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    CB2402 Week 7

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    RoyChung
    The document is a self-study exercise that contains 10 multiple choice questions about monetary policy concepts from Chapter 26 of a macroeconomics textbook. The questions cover topics like the Federal Reserve's monetary policy goals, how interest rates and the price level can shift the money demand curve, using the Taylor Rule to determine the federal funds target rate, how the Fed's actions are depicted in AD-AS models, and the Fed's preferred measure of inflation. The answers to each multiple choice question are provided at the end.

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    CB2402 Week 7

    Uploaded by

    RoyChung
    123 views5 pages
    The document is a self-study exercise that contains 10 multiple choice questions about monetary policy concepts from Chapter 26 of a macroeconomics textbook. The questions cover topics like the Federal Reserve's monetary policy goals, how interest rates and the price level can shift the money demand curve, using the Taylor Rule to determine the federal funds target rate, how the Fed's actions are depicted in AD-AS models, and the Fed's preferred measure of inflation. The answers to each multiple choice question are provided at the end.

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    The document is a self-study exercise that contains 10 multiple choice questions about monetary policy concepts from Chapter 26 of a macroeconomics textbook. The questions cover topics like the Federal Reserve's monetary policy goals, how interest rates and the price level can shift the money demand curve, using the Taylor Rule to determine the federal funds target rate, how the Fed's actions are depicted in AD-AS models, and the Fed's preferred measure of inflation. The answers to each multiple choice question are provided at the end.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    123 views5 pages

    CB2402 Week 7

    Uploaded by

    RoyChung
    The document is a self-study exercise that contains 10 multiple choice questions about monetary policy concepts from Chapter 26 of a macroeconomics textbook. The questions cover topics like the Federal Reserve's monetary policy goals, how interest rates and the price level can shift the money demand curve, using the Taylor Rule to determine the federal funds target rate, how the Fed's actions are depicted in AD-AS models, and the Fed's preferred measure of inflation. The answers to each multiple choice question are provided at the end.

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    CB2402 Macroeconomics

    Self-study Exercise - Week 7

    Chapter 26 Monetary Policy

    1) The Federal Reserve System's four monetary policy goals are


    A) low government budget deficits, low current account deficits, high employment,
    and a high foreign exchange value of the dollar.
    B) a low rate of bank failures, high reserve ratios, price stability, and economic
    growth.
    C) price stability, high employment, economic growth, and stability of financial
    markets and institutions.
    D) price stability, low government budget deficits, low current account deficits, and a
    low rate of bank failures.

    2) An increase in the interest rate causes


    A) a movement up along the money demand curve.
    B) a movement down along the money demand curve.
    C) the money demand curve to shift to the left.
    D) the money demand curve to shift to the right.

    3) An increase in the price level causes


    A) the money demand curve to shift to the left.
    B) the money demand curve to shift to the right.
    C) a movement up along the money demand curve.
    D) a movement down along the money demand curve.

    4) An increase in real GDP can shift


    A) money demand to the right and decrease the equilibrium interest rate.
    B) money demand to the right and increase the equilibrium interest rate.
    C) money demand to the left and decrease the equilibrium interest rate.
    D) money demand to the left and increase the equilibrium interest rate.
    Figure 26-3

    5) Refer to Figure 26-3. In the figure above, when the money supply shifts from MS1

    to MS2, at the interest rate of 3 percent households and firms will

    A) buy Treasury bills.


    B) sell Treasury bills.
    C) neither buy nor sell Treasury bills.
    D) want to hold more money.

    6) Suppose the equilibrium real federal funds rate is 3 percent, the target rate of
    inflation is 3 percent, the current inflation rate is 1 percent, and real GDP is 8 percent
    below potential real GDP. If the weights for the inflation gap and the output gap are
    both 1/2, then according to the Taylor rule the federal funds target rate equals
    A) -3 percent.
    B) -1 percent.
    C) 3.5 percent.
    D) 7 percent.
    Figure 26-7

    7) Refer to Figure 26-7. Suppose the Fed lowers its target for the federal funds rate.
    Using the static AD-AS model in the figure above, this situation would be depicted as
    a movement from
    A) A to B.
    B) B to A.
    C) C to B.
    D) E to A.
    E) C to D.

    8) The Fed's preferred measure of inflation is


    A) the index of leading economic indicators
    B) the core personal consumption expenditures index
    C) the consumer price index
    D) the GDP deflator
    E) the producer price index

    Figure 26-13
    9) Refer to Figure 26-13. In the figure above, if the economy in Year 1 is at point A
    and is expected in Year 2 to be at point B, then 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.

    10) When housing prices ________, as they did beginning in 2006 following the
    housing market bubble, consumption spending on furniture, appliances, and home
    improvements decline as many households find it ________ to borrow against the
    value of their homes.
    A) rise; easier
    B) rise; harder
    C) fall; easier
    D) fall; harder

    Answer to Self-study Exercise – Week 7

    MCQ Answer
    1 C
    2 A
    3 B
    4 B
    5 A
    6 B
    7 A
    8 B
    9 B
    10 D

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