question

The Fed can ____ the level of spending as a means of stimulating the economy by ____ the money supply.

answer

increase; increasing

question

A credit crunch occurs when:

answer

creditors restrict the amount of loans they are willing to provide.

question

in general, there is:

answer

an inverse relationship between unemployment and inflation.

question

A ____-money policy can reduce unemployment, and a ____-money policy can reduce inflation.

answer

loose; tight

question

A loose money policy tends to ____ economic growth and ____ the inflation rate.

answer

stimulate; place upward pressure on

question

____ serves as the most direct indicator of economic growth in the United States.

answer

Gross domestic product (GDP)

question

Which of the following is not an indicator of inflation?

answer

consumer confidence surveys

question

The ____ indicators tend to occur before a business cycle.

answer

leading

question

The ____ indicators tend to occur after a business cycle.

answer

lagging

question

The time lag between when an economic problem arises and when it is reported in economic statistics is the

answer

recognition lag.

question

The time between when an economic problem is realized and when the Fed tries to correct it with its policies is the

answer

implementation lag.

question

The time between when the Fed adjusts the money supply and when interest rates change reflects the

answer

impact lag.

question

Which of the following best describes the relationship between the Fed and the Administration?

answer

none of the above

question

A high budget deficit tends to place ____ pressure on interest rates; the Fed's tightening of the money supply tends to place ____ pressure on interest rates.

answer

upward; upward

question

International flows of funds can affect the Fed's monetary policy. For example, if there is downward pressure on U.S. interest rates that can be offset by foreign ____ of funds, the Fed may not feel compelled to use a ____ monetary policy.

answer

outflows; tight

question

Costner National, a commercial bank, obtains short-term deposits and makes long-term fixed-rate loans. It should be adversely affected when the Fed:

answer

uses a tight-money policy.

question

The ____ lag represents the time from when an economic problem exists until it is recognized.

answer

recognition

question

A ____ dollar tends to exert inflationary pressure in the U.S.

answer

weak

question

According to the theory of rational expectations, ____ inflationary expectations encourage businesses and households to ____ their demand for loanable funds in order to borrow and make planned expenditures increase.

answer

higher; increase

question

Historical evidence has shown that, when the Fed significantly increases money supply, U.S. inflation tends to ____ shortly thereafter which in turn places ____ pressure on U.S. interest rates.

answer

increase; upward

question

If the Fed uses a passive monetary policy during weak economic conditions,

answer

it allows the economy to fix itself.

question

Which of the following is true?

answer

None of the above.

question

Inflation is commonly the result of a

answer

high level of aggregate demand.

question

According to the theory of rational expectations, if the Fed uses open market operations in order to increase the supply of loanable funds, the ultimate effect on interest rates is definitely

answer

the impact on interest rates cannot be determined.

question

The Federal Reserve would be most inclined to use a stimulative monetary policy to cure a recession if oil prices are

answer

low and steady.

question

Global crowding out is described in the text to mean the impact of

answer

an excessive budget deficit in one country on interest rates of another country.

question

If the federal government is willing to pay whatever is necessary to borrow loanable funds, but the private sector is not, this reflects

answer

the crowding-out effect.

question

When the Fed uses open market operations by purchasing Treasury securities from various financial institutions in the U.S., there will be

answer

an outward shift in the supply schedule of loanable funds.

question

When the Fed uses open market operations by selling some of its Treasury securities to investors in the U.S., there will be

answer

an inward shift in the supply schedule of loanable funds.

question

Which of the following is not a disadvantage of inflation targeting?

answer

The Fed's complete focus on inflation could result in much higher interest rates, which would discourage economic growth.

question

Financial institutions such as commercial banks, bond mutual funds, insurance companies, and pension funds maintain large portfolios of bonds, so their portfolio is ____ affected when the Fed ____ interest rates.

answer

unfavorably; increases

question

A purchase of Treasury securities by the Fed leads to a(n) ____ in interest rates and a(n) ____ in the level of business investment.

answer

decrease; increase

question

Which of the following is probably not a goal the Fed is trying to achieve consistently?

answer

high interest rates

question

The ____ is not an indicator of economic growth.

answer

producer price index

question

Which of the following is not true with respect to inflation targeting?

answer

If unemployment is slightly higher than normal, while inflation is at the peak of the target range, and inflation targeting approach would like advocate a loose monetary policy.

question

A ____ economic indicator tends to rise or fall a few months after business-cycle expansions and contractions.

answer

lagging

question

A weak dollar would stimulate ____, discourage ____, and ____ the U.S. economy.

answer

U.S. exports; U.S. imports; stimulate

question

The interest rate that the Fed targets for its monetary policy is the:

answer

federal funds rate.

question

When the Fed purchases Treasury securities, the account balances of the investors who sell their securities to the Fed _________, and there are _________ in the account balances of other financial institutions.

answer

increase; no offsetting decreases

question

The Fed's monetary policy is commonly intended to alter the supply of funds in the banking system in order to achieve a specific targeted:

answer

federal funds rate.

question

If a firm has a credit risk premium of 3 percent and the Treasury security rate is 4 percent, the firm will be able to borrow at ________. If the Fed implements a monetary policy that raises the Treasury security rate to 6 percent, the cost of borrowing for the firm will be ________.

answer

7 percent; 9 percent

question

In the "operation twist" strategy used in 2011 and 2012, the Fed sold _______ Treasury securities and used the proceeds to purchase ________ Treasury securities.

answer

short-term; long-term

question

The intent of the Fed's operation twist strategy in 2011 and 2012 was to:.

answer

reduce long-term interest rates.

question

Which of the following is not a reason that a stimulative monetary policy may be ineffective?

answer

Higher interest rates encourage individuals to increase their savings.

question

Which of the following was not true of the eurozone during the Greek crisis?

answer

Greece, Spain, and Portugal focused their efforts on reducing tax rates in order to stimulate their economies.

chapter 5 finance 421 – Flashcards

Unlock all answers in this set

Haven't found what you were looking for?

Search for samples, answers to your questions and flashcards