Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Chapter 33, Problem 5MCQ
To determine
To identify:
The option that correctly states the actions done by Fed to fight the
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When the Fed lowers the federal funds rate, which of the following economic variables responds most rapidly?
other short-term interest rates
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the supply of loanable funds
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an inflation targeting rule.
a money targeting rule.
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a nominal GDP targeting rule.
a money demand rule.
The Fed increases the quantity of money to counteract
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a federal budget surplus.
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One of the major reasons why the United States exports jet airplanes is because Boeing faces ________ opportunity cost than firms in other nations in the production of such aircraft.
a lower
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If the United States imports purses, then the quantity of purses produced in the United States will…
If the Federal Reserve wanted to offset a cyclical downturn in overall expenditures, it should
sell bonds to decrease the money supply thus increasing the interest rates to decrease business investment and therefore decreasing the overall level of expenditures and decreasing the price level.
buy bonds to decrease the money supply thus increasing the interest rates to decrease business investment and therefore decreasing the overall level of expenditures and decreasing the price level.
sell bonds to increase the money supply thus decreasing the interest rates to increase business investment and therefore increasing the overall level of expenditures and increasing the price level.
buy bonds to increase the money supply thus decreasing the interest rates to increase business investment and therefore increasing the overall level of expenditures and increasing the price level.
When the Fed sells bonds, the amount of money in circulation in the economy_______ . This drives interest rates_________ , which causes businesses to invest________ in capital improvements such as new factories and upgraded equipment. The result is_________ in aggregate demand,________ in the equilibrium price level, and______ in the equilibrium level of real GDP.
Chapter 33 Solutions
Foundations of Economics (8th Edition)
Ch. 33 - Prob. 1SPPACh. 33 - Prob. 2SPPACh. 33 - Prob. 3SPPACh. 33 - Prob. 4SPPACh. 33 - Prob. 5SPPACh. 33 - Prob. 6SPPACh. 33 - Prob. 7SPPACh. 33 - Prob. 8SPPACh. 33 - Prob. 9SPPACh. 33 - Prob. 10SPPA
Ch. 33 - Prob. 11SPPACh. 33 - Prob. 1IAPACh. 33 - Prob. 2IAPACh. 33 - Prob. 3IAPACh. 33 - Prob. 4IAPACh. 33 - Prob. 5IAPACh. 33 - Prob. 6IAPACh. 33 - Prob. 7IAPACh. 33 - Prob. 8IAPACh. 33 - Prob. 9IAPACh. 33 - Prob. 10IAPACh. 33 - Prob. 11IAPACh. 33 - Prob. 12IAPACh. 33 - Prob. 1MCQCh. 33 - Prob. 2MCQCh. 33 - Prob. 3MCQCh. 33 - Prob. 4MCQCh. 33 - Prob. 5MCQCh. 33 - Prob. 6MCQCh. 33 - Prob. 7MCQ
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- 5) Suppose a computer virus disables the nation’s automatic teller machines , making withdrawals from bank accounts less convenient .As a result, people want to keep more cash on hand ,increasing the demand for money. a) Assume the Fed does not change the money supply . According to the theory of liquidity preference,what happens to the interest rate? What happens to aggregate demand. b) If instead the Fed wants to stabilize aggregate demand, how should it change the money supply? C) If its want to accomplish this change in the money supply using open-market operations,what should it do?arrow_forwardThe federal funds rate is: A) set by Congress. B) determined in the money market by the supply of and demand for money. C) determined in the real market by the aggregate supply and aggregate demand curves. D) the interest rate that banks pay when they borrow directly from the Fed.arrow_forwardThe major problem facing the economy is high unemployment and weak economic growth. The inflation rate is low and stable. Therefore, the Federal Reserve decides to pursue a policy to increase the rate of economic growth. Which policy changes by the Fed would tend to offset each other in trying to achieve that objective? selling government securities and raising the discount rate selling government securities and raising the reserve ratio .buying government securities and raising the discount rate buying government securities and lowering the reserve ratioarrow_forward
- When the value of the dollar falls, the price of assets rise. When the Fed injects money into the banking system increasing the money supply,_______________ the interest rates tend to increase, and stock market tends to rise. the interest rates tend to increase, and stock market tends to fall. the interest rates tend to decrease, and the stock market tends to rise. the interest rates tend to decrease, and the stock market tends to fall.arrow_forwardSuppose government spending increases. True or False: The effect on aggregate demand would be larger if the Federal Reserve held the money supply constant in response than if the Fed were committed to maintaining a fixed interest rate. True Falsearrow_forwardMaximum employment and moderate long-term interest rates are best achieved with price stability. high and variable inflation rates. high real interest rates. high and stable inflation rates. high short-term interest rates. If the Fed sells U.S. government securities to banks, the federal funds rate ________ and banks' reserves ________. falls; increase falls; decrease rises; do not change rises; decrease rises; increase The Fed ________ influence the real interest rate in the short run and ________ influence the real interest rate in the long run. cannot; can cannot; cannot can; can can; cannot might be able to; might be able to In the long run, the real interest rate is determined by the nominal interest rate. the expected inflation rate. saving supply and investment demand. Fed actions. the multiplier effect. If the Fed raises the federal funds rate, in the short run the interest rate falls. exports increase and imports…arrow_forward
- If the Fed increases the money supply, in the short run interest rates will ________ and investment spending will __________. Rise; go down Decline; go down Rise; increase Decline; increasearrow_forwardChange in the money supplyarrow_forward7)According to the Taylor rule, if inflation has risen by 4 percentage points above its target of 2 percent, the Fed should Group of answer choices grow the money supply at a rate of 6 percent per year. raise the real federal funds rate by 2 percentage points. raise the real federal funds rate by 3 percentage points. raise the real federal funds rate by 6 percentage points.arrow_forward
- Match the correct policy with its description. Column A 1. 2. 3. 4. During a contraction or recession, the government can do two things: Decrease Taxes Or Increase Spending During a period of excessive inflation (during a period of expansion), the government can do two things: Increase Taxes Or Decrease Spending Increased lending by banks to customers (increased money supply) Lower Interest Rates on loans and bank accounts Increased borrowing from the Fed by banks Decreased lending by banks to customers (decreased money supply) Higher Interest Rates on loans and bank accounts Decreased borrowing from the Fed by banks % 5 M Column B a. Expansionary Fiscal Policy b. Contractionary Monetary Policy c. Contractionary Fiscal Policy d. Expansionary Monetary Policyarrow_forwardState whether you agree or disagree with the following statement: Explain what happens to Money Demand and Interest Rates Inflation, a rise in the price level, causes the demand for money to decline. Because inflation causes money to be worth less households desire to hold less of it. Options to choose from = Disagree, Agree, Increase, Decrease, Remain Unchanged Agree or Disagree ________ Impact on Money Demand________ Impact on Interest Rate _________arrow_forwardExplain and demonstrate diagrammatically what happens to the interest rate, consumption, investment and aggregate demand, if the Federal Bank sells government bonds to the public using the supply of money diagram (s).arrow_forward
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