDP and the price level.
Test Bank: I Topic: MonetaryPolicy, RealGDP, and the Price Level
A restrictive monetarypolicy is designedto shift the
A. aggregate demand curve rightward.
B. aggregate demand curve leftward.
aggregate supply curve rightward.
aggregate supply curve leftward.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-05 Identify the mechanisms by which monetarypolicy affects GDP and the price level.
Test Bank: I Topic: MonetaryPolicy, RealGDP, and the Price Level
If the economy is operating in the relatively steep (upper) portion of its aggregate supply curve, a reduction in the money supply will
increase the interest rate and increase employment.
reduce the interest rate and increase employment.
C. increase the interest rate and reduce the price level, assuming it is flexible downward.
D. reduce the interest rate and increase the price level.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-05 Identify the mechanisms by which monetarypolicy affects GDP and the price level.
Test Bank: I Topic: MonetaryPolicy, RealGDP, and the Price Level
The sale of governmentbonds by the Federal Reserve Banks to commercial banks will
increase aggregate supply.
decrease aggregate supply.
increase aggregate demand.
D. decrease aggregate demand.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-05 Identify the mechanisms by which monetarypolicy affects GDP and the price level.
Test Bank: I Topic: MonetaryPolicy, RealGDP, and the Price Level
Assume that the price level is flexible both upward and downward and that the Fed's policy is to keep the price level from either rising or falling. If aggregate supply increasesinthe economy, the Fed
will have to increase interest rates to keep the price level from falling.
will have to reduce the money supply to keep the price level from rising.
C. will have to increasethe money supply to keep the price level from falling.
D. can keep the price level stable without altering the money supply orinterest rate.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-05 Identify the mechanisms by which monetarypolicy affects GDP and the price level.
Test Bank: I Topic: MonetaryPolicy, RealGDP, and the Price Level
If the demand for money increasesand the Fed wants interestrates to remain unchanged, which of the followingwould be appropriate policy?
recall Federal Reserve Notes from circulation
raise the legal reserve requirement
C. buy bonds in the open market
D. raise the discount rate
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-05 Identify the mechanisms by which monetarypolicy affects GDP and the price level.
Test Bank: I Topic: MonetaryPolicy, RealGDP, and the Price Level
The current (2016) chairperson of the Board of Governors of the Federal ReserveSystem is
A. Janet Yellen.
John B. Taylor.
Alan Greenspan.
Ben Bernanke.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-03 List and explainthe goals and tools of monetarypolicy.
Test Bank: I Topic: MonetaryPolicy, RealGDP, and the Price Level
In recent years, the Federal Reserve has
paid closer attention to M1 than M2 in setting monetary targets.
relied more on changes in the discount rate than open-market operations in establishing monetary policy.
increased M2 at a fixed annualrate, regardless of the health of the economy.
D. taken an activist,pragmatic approachto monetary policy,paying close attention to interest rates.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 16-06 Explainthe effectiveness of monetary policy and its shortcomings.
Test Bank: I Topic: Monetary Policy: Evaluationand Issues
From September2007 to April 2008, the Fed lowered the federalfunds rate from 5.25 percentto 2 percentin a series of steps. The Fed's actions were largely in response to
A. threats to the financial system from the mortgage default crisis.
forecasts of higher inflation rates.
Chinese refusal to allowtheir exchange rate to reflect market conditions.
pressure from the president to offset contractionary effects of a tax increase.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 16-06 Explainthe effectiveness of monetary policy and its shortcomings.
Test Bank: I Topic: Monetary Policy: Evaluationand Issues
In an effort to stabilizethe banking sector and keep banks lending, from October 2008 to September 2009, the Fed
raised reserve requirements.
raised the amount of interestpaid on reserves held at Fed banks.
declared a series of bank holidays to give banks a chance to recover from excessivewithdrawals from customeraccounts.
D. lowered the federal funds target rate.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 16-06 Explainthe effectiveness of monetary policy and its shortcomings.
Test Bank: I Topic: Monetary Policy: Evaluationand Issues
Which of the followingbest describes the effect of the zero interest rate policy implemented in December 2008?
A. Its effectiveness was limited by the zero lower bound problem.
It created a surge in inflation.
It forced nominal interest rates to below zero.
It had the desired effect, promoting full recovery by 2010.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 16-06 Explainthe effectiveness of monetary policy and its shortcomings.
Test Bank: I Topic: Monetary Policy: Evaluationand Issues
In response to the zero lower bound problem,
the Fed implemented the zero interest rate policy (ZIRP).
Congress approved additional fiscal stimulus in 2010.
C. the Fed pursued quantitative easing.
D. the Fed ended its forward commitment in orderto encourage further lending.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 16-06 Explainthe effectiveness of monetary policy and its shortcomings.
