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Which of the following innovations has (have) become commonplace in financial markets over the past few decades?


A) ATM cards
B) credit cards
C) money market accounts
D) mutual funds
E) all of the above

F) B) and D)
G) A) and C)

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If the central bank reduces the money supply,


A) the inflation rate rises and individuals hold more money.
B) the nominal interest rate rises and individuals hold more money.
C) the nominal interest rate falls and individuals hold no money.
D) the nominal interest rate rises and individuals hold less money.
E) the unemployment rate rises and individuals hold less money.

F) A) and B)
G) A) and C)

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-Starting at any equilibrium in Figure 12.11,if the Fed loosens money,the money market would move from: A) point A to B. B) point A to D. C) point B to D. D) point C to A. E) Not enough information is given. -Starting at any equilibrium in Figure 12.11,if the Fed loosens money,the money market would move from:


A) point A to B.
B) point A to D.
C) point B to D.
D) point C to A.
E) Not enough information is given.

F) B) and E)
G) All of the above

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The term structure of interest rates is a way of looking at bond rates with different maturity periods.

A) True
B) False

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True

The money demand curve:


A) slopes downward with respect to the discount rate.
B) slopes downward with respect to the nominal interest rate.
C) slopes upward with respect to the nominal interest rate.
D) always is flat with respect to the nominal interest rate.
E) is flat with respect to the inflation rate.

F) A) and D)
G) A) and E)

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In the Phillips curve In the Phillips curve If Is large,then A) price-setting behavior is completely insensitive to short-run fluctuations. B) price-setting behavior is very insensitive to short-run fluctuations. C) inflation is not very sensitive to short-run fluctuations. D) price-setting behavior is very sensitive to short-run fluctuations. E) Not enough information is given. If In the Phillips curve If Is large,then A) price-setting behavior is completely insensitive to short-run fluctuations. B) price-setting behavior is very insensitive to short-run fluctuations. C) inflation is not very sensitive to short-run fluctuations. D) price-setting behavior is very sensitive to short-run fluctuations. E) Not enough information is given. Is large,then


A) price-setting behavior is completely insensitive to short-run fluctuations.
B) price-setting behavior is very insensitive to short-run fluctuations.
C) inflation is not very sensitive to short-run fluctuations.
D) price-setting behavior is very sensitive to short-run fluctuations.
E) Not enough information is given.

F) A) and E)
G) C) and E)

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Which of the following is (are) the mission of the Federal Reserve Bank? i.Preserve price stability. ii.Foster economic growth and employment. iii.Ensure taxes are fair.


A) i only.
B) ii only.
C) iii only.
D) i and ii.
E) i and iii.

F) A) and E)
G) A) and B)

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Economists who study monetary policy believe that it takes anywhere from __________ for monetary policy to have a substantial effect on economic activity.


A) three to six weeks
B) 6 to 18 days
C) 6 to 18 months
D) three to six months
E) 6 to 18 weeks

F) A) and D)
G) B) and D)

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If the central bank targets the interest rate,the:


A) money demand curve is flat.
B) money supply curve is vertical.
C) money supply curve slopes upward.
D) money supply curve is flat.
E) money demand curve is vertical.

F) A) and B)
G) D) and E)

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-Consider Figure 12.10,which shows the change in inflation From 1977.1 to 1981.4,by quarter.You are Federal Reserve chairman Volcker and today's date is the first quarter of 1980 (1980.1) .You suggest the appropriate policy would be to __________.In 1981.2,you consider your performance,and you conclude that you __________;using the Phillips curve,you see the country is now in __________. A) lower taxes;failed to tame inflation;debt B) lower interest rates;failed at taming inflation;recession C) raise interest rates;succeeded in taming the recession;booming D) raise interest rates;succeeded in taming inflation;recession E) raise taxes;succeeded in taming inflation;debt -Consider Figure 12.10,which shows the change in inflation -Consider Figure 12.10,which shows the change in inflation From 1977.1 to 1981.4,by quarter.You are Federal Reserve chairman Volcker and today's date is the first quarter of 1980 (1980.1) .You suggest the appropriate policy would be to __________.In 1981.2,you consider your performance,and you conclude that you __________;using the Phillips curve,you see the country is now in __________. A) lower taxes;failed to tame inflation;debt B) lower interest rates;failed at taming inflation;recession C) raise interest rates;succeeded in taming the recession;booming D) raise interest rates;succeeded in taming inflation;recession E) raise taxes;succeeded in taming inflation;debt From 1977.1 to 1981.4,by quarter.You are Federal Reserve chairman Volcker and today's date is the first quarter of 1980 (1980.1) .You suggest the appropriate policy would be to __________.In 1981.2,you consider your performance,and you conclude that you __________;using the Phillips curve,you see the country is now in __________.


