ECON 2002.01 Study Guide - Midterm Guide: Federal Funds Rate, Deflation, Reserve Requirement
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ECON 2002 MIDTERM 3 VERSION B
1) The Federal Reserve System's four monetary policy goals are
A) low government budget deficits, low current account deficits, high employment, and a high foreign
exchange value of the dollar.
B) low rate of bank failures, high reserve ratios, price stability, and economic growth.
C) price stability, high employment, economic growth, and stability of financial markets and
D) price stability, low government budget deficits, low current account deficits, and low rate of bank
2) Using the money demand and money supply model, an open market sale of Treasury securities by the
Federal Reserve would cause the equilibrium interest rate to
C) not change.
D) increase, then decrease.
3) Suppose the Fed lowers its target for the federal funds rate. Using the static AD-AS model in the figure
above, this situation would be depicted as a movement from
A) A to B.
B) B to A.
C) C to B.
D) E to A.
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 faster 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) The leader of the monetarist school and major proponent of a monetary growth rule was
A) Ben Bernanke.
B) Milton Friedman.
C) Alan Greenspan.
D) Paul Volcker.
6) Part of the spending on the Caldecott Tunnel project in northern California came from the American
Reinvestment and Recovery Act, which is an example of discretionary fiscal policy aimed at increasing
A) real GDP and employment.
B) the money supply
C) disposable income and interest rates.
D) the money supply and money demand.
7) Suppose the economy is in short-run equilibrium above potential GDP and automatic stabilizers move
the economy back to long-run equilibrium. Using the static AD-AS model in the figure above, this would
be depicted as a movement from
A) D to C.
B) A to E.
C) C to B.
D) B to A.
E) E to A.
8) Poorly timed discretionary policy can do more harm than good. Getting the timing right with fiscal
policy is generally
A) less difficult than with monetary policy.
B) far less difficult than with monetary policy.
C) more difficult than with monetary policy.
D) about the same difficulty as with monetary policy.
9) For the federal deficit to be lowered,
A) the federal government must decrease its spending and increase net exports.
B) the federal government's expenditures must be lower than its tax revenue.
C) the Federal Reserve must raise interest rates and lower the required reserve ratio.
D) the Federal Reserve must reduce the money supply.