Question : 17.3   Monetary Policy and Economic Activity 1) The ability of the : 1244838

17.3   Monetary Policy and Economic Activity

1) The ability of the Federal Reserve to use monetary policy to affect economic variables such as real GDP ultimately depends upon its ability to affect

A) tax rates.

B) real interest rates.

C) nominal interest rates.

D) foreign exchange rates.

2) An increase in interest rates

A) decreases investment spending on machinery, equipment and factories, but increases consumption spending on durable goods and net exports.

B) decreases investment spending on machinery, equipment and factories, and consumption spending on durable goods, but increases net exports.

C) decreases investment spending on machinery, equipment and factories, consumption spending on durable goods, and net exports.

D) increases investment spending on machinery, equipment and factories, consumption spending on durable goods, and net exports.

3) A decrease in interest rates can ________ the demand for stocks as stocks become relatively ________ attractive investments as compared to bonds.

A) increase; more

B) decrease; less

C) decrease; more

D) increase; less

E) increase; similar

4) An increase in the interest rate should ________ the demand for dollars and the value of the dollar, and net exports should ________.

A) decrease; decrease

B) decrease; increase

C) increase; decrease

D) increase; increase

E) increase; not change

5) The situation in which short-term interest rates are pushed to zero, leaving the central bank unable to lower them further is known as

A) the Taylor rule.

B) a liquidity trap.

C) a zero-sum game.

D) an interest rate panic.

6) In response to already low interest rates doing little to stimulate the economy, the Fed began buying 10-year Treasury notes and certain mortgage-backed securities to keep interest rates low. This policy is known as

A) inflation targeting.

B) contractionary monetary policy.

C) securities-bubble deflating.

D) quantitative easing.

7) In response to already low interest rates doing little to stimulate the economy, the Fed announced a new program in September 2011 under which it would purchase long-term Treasury securities while selling an equal amount of shorter-term Treasury securities. This policy was known as

A) inflation targeting.

B) Operation Twist.

C) securities-bubble deflating.

D) quantitative easing.

8) From an initial long-run macroeconomic equilibrium, if the Federal Reserve anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply, then the Federal Reserve would most likely

A) decrease interest rates.

B) increase interest rates.

C) decrease income tax rates.

D) increase income tax rates.

9) Expansionary monetary policy refers to the ________ to increase real GDP.

A) government’s increasing spending and lowering taxes

B) government’s decreasing spending and raising taxes

C) Federal Reserve’s increasing the money supply and decreasing interest rates

D) Federal Reserve’s decreasing the money supply and increasing interest rates

Figure 17-6

10) Refer to Figure 17-6. In the figure above, if the economy is at point A, the appropriate monetary policy by the Federal Reserve would be to

A) lower interest rates.

B) raise interest rates.

C) lower income taxes.

D) raise income taxes.

Figure 17-7