A) lower taxes;failed to tame inflation;debt
B) lower interest rates;failed at taming inflation;recession
C) raise interest rates;succeeded in taming the recession;booming
D) raise interest rates;succeeded in taming inflation;recession
E) raise taxes;succeeded in taming inflation;debt

F) D) and E)
G) None of the above

Correct Answer

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-Consider Figure 12.8,which shows the change in inflation From 1995.1 to 2000.4,by quarter.You are Federal Reserve chairman Greenspan and today's date is the first quarter of 1999 (1999.1) .Given the information you have,using the Phillips curve,to stabilize the economy,you would __________,risking __________. A) raise interest rates;inflation B) raise interest rates;recession C) lower interest rates;recession D) lower interest rates;higher unemployment E) Not enough information is given. -Consider Figure 12.8,which shows the change in inflation -Consider Figure 12.8,which shows the change in inflation From 1995.1 to 2000.4,by quarter.You are Federal Reserve chairman Greenspan and today's date is the first quarter of 1999 (1999.1) .Given the information you have,using the Phillips curve,to stabilize the economy,you would __________,risking __________. A) raise interest rates;inflation B) raise interest rates;recession C) lower interest rates;recession D) lower interest rates;higher unemployment E) Not enough information is given. From 1995.1 to 2000.4,by quarter.You are Federal Reserve chairman Greenspan and today's date is the first quarter of 1999 (1999.1) .Given the information you have,using the Phillips curve,to stabilize the economy,you would __________,risking __________.


A) raise interest rates;inflation
B) raise interest rates;recession
C) lower interest rates;recession
D) lower interest rates;higher unemployment
E) Not enough information is given.

F) A) and E)
G) B) and C)

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Which of the following contributed to high levels of inflation in the 1970s? i.Soviet invasion of Afghanistan ii.loose monetary policy iii.a productivity slowdown


A) i only
B) ii only
C) iii only
D) i and iii
E) ii and iii

F) B) and C)
G) A) and E)

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-Consider the Phillips curve in Figure 12.3.At point b,__________,and at point a,__________. A) the economy is in recession;the economy is booming B) the economy is in recession;the economy is in its long-run equilibrium C) the economy is in recession;the economy is in recession D) the economy is booming;the economy is in recession E) the economy is in its long-run equilibrium;the economy is in recession -Consider the Phillips curve in Figure 12.3.At point b,__________,and at point a,__________.


A) the economy is in recession;the economy is booming
B) the economy is in recession;the economy is in its long-run equilibrium
C) the economy is in recession;the economy is in recession
D) the economy is booming;the economy is in recession
E) the economy is in its long-run equilibrium;the economy is in recession

F) A) and B)
G) A) and C)

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The link between real and nominal interest rates is the Fisher equation.

A) True
B) False

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If the central bank is targeting the money supply,the money supply is __________ and __________ the nominal interest rate.


A) equal to money velocity;is vertical with respect to
B) whatever level is dictated by the president;is horizontal with respect to
C) whatever level is dictated by the central bank;is horizontal with respect to
D) whatever level is dictated by the central bank;is vertical with respect to
E) whatever level is dictated by the central bank;slopes downward with respect to

F) B) and E)
G) B) and D)

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The nominal interest rate:


A) is set by Congress.
B) is equal to the rate of inflation.
C) always is equal to the 10-year bond rate of return.
D) is the opportunity cost of holding money.
E) is constant.

F) B) and D)
G) A) and B)

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D

If prices are sticky and there are no aggregate demand shocks,and if the Fed raises the interest rate,__________ and __________.


A) unemployment falls;potential output falls
B) the real interest rate falls;short-run output falls
C) the unemployment rate rises;short-run output rises
D) the real interest rate rises;short-run output falls
E) the real interest rate falls;current output falls

F) B) and C)
G) A) and D)

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D

In the Phillips curve, In the Phillips curve, , represents a permanent price change. , In the Phillips curve, , represents a permanent price change. represents a permanent price change.

A) True
B) False

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In March and April 1980,inflation in the United States peaked at 14.6 percent.What did then-Fed Chairman Volcker elect to do? What was the impact of his policy?

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Oil shocks in 1974 and 1979 and loose mo...

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-Consider Figure 12.6.You are chairman of the Federal Reserve in 1975.You believe potential output follows the dotted line after 1973,but in actuality,it follows the line denoted True potential output. The current state of the economy is given by the curve Actual output. Given the information in the figure,you __________,because you believe the economy is in a __________;but your advice instead __________. A) lower interest rates;recession;accelerates inflation B) raise interest rates;recession;accelerates inflation C) keep interest rates the same;boom;accelerates inflation D) lower interest rates;boom;increases unemployment E) Not enough information is given. -Consider Figure 12.6.You are chairman of the Federal Reserve in 1975.You believe potential output follows the dotted line after 1973,but in actuality,it follows the line denoted "True potential output." The current state of the economy is given by the curve "Actual output." Given the information in the figure,you __________,because you believe the economy is in a __________;but your advice instead __________.


A) lower interest rates;recession;accelerates inflation
B) raise interest rates;recession;accelerates inflation
C) keep interest rates the same;boom;accelerates inflation
D) lower interest rates;boom;increases unemployment
E) Not enough information is given.

F) A) and E)
G) A) and B)

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