Question 1
Which of the following measures of the money supply is currency included in? (Choose all that apply)
MV
MB
M2
M1
Question 2
Assume that all wages and prices are completely and immediately flexible. If the growth rate of the money supply is 8%, the growth rate of the velocity of money is 4% and inflation is 6%, what is the Solow growth rate?
Hint: enter your answer without a % sign
Example: if the answer is 4%, enter 4.
Question 3
If there is a long war in a country, the _______ curve will shift ______.
Solow growth, left
SRAS, up/left
SRAS, down/right
Solow growth, right
AD, left
AD, right
Question 4
What two things do we allow for in order to include an SRAS curve in our AD-AS model? (Choose all that apply) inflation does not change
wages are sticky
prices are sticky
taxes are adjusted for inflation
Question 5
All of the following are examples of the kind of shock that primarily led to the Great Depression EXCEPT
Smoot-Hawly tariff act
banks failed which led to fewer banks and less investment
the Fed decreased the money supply
stock prices decreased and consumers reduced their consumption
Question 6
All of the following are money EXCEPT
debit cards
checks
credit cards
currency
Question 7
Assuming a bank only keeps enough of its reserves to meet its reserve requirement, how much money is created when a bank receives a deposit from an individual of $8000 with a 20% reserve requirement.
Hint: enter your answer without a comma or $ sign.
Example: if the answer is $44,000 enter 44000 as your answer.
Question 8
Assuming a bank only keeps enough of its reserves to meet its reserve requirement, how much money is created when the Fed purchases $14,000 worth of bonds from a bank (this means they deposit $14,000 in that bank's reserve account) and there is a 10% reserve requirement?
Hint: enter your answer without a comma or $ sign.
Example: if the answer is $44,000 enter 44000 as your answer.
Question 9
If the Fed buys US government bonds, what effects does this have on the US economy?
money supply increases; interest rates increase; US economy is restrained
money supply increases; interest rates increase; US economy is stimulated
money supply increases; interest rates decrease; US economy is restrained
money supply decreases; interest rates increase; US economy is stimulated
money supply decreases; interest rates increase; US economy is restrained
money supply decreases; interest rates decrease; US economy is restrained
money supply increases; interest rates decrease; US economy is stimulated
money supply decreases; interest rates decrease; US economy is stimulated
Question 10
How many regional Fed banks are there?
Question 11
The monetary policy tool where the Fed lends directly to banks is
velocity modification
discount lending
reserve requirement
open market operations
Question 12
All of the following are true EXCEPT
the monetary policy target of the Fed is the 5-year US Treasury interest rate
the Fed cannot force businesses to borrow
the Fed operates by changing the value of MB
the Fed cannot force banks to lend
Question 13
What is the best case scenario for the Fed?
counter a positive SRAS shock
counter a negative real shock
counter a negative AD shock
counter a positive real shock
Question 14
If the Fed stimulates the economy too much, what problem will the economy have?
high inflation
high economic growth
low economic growth
low inflation
Question 15
All of the following make monetary policy difficult to conduct EXCEPT
it takes a long time for monetary policy implemented in New York to affect other parts of the country
there are lags associated with monetary policy
the Fed operates in real time with backwards looking data
the Fed has incomplete control of the money supply
Question 16
All of the following contribute to making the tightening of monetary policy less painful EXCEPT
individuals and firms in the economy lower their inflation expectations faster
the SRAS curve moves down more slowly
the Fed possesses a high degree of credibility
the Fed announces their intentions
Question 17
All of the following are true about the Fed responding to the housing bubble EXCEPT
the Fed should have tightened subprime lending regulations
the widely predicted severe consequences of the housing bubble popping should have prompted a tightening of monetary policy
depressing the whole economy is a crude way of correcting the prices of one asset class
it is difficult to identify bubbles until after the fact
Use the following information for the next 10 questions. You should draw a graph that depicts the situation below and use your picture to answer the questions.
Assume that wages and prices are sticky and that we start at a long-run equilibrium. Assume that at this initial point, the growth rate of the money supply is 5%, the growth rate of the velocity of money is 4% and that the real economic growth rate is 3%.
