Title: Monetary Policy and GDP
Course: TEST Course

Q: A goal of monetary policy is
- keeping taxes low.
- reducing government deficits.
- promoting economic growth.
A: promoting economic growth.

Q: One of the goals of monetary policy is
- creating deflation.
- keeping taxes low.
- maintaining price stability.
A: maintaining price stability.

Q: An expansionary or loose monetary policy
- raises interest rates.
- reduces borrowing.
- lowers interest rates.
A: lowers interest rates.

Q: A contractionary or tight monetary policy
- lowers interest rates.
- stimulates borrowing.
- reduces borrowing.
A: reduces borrowing.

Q: When the Central Bank acts in a way that causes the money supply to increase while aggregate demand remains unchanged, it is
- following a contractionary monetary policy.
- following a tight monetary policy.
- following an expansionary monetary policy.
A: following an expansionary monetary policy.

Q: In the scenario where the Central Bank creates policies which increase the money supply but the aggregate demand is unchanged, is created by following what type of monetary policy?
- A balanced policy.
- A contractionary policy.
- An expansionary policy.
A: An expansionary policy.

Q: When a Central Bank takes action to decrease the money supply and increase the interest rate, it is following
- a loose monetary policy.
- a expansionary monetary policy.
- a contractionary monetary policy.
A: a contractionary monetary policy.

Q: In the 1980s the U.S. Central Bank had the goal of increasing the interest rate and decreasing the money supply. To implement its goal the Central Bank uses a ________ monetary policy.
- relaxed
- expansionary
- contractionary
A: contractionary

Q: Ceteris paribus, a reduction in the federal funds rate affects car loan rates in the following manner
- Car loan rates will increase.
- Car loan rates will stay the same.
- Car loan rates will decrease.
A: Car loan rates will decrease.

Q: All else being equal, how does an increase in the federal funds rate affect home loan rates?
- home loan rates fall
- home loan rates remain the same
- home loan rates rise
A: home loan rates rise

Q: When the interest rate in an economy decreases, it is likely the result of either a/an ________ or a/an ________.
- increase in the federal budget deficit; open market sale of securities by the Fed.
- decrease in the federal budget deficit; open market purchase of securities by the Fed.
- expansionary practice; open market purchase of securities by the Fed.
A: expansionary practice; open market purchase of securities by the Fed.

Q: When the interest rate in an economy increases, it is likely the result of either a/an ________ or a/an ________.
- increase in the federal budget deficit; open market sale of securities by the Fed.
- decrease in the federal budget deficit; open market purchase of securities by the Fed.
- contractionary practice; open market sale of securities by the Fed.
A: contractionary practice; open market sale of securities by the Fed.

Q: An expansionary monetary policy affects aggregate demand
- directly, by increasing government expenditure.
- indirectly, by increasing interest rates and decreasing the available quantity of loans, which reduces spending.
- indirectly, by lowering interest rates and increasing the available quantity of loans, which stimulates spending.
A: indirectly, by lowering interest rates and increasing the available quantity of loans, which stimulates spending.

Q: An expansionary monetary policy increases investment and consumption spending, which
- shifts the AD curve to the left and decreases equilibrium GDP.
- shifts the AS curve to the right and increases equilibrium GDP.
- shifts the AS curve to the right and decreases equilibrium GDP.
- shifts the AD curve to the right and increases equilibrium GDP.
A: shifts the AD curve to the right and increases equilibrium GDP.

Q: A contractionary monetary policy reduces GDP by
- lowering interest rates and encouraging investment and consumption spending.
- raising interest rates and encouraging investment and consumption spending.
- lowering interest rates and discouraging investment and consumption spending.
- raising interest rates and discouraging investment and consumption spending.
A: raising interest rates and discouraging investment and consumption spending.

Q: A expansionary monetary policy increases GDP by
- raising interest rates and discouraging investment and consumption spending.
- raising interest rates and encouraging investment and consumption spending.
- lowering interest rates and discouraging investment and consumption spending.
- lowering interest rates and encouraging investment and consumption spending.
A: lowering interest rates and encouraging investment and consumption spending.

