ECON 2002.01 Study Guide - Midterm Guide: Federal Funds Rate, Deflation, Scantron Corporation
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Midterm 3 MASP15-2 Name __________________________________
Be certain that you have the correct scantron for your exam. Fill out your last name and first
name on the scantron sheet, including the bubbles. Fill in your answers on the scantron sheet.
1) Which of the following are goals of monetary policy?
A) maximizing the value of the dollar relative to other currencies, economic growth, and high
B) price stability, maximizing the value of the dollar relative to other currencies, and high
C) price stability, economic growth, and high employment
D) price stability, economic growth, and maximizing the value of the dollar relative to other
2) The rate of interest banks charge other banks for overnight loans of reserves is the
A) discount rate.
B) prime rate.
C) federal funds rate
D) real rate.
3) Suppose the economy is in short-run equilibrium above potential GDP, the unemployment
rate is very low, and wages and prices are rising. Using the static AD-AS model in the figure
above, the correct Fed policy for this situation would be depicted as a movement from
A) A to B.
B) B to C.
C) C to B.
D) A to E.
E) C to D.
4) From an initial long-run macroeconomic equilibrium, if the Federal Reserve anticipated that
next year aggregate demand would grow significantly slower than long-run aggregate supply,
then the Federal Reserve would most likely
A) increase income tax rates.
B) decrease income tax rates.
C) increase interest rates.
D) decrease interest rates.
5) While many analysts defended the actions taken by the Fed and the Treasury to respond to
the financial crisis in 2008, others were critical of these actions. The critics were concerned that
by not allowing large firms to fail,
A) smaller firms will resent not receiving similar assistance.
B) stockholders and bondholders of these firms were not allowed to receive the proceeds from
the sale of assets that would have occurred if the firms had declared bankruptcy.
C) there is an increased likelihood that other firms will engage in risky behavior in the future
with the expectation that they will also not be allowed to fail.
D) there will be less competition in the U.S. economy, which could led to higher prices for
6) In the graph above, suppose the economy is initially at point A. The movement of the
economy to point B as shown in the graph illustrates the effect of which of the following policy
actions by the Congress and the president?
A) an increase in transfer payments
B) an increase in interest rates
C) an increase in income taxes
D) an open market purchase of Treasury bills