Now assume that the Federal Reserve has decided to increase the growth rate of the money supply by 6% and that the Federal Reserve leaves the growth rate of the money supply at this elevated rate.
Question 18
What curves do you have in your graph? (Choose all that apply)
AD
SRAS
SGC
MTS
Question 19
What is the inflation rate at the initial long run equilibrium (the point where we start)?
Hint: enter your answer without a % sign
Example: if the answer is 2%, enter 2
Question 20
What is the value of expected inflation for the SRAS curve before the Federal Reserve increases the growth rate of the money supply?
Hint: enter your answer without a % sign
Example: if the answer is 2%, enter 2
Question 21
When the Federal Reserve decides to increase the growth rate of the money supply, the ______ curve shifts ______.
SGC; left
AD; right
SRAS; down/right
SRAS; up/left
AD; left
SGC; right
Question 22
After the Federal Reserve increases the growth rate of the money supply, what is the growth rate of the velocity of money?
Hint: enter your answer with a % sign
Example: if the answer is 2%, enter 2
Question 23
After the Federal Reserve increases the growth rate of the money supply, what is the new total spending growth rate?
Hint: enter your answer with a % sign
Example: if the answer is 2%, enter 2
Question 24
After the Federal Reserve increases the growth rate of the money supply, what is the new real economic growth rate in your graph?
Hint: enter your answer with a % sign
Example: if the answer is 2%, enter 2
Question 25
After the Federal Reserve increases the growth rate of the money supply and we are at a new real economic growth rate and a new inflation rate (point 2), the ______ curve shifts ______.
SGC; left
SRAS, up/left
AD; right
SRAS; down/right
AD; left
SGC; right
Question 26
Now think about the point that the economy ends up at that is the new long run equilibrium.
What is the real economic growth rate?
Hint: enter your answer without a % sign
Question 27
Now think about the point that the economy ends up at that is the new long run equilibrium.
What is the inflation rate?
Hint: enter your answer without a % sign
Use the following information for the next 10 questions. You should draw a graph that depicts the situation below and use your picture to answer the questions.
Assume that wages and prices are sticky and that we start at a long run equilibrium. Assume that at this initial point, the growth rate of the money supply is 6%, the growth rate of the velocity of money is 5% and that the real economic growth rate is 4%.
Assume that there is a drop in consumption and investment such that causes total spending growth to drop by 5%.
Assume now that the Federal Reserve is going to try and counter this drop in consumption and investment through monetary policy, and that they increase the growth rate of the money supply by 9%.
Question 28
What curves are in your graph? (Choose all that apply)
SRAS
SGC
AD
MTS
Question 29
What is the inflation rate at the initial long run equilibrium (the point where we start)?
Hint: enter your answer without a % sign
Example: if the answer is 2%, enter 2
Question 30
What is the value of expected inflation for the SRAS curve before the Federal Reserve increases the growth rate of the money supply?
Hint: enter your answer without a % sign
Example: if the answer is 2%, enter 2
Question 31
When consumption and investment fall, which component of total spending growth is affected?
growth rate of the money supply
inflation
growth rate of the velocity of money
real economic growth rate
Question 32
When consumption and investment fall, the _____ curve shifts _____.
AD; left
SRAS; up/left
SGC; right
AD; right
SRAS; down/right
SGC; left
Question 33
After consumption and investment fall (and before Federal Reserve action), what is the inflation rate in your graph?
Question 34
When the Federal Reserve decides to increase the growth rate of the money supply, the ______ curve shifts ______.
SRAS; down/right
SGC; right
SGC; left
AD; right
SRAS; up/left
AD; left
Question 35
After Federal Reserve action, what is the growth rate of the velocity of money?
Hint: enter your answer without a % sign
Example: if the answer is 2%, enter 2
Question 36
When the Federal Reserve increases the growth rate of the money supply in this case, they stimulate the economy _______.
too much
too little
unable to determine
just right
Question 37
After Federal Reserve action, what is the real economic growth rate in your graph?
Hint: enter your answer without a % sign
Example: if the answer is 2%, enter 2