Question : 21) The economy suffered a mild recession in 2001. Despite : 1244840

21) The economy suffered a mild recession in 2001. Despite the recession, home sales and durable goods sales remained high. Which of the following is a plausible explanation?

A) The Fed’s pursuit of contractionary policy stimulated these markets.

B) The Fed caused a reduction in the federal funds rate to its lowest level in 40 years.

C) Rising inflation encouraged many to invest in the real estate market.

D) Home building and consumer durable purchases are always high during a recession.

22) Which of the following is true about the Federal Reserve and its ability to prevent recessions? The Federal Reserve

A) does not try to eliminate recessions, but instead focuses on preventing inflation.

B) can fine tune the economy and realistically hope to keep the economy from experiencing recessions.

C) cannot realistically fine tune the economy, but seeks to keep recessions shorter and milder than they would otherwise be.

D) cannot realistically fine tune the economy and has little to no effect on the magnitude and length of recessions.

23) Your roommate is having trouble grasping how monetary policy works. Which of the following explanations could you use to correctly describe the mechanism by which the Fed can affect the economy through monetary policy? Increasing the money supply

A) lowers the interest rate, and firms increase investment spending.

B) causes people to spend more because they know prices will rise in the future.

C) raises the interest rate and consumers decrease spending on durable goods.

D) lowers the interest rate, raises the value of the dollar, lowers the prices of exports, and raises net exports.

24) If the Federal Reserve raises or lowers interest rates too late, it could result in a ________ policy that destabilizes the economy.

A) fiscal

B) budgetary

C) procyclical

D) countercyclical

25) Monetary policy could be procyclical if the Federal Reserve

A) is late recognizing that a recession has begun and conducts expansionary monetary policy.

B) is quick to recognize that a recession has begun and conducts expansionary monetary policy.

C) is late recognizing that a recession has begun and does not conduct expansionary monetary policy.

D) is quick to recognize that a recession has begun and does not conduct expansionary monetary policy.

26) When calculating GDP, the Bureau of Economic Analysis revises its quarterly data

A) a total of one time.

B) a total of two times.

C) a total of three times.

D) many times over the next several years.

27) Lowering the interest rate will

A) decrease spending on consumer durables.

B) increase investment projects by firms.

C) decrease spending on new homes.

D) decrease the value of the dollar and lower net exports.

28) If money demand is extremely sensitive to changes in the interest rate, the money demand curve becomes almost horizontal. If the Fed expands the money supply under these circumstances, then the interest rate will

A) fall substantially and investment and consumer spending will fall substantially.

B) rise substantially and investment and consumer spending will rise substantially.

C) fall substantially and investment and consumer spending will change very little.

D) change very little and investment and consumer spending will change very little.

29) An increase in the domestic interest rate relative to other interest rates should

A) increase investment spending.

B) decrease consumption spending.

C) increase government spending.

D) increase net exports.

30) Falling interest rates can

A) increase a firm’s stock price, which causes firms to issue more stock shares, and thus increases funds for investment.

B) raise the cost of borrowing for firms and decrease investment.

C) raise the cost of buying new homes and fewer new homes will be purchased.

D) lower the cost of buying new homes and fewer new homes will be purchased.