To correct a weak economy, the Federal Reserve would want to use open market ________ to ________ interest rates.

a. b. c. d. sales; decrease sales; increase purchases; decrease purchases; increase

2.

To counteract demand driven inflation, the Fed would want to ________ the economy with open market ________ of securities. a. b. c. d. slow; sales slow; purchases grow; sales grow; purchases

3.

Which of the following is true about a credit crunch?

I. It can magnify the intended effects of restrictive monetary policy. II. It may impair the desired effects of loose monetary policy. III. It decreases interest rates. a. I only

b. c. d.

II only I and II only I, II, and III

4.

What is the velocity of money? a. b. c. d. Growth in money supply. Number of times a dollar changes hands per year. Rate of inflation. Interest rates.

5.

Which of the following would most likely increase the velocity of money? a. b. c. d. Increased credit. Switching from monthly paychecks to weekly paychecks. Increases in inflation. None of the answers are correct.

6.

The schedule of money demanded at various interest rates is ________ sloping and the schedule of money supplied at various interest rates is ________ sloping. a. b. c. d. upward; upward downward; upward upward; downward downward; downward

7.

According to Keynesian theory, high inflation due to excessive spending is called: a. b. c. d. demand-pull inflation. supply-push spending. supply-pull inflation. demand-push spending.

8.

To cure a recessionary economy, Monetarists would ________ the growth in money supply while Keynesian theory would suggest ________ money supply growth. a. b. c. d. increase; not changing decrease; increasing not change; decreasing not change; increasing

9.

Monetarists are more tolerant of ________ and Keynesians are more tolerant of ________. a. b. c. d. unemployment; inflation inflation; unemployment unemployment; high interest rates low interest rates; high interest rates

10.

Which of the following is NOT a typical goal of the Fed? a. b. c. d. low unemployment sustained growth in GDP low interest rates low inflation

11.

The Phillips curve shows the relationship between ________ and ________. a. b. c. inflation; interest rates unemployment; GDP growth interest rates; GDP growth

d.

unemployment; inflation

12.

Producer price index represents prices at the ________ level while the consumer price index represents prices at the ________ level. a. b. c. d. wholesale; retail retail; wholesale global; domestic domestic; global

13.

________ is the most direct measure of economic growth in the U.S. a. b. c. d. Inflation Gross domestic product Unemployment Interest rates

14.

Which of the following is an index of economic indicators published by the Conference Board? a. Leading.

b. c. d.

Blagging. Coincident. All of the answers are correct.

15.

The Fed is said to ________ when it buys Treasury securities that are issued to finance budget deficits, offsetting the potential for the crowding-out effects. a. b. c. d. tighten monetary policy extend a credit crunch monetize the debt none of the answers are correct

16.

Decreases in interest rates lead to an increase in the level of business investment. True False

17.

A credit crunch always offsets the desired effects of monetary policy. True

False

18.

According to the Keynesian theory, if the economy is weak, the Fed should increase spending. True False

19.

A limitation of the Monetarist approach to recessions is that the time required to improve the economy may be longer than the Keynesian approach. True False

20.

The theory of rational expectations supports the Keynesian approach to money growth. True False

21.

GDP growth and low unemployment are usually goals that are achieved simultaneously. True False

22.

Tight money policies tend to increase inflation and decrease unemployment. True False

23.

When energy prices are high, the Fed may be less willing to use loose money policies. True False

24.

The duration of unemployment would be a leading indicator of economic activity. True False

25.

The time lag between the time an economic slowdown occurs and the time it is discovered is called recognition lag. True False

26.

The Fed has become more secretive about its stance on monetary policy over the last decade. True False

27.

A weak dollar can stimulate U.S. economic growth. True False

28.

The Fed is more likely to stimulate money supply growth when the dollar is weak. True False

29.

The FOMC ignores Keynesian theory when making monetary policy decisions. True False

30.

The time lag until executed changes in monetary policy work their way into the economy is called implementation lag. True False