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Macroeconomics in Modules

Paul Krugman, Robin Wells

Chapter 11

Monetary Policy - all with Video Answers

Educators

Chapter Questions

Problem 1

Which of the following is a function of the Federal Reserve System?
I. examine commercial banks
II. print Federal Reserve notes
III. conduct monetary policy
a. I only
b. II only
c. III only
d. I and III only
e. I, II, and III

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Problem 1

In the long run, changes in the quantity of money affect which of the following?
I. real aggregate output
II. interest rates
III. the aggregate price level
a. I only
b. II only
c. III only
d. I and II only
e. I, II, and III

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Problem 1

A change in which of the following will shift the money demand curve?
I. the aggregate price level
II. real GDP
III. the interest rate
a. I only
b. II only
c. III only
d. I and II only
e. I, II, and III

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Problem 1

At each meeting of the Federal Open Market Committee, the Federal Reserve sets a target for which of the following?
1. the federal funds rate
II. the prime interest rate
III. the market interest rate
a. I only
b. II only
c. III only
d. I and III only
e. I, II, and III

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Problem 2

Which of the following financial services does the Federal Reserve provide for commercial banks?
I. clearing checks
II. holding reserves
III. making loans
a. I only
b. II only
c. III only
d. I and II
e. I, II, and III

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Problem 2

An increase in the money supply will lead to which of the following in the short run?
a. higher interest rates
b. decreased investment spending
c. decreased consumer spending
d. increased aggregate demand
e. lower real GDP

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Problem 2

Which of the following actions can the Fed take to decrease the equilibrium interest rate?
a. increase the money supply
b. increase money demand
c. decrease the money supply
d. decrease money demand
e. both (a) and (d)

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Problem 2

Which of the following will decrease the demand for money?
a. an increase in the interest rate
b. inflation
c. an increase in real GDP
d. an increase in the availability of ATMs
e. the adoption of Regulation $\mathrm{Q}$

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Problem 3

What will happen to the money supply and the equilibrium interest rate if the Federal Reserve sells Treasury securities?
$\begin{array}{lc}\text { Money supply } & \text { Equilibrium interest rate } \\ \text { a. increase } & \text { increase } \\ \text { b. decrease } & \text { increase } \\ \text { c. increase } & \text { decrease } \\ \text { d. decrease } & \text { decrease } \\ \text { e. decrease } & \text { no change }\end{array}$

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Problem 3

Contractionary monetary policy attempts to _________ aggregate demand by ________interest rates.
a. decrease; increasing
b. increase; decreasing
c. decrease; decreasing
d. increase; increasing
e. increase; maintaining

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Problem 3

When the Fed makes a loan to a commercial bank, it charges
a. no interest.
b. the prime rate.
c. the federal funds rate.
d. the discount rate.
e. the market interest rate.

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02:58

Problem 3

A $10 \%$ decrease in the money supply will change the aggregate price level in the long run by
a. zero.
b. less than $10 \%$.
c. $10 \%$.
d. $20 \%$.
e. more than $20 \%$.

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator

Problem 4

Which of the following is true regarding short-term and long-term interest rates?
a. Short-term interest rates are always above long-term interest rates.
b. Short-term interest rates are always below long-term interest rates.
c. Short-term interest rates are always equal to longterm interest rates.
d. Short-term interest rates are more important for determining the demand for money.
e. Long-term interest rates are more important for determining the demand for money.

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Problem 4

Which of the following is a goal of monetary policy?
a. zero inflation
b. deflation
c. price stability
d. increased potential output
e. decreased actual real GDP

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Problem 4

If the Fed purchases U.S. Treasury bills from a commercial bank, what happens to bank reserves and the money supply?
$\begin{array}{ll}\text { Bank reserves } & \text { Money supply } \\ \text { a. increase } & \text { decrease } \\ \text { b. increase } & \text { increase } \\ \text { c. decrease } & \text { decrease } \\ \text { d. decrease } & \text { increase } \\ \text { e. increase } & \text { no change }\end{array}$

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08:24

Problem 4

Monetary neutrality means that, in the long run, changes in the money supply
a. cannot happen.
b. have no effect on the economy.
c. have no real effect on the economy.
d. increase real GDP.
e. change real interest rates.

KM
Kanishk Mishra
Numerade Educator
08:24

Problem 5

The quantity of money demanded rises (that is, there is a movement along the money demand curve) when
a. the aggregate price level increases.
b. the aggregate price level falls.
c. real GDP increases.
d. new technology makes banking easier.
e. short-term interest rates fall.

KM
Kanishk Mishra
Numerade Educator

Problem 5

When banks make loans to each other, they charge the
a. prime rate.
b. discount rate.
c. federal funds rate.
d. CD rate.
e. mortgage rate.

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00:53

Problem 5

When implementing monetary policy, the Federal Reserve attempts to achieve
a. an explicit target inflation rate.
b. zero inflation.
c. a low rate of deflation.
d. a low but positive inflation rate.
e. between $4 \%$ and $5 \%$ inflation.

Jennifer Stoner
Jennifer Stoner
Numerade Educator

Problem 5

A graph of percentage increases in the money supply and average annual increases in the price level for various countries provides evidence that
a. changes in the two variables are exactly equal.
b. the money supply and aggregate price level are unrelated.
c. money neutrality holds only in wealthy countries.
d. monetary policy is ineffective.
e. money is neutral in the long run.

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