When the Federal Reserve engages in contractionary monetary policy, which of the following will NOT be a result?

Economics by Geoffrey

Question 1

1 Point

If your wealth is held as currency or checking accounts, or other assets that you can convert to money on short notice, your assets are considered to be:

  1. liquid.
  2. fast moving.
  3. abundant.
  4. interest bearing.

 

Question 2

1 Point

The target interest rate for monetary policy in the United States is decided by:

  1. the U.S. president.
  2. the members of the Federal Open Market Committee.
  3. the board of governors of the U.S. Federal Reserve.
  4. the U.S. Congress.

 Question 3

1 Point

(Figure: Moving an Economy Out of a Recession A)

 The figure shows moving an economy out of a recession. Supply-side policies offer policymakers an alternative approach to move out of a recession:

  1. without generating inflation by decreasing the short-run aggregate supply.
  2. without generating inflation by increasing the short-run aggregate supply.
  3. by generating inflation and increasing the long-run aggregate supply.
  4. by generating inflation and decreasing the long-run aggregate supply.

 Question 4

1 Point

Which of the following is an example of monetary policy?

  1. The legislature increases government spending to reduce unemployment.
  2. The Federal Reserve reduces the money supply in an effort to reduce inflation.
  3. Old currency is pulled out of circulation and replaced with new currency due to inflated old currency.
  4. A bank raises the interest rate on loans to compensate for losses on bad loans.

Question 5

1 Point

Ongoing government programs that cause countercyclical changes in taxes and government spending during the business cycle without additional current approvals by the legislature are called:

  1. integrated stabilizers.
  2. built-in solutions.
  3. neutral solutions.
  4. automatic stabilizers.

Question 6

1 Point

(Figure: Moving an Economy Out of a Recession 0)

The figure shows moving an economy out of a recession. Demand-side fiscal stimulus causes the aggregate demand curve to shift to the _____, causing _____ inflation and _____ output.

  1. right; lower; higher
  2. right; lower; lower
  3. left; lower; higher
  4. right; higher; higher

 Question 7

1 Point

When are monetary and fiscal policies most effective?

  1. Fiscal is more effective in a liquidity trap, and monetary is more effective otherwise.
  2. Both are more effective when they address inflation than unemployment.
  3. Monetary is more effective in a liquidity trap, and fiscal is more effective otherwise.
  4. Both are more effective when they address unemployment than inflation.

 

Question 8

1 Point

In the market for money, the _____ rate is the price because it:

  1. foreign exchange; impacts net exports.
  2. foreign exchange; affects the desirability of holding cash balances.
  3. interest; varies in response to monetary policy.
  4. interest; is the opportunity cost of holding money.

 

Question 9

1 Point

If the Federal Reserve conducts an open market purchase, the:

  1. money supply is decreased.
  2. interest rate will decrease.
  3. interest rate will not change.
  4. interest rate will increase

 

Question 10

1 Point

An open market purchase by the Fed:

  1. increases interest rates and increases investment.
  2. decreases interest rates and decreases investment.
  3. increases interest rates and decreases investment.
  4. decreases interest rates and increases investment.

 

Question 11

1 Point

An open market purchase by the Fed causes the value of the dollar to:

  1. fall, reducing net exports.
  2. rise, increasing net exports.
  3. fall, increasing net exports.
  4. rise, reducing net exports.

 

Question 12

1 Point

An increased federal budget deficit resulting from a recession can actually help stabilize an economy through transfer payments because an increased budget deficit will ________ transfer payments and thereby ________ the income of some households.

  1. increase; decrease
  2. decrease; increase
  3. increase; increase
  4. decrease; decrease

Question 13

1 Point

As a result of an increase in the personal income tax rate, consumers are likely to

  1. spend more.
  2. spend less.
  3. save more.
  4. earn more money.

 

Question 14

1 Point

In the United States during the Vietnam War era, as military spending increased

  1. both frictional and cyclical unemployment increased.
  2. frictional unemployment dropped, but cyclical unemployment increased.
  3. unemployment dropped to very low levels.
  4. overall unemployment rates did not change.

 

Question 15

1 Point

Which of the following sources of revenue is used to fund government spending?

  1. corporate contributions
  2. political party contributions
  3. taxation
  4. interest

 

Question 16

1 Point

During the early 2000s, the Federal Reserve had _____ monetary policy that contributed to _____ home sales and home prices.

  1. a tight; falling
  2. an easy; falling
  3. a tight; rising
  4. an easy; rising

 

Question 17

1 Point

Which of the following inflation rates do policymakers view as consistent with the Federal Reserve’s mandate to achieve stable prices?