Q: When the supply of loanable funds shifts its position to the left, interest rates will ________ because loanable funds will be ________.
- fall; less scarce
- rise; less scarce
- rise; more scare
A: rise; more scare

Q: When the supply of loanable funds shifts its position to the right, interest rates will ________ because loanable funds will be ________.
- rise; scarcer
- rise; less scarce
- fall; less scarce
A: fall; less scarce

Q: What will happen to the money supply if the Fed increases the reserve requirement?
- The money supply will decrease.
- The money supply is unaffected by the reserve requirement.
- The money supply will increase.
A: The money supply will increase.

Q: What will happen to the money supply if the Fed decreases the reserve requirement?
- The money supply will increase.
- The money supply is unaffected by the reserve requirement.
- The money supply will decrease.
A: The money supply will decrease.

Q: What happens to the money supply if the Fed lowers the discount rate?
- it decreases
- it decreases, and then increases
- it increases
A: it increases

Q: What happens to the money supply if the Fed raises the discount rate?
- it increases
- it increases, and then decreases
- it decreases
A: it decreases

Q: In order to ________ the money supply, government should ________ bonds in open market operations.
- increase; sell
- decrease; buy
- increase; buy
A: increase; buy

Q: In order to ________ the money supply, government should sell bonds in open market operations.
- increase
- keep up with inflation in
- decrease
A: decrease

Q: Which of the following actions by the Fed will increase the money supply?
- lowering the reserve requirement and selling bonds.
- raising the discount rate and the reserve requirement.
- increasing the reserve requirement and buying bonds.
A: increasing the reserve requirement and buying bonds.

Q: Which of the following actions by the Fed will increase the money supply?
- increasing the reserve requirement and buying bonds.
- lowering the reserve requirement and selling bonds.
- lowering the discount rate and the selling bonds.
A: lowering the discount rate and the selling bonds.

Q: If the Central Bank observes aggregate demand weakening it will undertake
- contractionary monetary policy.
- no action.
- expansionary monetary policy.
A: expansionary monetary policy.

Q: When the Central Bank acts in a way that causes the money supply to increase while aggregate demand remains unchanged, it is
- following a contractionary monetary policy.
- following quantitative easing policy.
- following an expansionary monetary policy.
A: following an expansionary monetary policy.

Q: If a Central Bank decides it needs to decrease both the aggregate demand and the money supply, then it will:
- follow expansionary monetary policy.
- follow loose monetary policy.
- follow contractionary monetary policy.
A: follow contractionary monetary policy.

Q: In an economy where the money supply and aggregate demand have been decreased by the Central Bank, you know that the Central Bank is using
- an expansionary monetary policy.
- a loose monetary policy.
- a contractionary monetary policy.
A: a contractionary monetary policy.

Q: When a Central Bank makes a decision that will cause an increase in both the money supply and aggregate demand, it is
- following a tight monetary policy.
- following a contractionary monetary policy.
- following a expansionary monetary policy.
A: following a expansionary monetary policy.

Q: If a macroeconomy has the money supply and aggregate demand increased by the Central Bank, what monetary policy is the Central Bank following?
- A tight monetary policy.
- A contractionary monetary policy.
- An expansionary monetary policy.
A: An expansionary monetary policy.

Q: Considering how monetary policy affects the market, which of the following statements is most accurate?
- There is a direct impact on aggregate demand by monetary policies.
- There is more of an impact on consumption than investments by monetary policies.
- There is an indirect impact on aggregate demand by monetary policies.
A: There is an indirect impact on aggregate demand by monetary policies.

Q: How does monetary policy affect the market?
- Monetary policy has a direct impact on aggregate demand.
- Monetary policy has a more of an impact on consumption than investment.
- Monetary policy has an indirect impact on aggregate demand.
A: Monetary policy has an indirect impact on aggregate demand.

Q: When a Central Bank decides to make a policy intervention it must be mindful of the trade off between
- inflation and interest rates.
- money supply and inflation.
- inflation and unemployment.
A: inflation and unemployment.

