Question : 17.4   Chapter Figures The figure above shows the market for reserves. : 1240657

 

 

17.4   Chapter Figures

 

 

 

The figure above shows the market for reserves.

 

1) If the Fed wants to increase the federal funds rate, it will conduct an open market operation in which it ________ government securities and thereby shifts the ________ curve ________.

A) sells; RS; rightward

B) sells; RD; leftward

C) buys; RD; rightward

D) buys; RS; leftward

E) sells; RS; leftward

 

The figure above shows the market for reserves.

 

2) To shift the RS curve rightward as illustrated, the Fed has ________ government securities in the open market. The Fed will undertake this type of policy if it is concerned about ________.

A) sold; inflation

B) bought; inflation

C) sold; recession

D) bought; recession

E) None of the above answers is correct.

 

3) The rightward shift of the RS curve will lead to a ________ in the real interest rate, ________ in investment, and ________ in aggregate demand.

A) rise; an increase; an increase

B) rise; an increase; a decrease

C) rise; a decrease; a decrease

D) fall; an increase; an increase

E) fall; an increase; a decrease

4) The rightward shift of the RS curve will lead to a ________ in the U.S. exchange rate, ________ in real GDP, and a ________ in the price level.

A) rise; an increase; rise

B) rise; an increase; fall

C) rise; a decrease; fall

D) fall; an increase; rise

E) fall; an increase; fall

 

 

The figure above shows the market for loanable funds. The supply of loanable funds curve shifts rightward.

 

5) The change illustrated in the figure above can be the result of the Fed ________ government securities in the open market and will ultimately lead to ________ in aggregate demand.

A) selling; an increase

B) buying; an increase

C) selling; a decrease

D) buying; no change

E) selling; no change

6) The change illustrated in the figure above is part of the transmission process of the Fed’s monetary policy. As a result of the increase in the supply of loanable funds, aggregate demand ________, real GDP ________, and the price level ________.

A) increases; decreases; falls

B) increases; increases; rises

C) decreases; decreases; falls

D) increases; does not change; does not change

E) None of the above answers is correct.

 

7) The change illustrated in the figure above is part of the transmission process of the Fed’s monetary policy. As a result of the increase in the supply of loanable funds, in the short run aggregate demand ________, aggregate supply ________, and potential GDP ________.

A) increases; decreases; decreases

B) increases; increases; increases

C) decreases; decreases; decreases

D) increases; does not change; does not change

E) decreases; increases; increases

 

17.5   Integrative Questions

 

1) When a central bank targets inflation, its inflation targets are usually specified as

A) a range for the inflation rate.

B) a specific inflation rate target, for example, 1 percent.

C) deviations from the inflation rate.

D) a point on the short-run Phillips curve.

E) the short-term interest rate minus 2 percent.

2) While the Fed has a “dual mandate” of goals to achieve, most economists believe that in the long run the single key role is attaining

A) price stability.

B) high levels of income and output.

C) high inflation rates.

D) low economic growth rates.

E) stable velocity of money.

 

3) In late 2007, the Fed began a series of cuts in the federal funds rate. Because the core inflation rate was about two percent, the most likely reason for these interest rate cuts was

A) to raise the price of the dollar in the foreign exchange market.

B) to avoid a recession.

C) to encourage households to save more money.

D) to reduce the natural unemployment rate.

E) to increase the real interest rate.