Chapter 17 Monetary Policy and Inflation

| November 9, 2018

13)
Interest rates will increase if the Fed conducts an open market purchase.

14)
If the actual interest rate in the money market is higher than the equilibrium
interest rate, there would be an excess supply of money.

17.4 Interest Rates and How They Change
Investment and Output (GDP)

1)
An open market ________ by the Fed increases the money supply, which leads to
________ interest rates and increased GDP.
A)
purchase; increased
B)
purchase; decreased
C)
sale; increased
D)
sale; decreased

2)
An open market ________ by the Fed decreases interest rates and ________
investment.
A)
purchase; increases
B)
purchase; decreases
C)
sale; increases
D)
sale; decreases

3)
An open market purchase by the Fed
A)
increases investment and increases output.
B)
increases investment and decreases output.
C)
decreases investment and increases output.
D)
decreases investment and decreases output.

4)
An open market ________ by the Fed decreases the money supply, which leads to ________
interest rates and a fall in investment spending.
A)
sale; increased
B)
sale; decreased
C)
purchase; increased
D)
purchase; decreased

5)
An open market ________ by the Fed increases interest rates and ________
output.
A)
sale; increases
B)
sale; decreases
C)
purchase; increases
D)
purchase; decreases

6)
An open market sale by the Fed
A)
increases the money supply and increases output.
B)
increases the money supply and decreases output.
C)
decreases the money supply and increases output.
D)
decreases the money supply and decreases output.

7)
Actions by the Federal Reserve to influence the level of GDP are known as
A)
monetary policy.
B)
fiscal policy.
C)
cyclical policy.
D)
procyclical policy.

8)
An increase in the reserve requirement
A)
increases the money supply, which leads to increased interest rates and a
decrease in GDP.
B)
increases the money supply, which leads to decreased interest rates and a
decrease in GDP.
C)
decreases the money supply, which leads to increased interest rates and a
decrease in GDP.
D)
decreases the money supply, which leads to decreased interest rates and a
decrease in GDP.

9)
A decrease in the reserve requirement
A)
increases the money supply, which leads to increased interest rates and a fall
in investment spending.
B)
increases the money supply, which leads to decreased interest rates and a rise
in investment spending.
C)
decreases the money supply, which leads to increased interest rates and a fall
in investment spending.
D)
decreases the money supply, which leads to decreased interest rates and a rise
in investment spending.

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