Test Bank: I Topic: Monetary Policy: Evaluationand Issues
Which of the followingstatements is most accurate about the Fed’s zero interest rate policy (ZIRP)?
The Fed has abandoned the ZIRP, recognizing the need to reduce nominal interest rates to below zero.
As of 2016, the ZIRP is being pursued by the Fed.
C. It ended in late 2015, with the Fed increasing the IOER and engaging in reverse repo transactions.
D. In an effort to end the ZIRP, the Fed prohibited nonbank lending to banks.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 16-06 Explainthe effectiveness of monetary policy and its shortcomings.
Test Bank: I Topic: Monetary Policy: Evaluationand Issues
One of the strengths of monetarypolicy relative to fiscal policy is that monetarypolicy
A. can be implemented more quickly.
is subject to closer political scrutiny.
does not produce a net export effect.
entails a larger spending incomemultiplier effect on real GDP.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 16-06 Explainthe effectiveness of monetary policy and its shortcomings.
Test Bank: I Topic: Monetary Policy: Evaluationand Issues
Which of the followingis least likely to be a problemfor monetary policy?
the recognition lag
the operational lag
C. the administrative lag
D. cyclical asymmetry
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 16-06 Explainthe effectiveness of monetary policy and its shortcomings.
Test Bank: I Topic: Monetary Policy: Evaluationand Issues
The problem of cyclical asymmetry refersto the idea that
A. a restrictive monetary policycan force a contraction of the money supply, but an expansionary monetary policy may not achieve an increasein the money supply.
the monetary authorities have been less willing to use an expansionary monetary policy than they have a restrictive monetary policy.
cyclical downswings are typically of longer duration than cyclical upswings.
an expansionary monetary policy can force an expansion of the money supply,but a restrictive monetary policy may not achieve a contraction of the money supply.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 16-06 Explainthe effectiveness of monetary policy and its shortcomings.
Test Bank: I Topic: Monetary Policy: Evaluationand Issues
In economics, the expression "You can lead a horse to water, but you can't make it drink" illustrates the
A. crowding-out effect.
B. cyclical asymmetry of monetarypolicy.
administrative lag that occurs in formulating monetary and fiscal policies.
operational lag in monetary policy.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 16-06 Explainthe effectiveness of monetary policy and its shortcomings.
Test Bank: I Topic: Monetary Policy: Evaluationand Issues
An expansionary monetary policy may be less effective than a restrictive monetary policy because
the Federal Reserve Banks are always willingto make loans to commercial banks that are short of reserves.
fiscal policy always works at cross purposes with an expansionary monetary policy.
changes in exchange rates complicate an expansionary monetary policy more than they do a restrictive monetary policy.
D. commercial banks may not be able to find good loan customers.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 16-06 Explainthe effectiveness of monetary policy and its shortcomings.
Test Bank: I Topic: Monetary Policy: Evaluationand Issues
An expansionary monetary policy may be frustrated if the
A. demand-for-money curve shifts to the left.
B. investment-demand curve shifts to the left.
saving schedule shifts downward.
investment-demand curve shifts to theright.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 16-06 Explainthe effectiveness of monetary policy and its shortcomings.
Test Bank: I Topic: Monetary Policy: Evaluationand Issues
Monetary policy is thought to be
equally effective in moving the economy out of a depression as in controlling demand-pull inflation.
more effective in moving the economy out of a depression than in controlling demand-pull inflation.
C. more effective in controlling demand-pull inflation than in moving the economy out of a recession.
D. only effective in moving the economy out of a depression.
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Blooms: Understand Difficulty: 02 Medium
Learning Objective: 16-06 Explainthe effectiveness of monetary policy and its shortcomings.
Test Bank: I Topic: Monetary Policy: Evaluationand Issues
The impact of monetarypolicy on investment spending may be weakened
because of the Treasury'sdesire for high interestrates.
if the rate at which dollarsare spent changes in thesame direction as the money supply.
C. if the investment-demand curve shifts to the right during inflation and to the left during recession.
D. if the investment-demand curve is very flat.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 16-06 Explainthe effectiveness of monetary policy and its shortcomings.
Test Bank: I Topic: Monetary Policy: Evaluationand Issues
In the 1990s and early 2000s, Japan'scentral bank reducedreal interest rates to zero percent,but investment spending did not respondenough to bring the economy out of recession. Japan's experience is an illustration of
the crowding-out effect.
"pulling on a string."
the Taylor rule.
D. the liquidity trap.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 16-06 Explainthe effectiveness of monetary policy and its shortcomings.
Test Bank: I Topic: Monetary Policy: Evaluationand Issues
The possible asymmetryof monetary policy is the central idea of the
invisible hand concept.
ratchet analogy.