Q: When considering which monetary policy to implement, the Central Bank needs to also be conscious of the tradeoff between
- consumption and investment.
- private investments and government expenditures.
- unemployment and inflation.
A: unemployment and inflation.

Q: Which of the following statements is correct?
- Central Bank intervention is undertaken to moderate private investment behavior.
- Central Bank intervention depends on the political goals of its Directors.
- Central Bank intervention reflects its goals for inflation, unemployment and economic growth.
A: Central Bank intervention reflects its goals for inflation, unemployment and economic growth.

Q: Identify which is true of the following statements?
- One of the purposes of the Central Bank’s intervention is to moderate private investment behavior.
- The Central Bank’s Directors political goals guide its intervention.
- The Central Bank’s goals for inflation, unemployment and economic growth is reflected in how it intervenes.
A: The Central Bank’s goals for inflation, unemployment and economic growth is reflected in how it intervenes.

Q: Central bank intervention is most effective when it ________.
- waits to get a clearer understanding of the movements of the economy
- reflects the wishes of the government
- takes preemptive action
A: takes preemptive action

Q: The Central Bank is most effective in its intervention if
- it holds back to assess the movements of the economy and until it has a clearer understanding of it.
- it reflects the President’s wishes.
- its actions are taken in preemptive moves.
A: its actions are taken in preemptive moves.

Q: The Central bank views unemployment ________ important than inflation.
- as more
- as less
- just as
A: just as

Q: The Central bank views unemployment just as important as ________.
- the reserve requirement
- the money supply
- inflation
A: inflation

Q: Quantitative easing can be described as a means of
- improving credit conditions for government agencies to encourage them to maintain income maintenance programs.
- encouraging consumption among private households.
- improving credit conditions for private firms and encouraging them to commit to capital expansion projects.
A: improving credit conditions for private firms and encouraging them to commit to capital expansion projects.

Q: Which of the following statements about quantitative easing describes it best?
- Quantitative easing means encouraging government agencies to maintain income maintenance programs through improving credit conditions.
- Quantitative easing means fostering private household consumption.
- Quantitative easing means encouraging private firms to increase capital expansion projects through improving credit conditions.
A: Quantitative easing means encouraging private firms to increase capital expansion projects through improving credit conditions.

Q: Quantitative easing undertaken after 2008 is different from traditional central bank intervention in that it focused on
- raising private bank’s revenues and therefore encouraging investment.
- purchasing “toxic assets” and restoring credit to the private sector.
- purchasing long-term government securities to encourage long-term capital projects and ease mortgage conditions.
A: purchasing long-term government securities to encourage long-term capital projects and ease mortgage conditions.

Q: After 2008, quantitative easing was distinctively different from traditional central bank intervention because it focused on
- encouraging investment by raising private bank’s revenues.
- restoring the private sectors credit by purchasing “toxic assets”.
- encourage long-term capital projects and ease mortgage conditions by purchasing long-term government securities.
A: encourage long-term capital projects and ease mortgage conditions by purchasing long-term government securities.

Q: Quantitative easing undertaken after 2008 was deemed to be necessary because ________.
- the threat of inflation was outweighed by staggering unemployment
- the demand for loanable funds increased as the federal funds rate was at historic lows
- short-term interest rates had already been driven down to zero and could not go lower
A: short-term interest rates had already been driven down to zero and could not go lower

Q: After 2008, the reasoning for the Fed to undertake quantitative easing was because ________.
- the short-term interest rates were above zero and could be lowered.
- the staggering unemployment was a greater threat than the threat of inflation.
- the demand for loanable funds remained stagnant even as the federal funds rate was at historic lows.
A: the demand for loanable funds remained stagnant even as the federal funds rate was at historic lows.

Q: The main risk of quantitative easing is ________.
- unemployment
- reduced exports
- inflation
A: inflation

Q: What is the economic risk of using quantitative easing?
- unemployment
- reduced imports
- inflation
A: inflation