Question : 41) Which of the following situations one in which the : 1244842

41) Which of the following situations is one in which the Fed will potentially pursue expansionary monetary policy?

A) Potential GDP is forecasted to be higher than equilibrium GDP.

B) Potential GDP is forecasted to be lower than equilibrium GDP.

C) Aggregate demand is growing too fast to keep the economy at full employment.

D) Aggregate demand is growing too slowly and the economy is in danger of producing GDP above full employment.

42) Which of the following characterizes the Fed’s ability to prevent recessions?

A) The Fed is able to “fine tune” the economy and entirely eliminate recessions.

B) The Fed is incapable of changing aggregate demand through its monetary policy tools.

C) The Fed is able to keep a recession shorter and milder than it would otherwise be.

D) The Fed is able to eliminate the business cycle and achieve absolute price stability.

43) If the Fed raises its target for the federal fund rate, this indicates that

A) the Fed is pursuing an expansionary monetary policy.

B) the Fed is pursuing a contractionary monetary policy.

C) the Fed is attempting to combat deflation.

D) The Fed is concerned that the growth in aggregate demand is too slow to keep up with potential GDP.

44) Contractionary monetary policy causes

A) aggregate demand to rise and the price level to rise.

B) aggregate demand to fall and the price level to fall.

C) aggregate demand to rise and the price level to fall.

D) aggregate demand to fall and the price level to rise.

45) If the Fed’s policy is contractionary, it will

A) use open market operations to buy Treasury bills.

B) use open market operations to sell Treasury bills.

C) lower the discount rate.

D) lower the reserve requirement.

46) In which of the following situations would the Fed conduct contractionary monetary policy?

A) The Fed believes that aggregate demand was growing too slowly to keep up with potential GDP.

B) The Fed fears that unemployment is climbing above the natural rate.

C) The Fed is concerned that aggregate demand would continue to exceed the growth in potential GDP.

D) The Fed is worried that deflation will become a problem.

47) When the Fed increases the money supply

A) the interest rate rises and this stimulates consumption spending.

B) people spend less because they have more money.

C) the interest rate falls and this stimulates investment spending.

D) the interest rate rises and this stimulates investment spending.

48) Suppose that the economy is producing below potential GDP and the Fed implements the correct change in monetary policy, but not until after the economy has passed the trough of the recession. Then

A) the Fed’s contractionary policy will result in too large of a decrease in GDP.

B) the Fed’s contractionary policy will result in too small of a decrease in GDP.

C) the Fed’s expansionary policy will result in too small of a decrease in GDP.

D) the Fed’s expansionary policy will result in too large of an increase in GDP.

49) Suppose that the economy is producing above potential GDP and the Fed implements the correct change in monetary policy, but not until after the economy has passed the peak of the boom. Then

A) the Fed’s contractionary policy will result in too large of a decrease in GDP.

B) the Fed’s contractionary policy will result in too small of a decrease in GDP.

C) the Fed’s expansionary policy will result in too small of a decrease in GDP.

D) the Fed’s expansionary policy will result in too large of an increase in GDP.

50) The Fed

A) always engages in countercyclical policy.

B) always intends to engage in procyclical policy.

C) can engage in procyclical policy if it mistimes its policy response.

D) never intends to engage in countercyclical policy.