C. pushing-on-a-string analogy.
D. bandwagon effect.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 16-06 Explainthe effectiveness of monetary policy and its shortcomings.
Test Bank: I Topic: Monetary Policy: Evaluationand Issues
The pushing-on-a-string analogy makes the point that monetary policy may be better at
A. controlling demand-pull inflation than cost-push inflation.
B. pulling the aggregate demand curve leftward than pushing it rightward.
pulling the unemployment rate downward than pushing the economic growth rate upward.
keeping rapid inflation from occurring than reducing it once it has begun.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 16-06 Explainthe effectiveness of monetary policy and its shortcomings.
Test Bank: I Topic: Monetary Policy: Evaluationand Issues
The liquidity trap refers to the situation where
A. the Fed adds excess reservesto the banking system, but it has minimal positive effect on lending, investment, or aggregate demand.
excessive consumer debt limits the growth in consumer spending necessary to bring the economyout of recession.
the public debt is so large that federal borrowing drives up interestrates and discourages private sector spending.
a financial crisis causes a run on banks and the elimination of billions in excess reserves.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 16-06 Explainthe effectiveness of monetary policy and its shortcomings.
Test Bank: I Topic: Monetary Policy: Evaluationand Issues
Interest Rate (1)Investment (2)Investment(3)4%$100$8059070680607705086040 226.
Refer to the table, in which investment is in billions. Which of the following scenarios would be consistent with the occurrenceof cyclical asymmetry?
the Fed lowering the interestrate from 5 to 4 percent, while investment demand changes from columns(1) and (3) to columns (1) and (2)
the Fed raising the interestrate from 5 to 6 percent, while investment demand changes from columns (1) and (3) to columns (1) and (2)
C. the Fed lowering the interestrate from 7 to 6 percent, while investment demand changes from columns(1) and (2) to columns(1) and (3)
D. the Fed raising the interestrate from 7 to 8 percent, whileinvestment demand changes from columns(1) and (2) to columns (1) and (3)
AACSB: Knowledge Application
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-05 Identify the mechanisms by which monetarypolicy affects GDP and the price level.
Test Bank: I Topic: Monetary Policy: Evaluationand Issues
Type: Table
Interest Rate (1)Investment (2)Investment (3)4%$100$8059070680607705086040 227.
Refer to the table, in which investment is in billions. Supposethe Fed reduces the interestrate from 6 to 5 percentat a time when the investment demand declines from that shown by columns(1) and (2) to that shown by columns (1) and (3). As a resultof these two occurrences, investment will
A. increase by $10 billion.
B. decrease by $10 billion.
increase by $20 billion.
decrease by $20 billion.
AACSB: Knowledge Application
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-05 Identify the mechanisms by which monetarypolicy affects GDP and the price level.
Test Bank: I Topic: Monetary Policy: Evaluationand Issues
Type: Table
Other things equal, an increasein productivity will
reduce aggregate supply and increase real output.
reduce both the interest rate and the international value of the dollar.
C. increase both aggregate supply and real output.
D. increase net exports, increase investment, and reduce aggregate demand.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-05 Identify the mechanisms by which monetarypolicy affects GDP and the price level.
Test Bank: I Topic: The Big Picture
Other things equal, an increasein input prices will
A. reduce aggregate supply and reduce real output.
increase the interest rate and lower the international value of the dollar.
increase aggregate supply and increase the price level.
increase net exports, increase investment, and reduce aggregate demand.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-05 Identify the mechanisms by which monetarypolicy affects GDP and the price level.
Test Bank: I Topic: The Big Picture
Other things equal, a restrictive monetary policy during a period of demand-pull inflation will
lower the interest rate, increase investment, and reduce net exports.
lower the price level, increase investment, and increase aggregate demand.
increase productivity, aggregate supply, and real output.
D. increase the interest rate, reduce investment, and reduce aggregate demand.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-05 Identify the mechanisms by which monetarypolicy affects GDP and the price level.
Test Bank: I Topic: The Big Picture
Other things equal, a reductionin income taxes would
A. reduce productivity and reduce aggregate supply.
B. increase consumption and increase aggregate demand.
increase the supply of money and reduce investment.
increase government spending and increase aggregate demand.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 16-05 Identify the mechanisms by which monetarypolicy affects GDP and the price level.
Test Bank: I Topic: The Big Picture
(Consider This) When the Fed engagesin a repo transaction,
A. it involves a bank repurchasing a collateralized loan it previously sold to the Fed.
the Fed repossesses securities held by a failingbank.
the Fed buys real property that a bank owns after repossessing it from a defaulted lender.
it is part of a restrictive monetary policy action.
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