  1. 2%
  2. 5%
  3. 0%
  4. –2%

 

 

Question 18

1 Point

What type of monetary policy is typically used to counter a recession?

  1. supply-based
  2. contractionary
  3. demand-based
  4. expansionary

 

Question 19

1 Point

When the Federal Reserve increases the money supply, aggregate ____ will _____, causing short-run output to:

  1. demand; rise; rise.
  2. demand; fall; fall.
  3. supply; fall; fall.
  4. supply; rise; rise.

 

Question 20

1 Point

Demand for which of the following is NOT increased by low interest rates?

  1. automobiles
  2. capital investments
  3. hamburgers
  4. homes

 

 

Question 21

1 Point

Econia decreases its money supply. What is likely to happen to the value of Econia’s currency in foreign exchange markets and to the level of Econia’s net exports?

  1. Currency depreciates, and net exports increase.
  2. Currency appreciates, and net exports decrease.
  3. Currency depreciates, and net exports decrease.
  4. Currency appreciates, and net exports increase.

 

 

Question 22

1 Point

An increase in a country’s budget deficit (or a decrease in its surplus) is associated with the use of:

  1. contractionary fiscal policy.
  2. expansionary fiscal policy.
  3. contractionary monetary policy.
  4. expansionary monetary policy.

 

Question 23

1 Point

In recent decades, how has the U.S. national debt typically compared to its annual budget balance?

  1. The debt has been much smaller than the budget balance.
  2. The debt has tended to be bigger than the budget balance during recessions and smaller during expansions.
  3. The debt has been much larger than the budget balance.
  4. The debt has tended to be smaller than the budget balance during recessions and bigger during expansions.

 Question 24

1 Point

Which of the following is NOT an example of discretionary spending in a government’s budget?

  1. spending on government worker salaries
  2. spending on welfare program benefits
  3. spending on school construction
  4. spending on national parks

 

Question 25

1 Point

The multiplier effect of fiscal policy means that a change in government spending:

  1. leads to a change in the money supply that is a multiple of the spending change.
  2. has a bigger impact on the budget balance than the size of the spending change.
  3. has more impact on the number of jobs than on GDP.
  4. has a larger impact on output than the size of the change in spending.

 

Question 26

1 Point

Estimates of the multiplier effect indicate that the multiplier is:

  1. is less than 3 when the economy is growing and greater than 3 when the economy is contracting.
  2. is between .1 and 2.5, depending on the situation, with most estimates less than 2.
  3. is a negative number.
  4. equal to 3.1.

 

Question 27

1 Point

When an economy is at full employment, expansionary fiscal policies tend to have:

  1. maximum impact on deflation.
  2. little or no impact on national output.
  3. little or no impact on inflation.
  4. maximum impact on national output.

 

Question 28

1 Point

The Laffer curve implies that tax rates affect:

  1. neutrality.
  2. government spending.
  3. the tax base.
  4. the money supply.

 

Question 29

1 Point

In both the supply-side view and the demand-side view of fiscal stimulus, tax cuts are _____, but the two views differ regarding:

  1. expansionary; why.
  2. expansionary; the impact on the money supply.
  3. contractionary; the impact on the money supply.
  4. contractionary; why.

 

 

Question 30

1 Point

When an economy is at full-employment, the impact of expansionary fiscal policy is limited by the nation’s _____ constraint.

  1. budget
  2. money
  3. resource
  4. inflation

 

Question 31

1 Point

In their analysis, monetarists rely heavily on:

  1. the equation of exchange.
  2. business cycle fluctuations.
  3. the aggregate supply and aggregate demand model.
  4. the effects of changing interest rates

 

Question 32

1 Point

Alternate transmission mechanisms for expansionary monetary policy do NOT include the idea that monetary expansion can:

  1. lower long-term interest rates.
  2. appreciate the currency.
  3. create excess cash balances.
  4. boost inflationary expectations.

 

Question 33

1 Point

When an economy has too much unemployment, then the Federal Reserve will _____ the target interest rate in order to _____ aggregate demand.

  1. increase; increase
  2. reduce; increase
  3. reduce; reduce
  4. increase; reduce

 

Question 34

1 Point

When the Federal Reserve engages in contractionary monetary policy, which of the following will NOT be a result?

  1. Aggregate demand falls.
  2. The money supply decreases.
  3. The Fed makes open market purchases.
  4. The federal funds rate target is raised.

 Question 35

1 Point

Monetarists recommend that the money supply should grow at a:

  1. slow, steady rate that is based on the long-run real GDP growth rate.
  2. steady rate that is higher than output’s growth rate to stimulate growth.
  3. rate that varies in direct proportion to unemployment to offset it.
  4. rate that changes as the economy moves from stage to stage in the business cycle.