Download Practice 31

Mod 31 practice
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____
1. Suppose the Fed buys bonds. We can expect this transaction to:
A. decrease the money supply, increase bond prices, and decrease interest rates.
B. increase the money supply, decrease bond prices, and decrease interest rates.
C. increase the money supply, increase bond prices, and decrease interest rates.
D. decrease the money supply, decrease bond prices, and increase interest rates.
E. decrease the money supply, increase bond prices, and increase interest rates.
____
2. According to the liquidity preference model, what will happen to the money supply curve, the equilibrium
interest rate, and the equilibrium quantity of money, if the Fed sells Treasury bonds in an open market
operation?
A. Money Supply Curve shifts leftward, Interest Rate increases , Quantity of Money
decreases
B. Money Supply Curve shifts leftward, Interest Rate increases, Quantity of Money increases
C. Money Supply Curve shifts leftward, Interest Rate decreases, Quantity of Money
decreases
D. Money Supply Curve shifts rightward, Interest Rate increases, Quantity of Money
decreases
E. Money Supply Curve shifts rightward, Interest Rate decreases, Quantity of Money
increases
____
3. Expansionary monetary policy:
A. increases the money supply, interest rates, consumption, and investment.
B. decreases the money supply, interest rates, consumption, and investment.
C. increases the money supply, decreases interest rates, and increases consumption and
investment.
D. decreases the money supply, increases interest rates, and decreases consumption and
investment.
E. increases the money supply, decreases interest rates, and decreases consumption and
investment.
____
4. Monetary policy affects aggregate demand through changes in:
A. government spending.
B. both consumption and investment spending.
C. tax receipts.
D. investment spending, but not consumption spending.
E. consumption spending, but not investment spending.
____
5. Given a recessionary gap, the Fed will use monetary policy to _______ interest rates and _______ aggregate
demand.
A. increase; increase
B. increase; decrease
C. decrease; increase
D. decrease; decrease
E. Decrease; Hold constant
Figure 31-3: The Money Supply and Aggregate Demand
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6. Use the “The Money Supply and Aggregate Demand” Figure 31-3. If the Fed intended to encourage
investment and expand the economy, it would _______ government bonds, _______ the money supply, and
_______ interest rates. This is shown in Panel _______.
A. buy; increase; decrease; (a)
B. sell; increase; decrease; (b)
C. buy; decrease; decrease; (a)
D. buy; increase; increase; (a)
E. buy; increase; decrease; (b)
Figure 31-5: Monetary Policy I
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7. Use the “Monetary Policy I” Figure 31-5. If the money market is initially at E1 and the central bank chooses
to buy bonds, then:
A. AD2 will shift to the right, creating an inflationary gap.
B. AD2 may shift to AD1, creating a recessionary gap.
C. AD1 may shift to AD2, closing an existing recessionary gap.
D. AD1 will shift to the left, increasing an existing recessionary gap.
E. AD2 will shift to the right, increasing an existing recessionary gap.
Figure 31-7: Monetary Policy III
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8. Expansionary monetary policy causes _______ in interest rates in the short run and ______ in interest rates in
the long run.
A. a decrease; no change
B. a decrease; a decrease
C. no change; a decrease
D. no change; no change
E. no change; an increase
Figure 31-9: Output Gap
____
9. If the Federal Open Market Committee wishes to decrease the federal funds target rate, it does this by:
A. performing an open market purchase.
B.
C.
D.
E.
performing an open market sale.
increasing the demand for money.
offering tax breaks to specific businesses.
increasing taxes on specific businesses.
____ 10. If the Federal Reserve conducts an open market purchase, one can expect:
A. interest rates in the money market to fall.
B. interest rates in the money market to remain unchanged.
C. interest rates in the money market to rise.
D. the money supply to decrease.
E. the unemployment rate to rise.
Mod 31 practice
Answer Section
MULTIPLE CHOICE
1. ANS:
SKL:
2. ANS:
SKL:
3. ANS:
SKL:
4. ANS:
SKL:
5. ANS:
SKL:
6. ANS:
SKL:
7. ANS:
SKL:
8. ANS:
SKL:
9. ANS:
SKL:
10. ANS:
SKL:
C
PTS:
Critical Thinking
A
PTS:
Critical Thinking
C
PTS:
Fact-Based
B
PTS:
Fact-Based
C
PTS:
Critical Thinking
A
PTS:
Analytical Thinking
C
PTS:
Critical Thinking
A
PTS:
Concept-Based
A
PTS:
Concept-Based
A
PTS:
Concept-Based
1
DIF: M
REF: Module 31
1
DIF: M
REF: Module 31
1
DIF: M
REF: Module 31
1
DIF: M
REF: Module 31
1
DIF: M
REF: Module 31
1
DIF: D
REF: Module 31
1
DIF: M
REF: Module 31
1
DIF: M
REF: Module 31
1
DIF: M
REF: Module 31
1
DIF: M
REF: Module 31