question

True

answer

The Fed can affect the interaction between the demand for money and the supply of money to influence interest rates, the aggregate level of spending, and therefore economic growth.

question

increase; increasing

answer

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

question

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

answer

A credit crunch occurs when:

question

False

answer

According to the theory of rational expectations, higher inflationary expectations businesses and households to reduce their demand for loanable funds.

question

False

answer

A passive monetary policy adjusts money supply automatically in response to economic conditions.

question

True

answer

If the Fed implemented a policy of inflation targeting, and if the U.S. inflation rate deviated from the Fed's target inflation rate, the Fed could lose credibility.

question

an inverse relationship between unemployment and inflation.

answer

In general, there is:

question

loose; tight

answer

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

question

stimulate; place upward pressure on

answer

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

question

True

answer

When both inflation and unemployment are relatively high, there is more disagreement among FOMC members about the proper monetary policy to implement.

question

Gross domestic product (GDP)

answer

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

question

consumer confidence surveys

answer

Which of the following is not an indicator of inflation?

question

leading

answer

The ____ indicators tend to occur before a business cycle.

question

lagging

answer

The ____ indicators tend to occur after a business cycle.

question

coincident

answer

The ____ indicators tend to occur before a business cycle.

question

recognition lag.

answer

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

question

implementation lag.

answer

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

question

impact lag.

answer

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

question

False

answer

If the Fed attempts to reduce inflation, it would likely increase money supply growth.

question

upward; upward

answer

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.

question

False

answer

The Fed is usually more willing to monetize the debt when inflation is relatively high.

question

outflows; tight

answer

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 fee compelled to use a ___monetary policy.

question

uses a tight-money policy.

answer

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

question

recognition

answer

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

question

weak

answer

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

question

higher; increase

answer

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.

question

increase; upward

answer

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.

question

it allows the economy to fix itself.

answer

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

question

high level of aggregate demand.

answer

Inflation is commonly the result of a

question

the impact on interest rates can not be determined.

answer

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

question

low and steady.

answer

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

question

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

answer

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

question

the crowding-out effect.

answer

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

question

an outward shift in the supply schedule of loanable funds.

answer

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

question

an inward shift in the supply schedule of loanable funds.

answer

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

question

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

answer

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

question

unfavorably; increases

answer

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.

question

False

answer

According to the theory of rational expectations, higher inflationary expectations encourage businesses and households to reduce their demand for loanable funds.

question

False

answer

A passive monetary policy adjusts money supply automatically in response to economic conditions

question

True

answer

If the Fed implemented a policy of inflation targeting, and if the U.S. inflation rate deviated substantially from the Fed's target inflation rate, the Fed could lose credibility.

question

False

answer

If the Fed attempts to reduce inflation, it would likely increase money supply growth.

question

False

answer

The relationship between the interest rate on loanable funds and the level of business investment is positive.

question

False

answer

The supply schedule of loanable funds indicates the quantity of funds that would be demanded at various possible interest rates.

question

False

answer

To correct excessive inflation, the Fed could use open market operations by buying Treasury securities in the secondary market.

question

True

answer

One of the disadvantages of inflation targeting is that the Fed could lose credibility is the U.S. inflation rate deviates substantially from the Fed's target inflation rate.

question

True

answer

Economists who work at the Fed recognize that a stimulative monetary policy will not always cure a high unemployment rate and could even ignite inflation.

question

True

answer

An attempt by the Fed to stimulate the economy by reducing short-term interest rates may have a limited effect if long-term interest rates remain unaffected.

question

False

answer

The Fed needs the approval of the presidential administration to make decisions.

question

True

answer

The Fed is more likely to use a stimulative policy during a strong-dollar period.

question

Decrease, increase

answer

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

question

high interest rates

answer

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

question

producer price index

answer

The ____ is not an indicator of economic growth.

question

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.

answer

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

question

lagging

answer

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

question

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

answer

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

FI 301 Ch. 5 – Flashcards

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