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Question
The Federal Reserve increases interest rates when it wants to reduce aggregate demand to fight inflation. How do increases in the interest rate reduce aggregate demand?Answer
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Related questions
Q:
In the long-run ISLM model and with everything else held constant, as long as the level of output ________ the natural rate level, the price level will continue to ________, shifting the LM curve to the ________, until finally output is back at the natural rate level.
A. exceeds; rise; right
B. exceeds; fall; left
C. remains below; fall; right
D. remains below; rise; left
Q:
An increase in the money ________ shifts the LM curve to the ________, causing the interest rate to fall and output to rise, everything else held constant.
A. demand; right
B. demand; left
C. supply; right
D. supply; left
Q:
A policy in which the money supply is kept growing at a constant rate regardless of the state of the economy is
A. a Taylor rule.
B. a discretionary policy.
C. a policy rule advocated by monetarists.
D. advocated by activists.
Q:
The argument that econometric policy evaluation is likely to be misleading if policymakers assume stable economic relationships is known as
A. the monetarist revolution.
B. the Lucas critique.
C. public choice theory.
D. new Keynesian theory.
Q:
The Lucas critique indicates that
A. advocates of discretionary policies' criticisms of rational expectations models are well-founded.
B. advocates of discretionary policies' criticisms of rational expectations models are not well-founded.
C. expectations are important in determining the outcome of a discretionary policy.
D. expectations are not important in determining the outcome of a discretionary policy.
Q:
An autonomous tightening of monetary policy
A. causes an upward movement along the monetary policy curve.
B. causes a downward movement along the monetary policy curve.
C. shifts the monetary policy curve upward.
D. shifts the monetary policy curve downward.
Q:
The interest rate on seasonal credit equals
A. the federal funds rate.
B. the primary credit rate.
C. the secondary credit rate.
D. an average of the federal funds rate and rates on certificates of deposits.
Q:
Decisions by ________ about their holdings of currency and by ________ about their holdings of excess reserves affect the money supply.
A. borrowers; depositors
B. banks; depositors
C. depositors; borrowers
D. depositors; banks
Q:
Decisions by depositors to increase their holdings of ________, or of banks to hold excess reserves will result in a ________ expansion of deposits than the simple model predicts.
A. deposits; smaller
B. deposits; larger
C. currency; smaller
D. currency; larger
Q:
The discount rate refers to the interest rate on
A. primary credit.
B. secondary credit.
C. seasonal credit.
D. federal funds.
Q:
A bank has excess reserves of $1,000 and demand deposit liabilities of $80,000 when the reserve requirement is 25 percent. If the reserve requirement is lowered to 20 percent, the bank's excess reserves will be
A. $1,000.
B. $5,000.
C. $8,000.
D. $9,000.
Q:
Which of the followings is NOT a current duty of the Board of Governors of the Federal Reserve System?
A. setting margin requirements, the fraction of the purchase price of the securities that has to be paid for with cash
B. setting the maximum interest rates payable on certain types of time deposits under Regulation Q
C. approving the discount rate "established" by the Federal Reserve banks
D. voting on the conduct of open market operations
Q:
While the discount rate is "established" by the regional Federal Reserve Banks, in truth, the rate is determined by
A. Congress.
B. the president of the United States.
C. the Senate.
D. the Board of Governors.
Q:
Which policy measure requires investment banks to sever the links between research and securities underwriting?
A. Sarbanes-Oxley Act of 2002
B. Global Legal Settlement of 2002
C. Gramm-Leach-Bliley Act of 1999
D. Riegle-Neal Act of 1994
Q:
Which of the following is a part of the Global Legal Settlement of 2002?
A. The establishment of a Public Company Accounting Oversight Board (PCAOB) to supervise accounting firms and thus insure that audits are independent and controlled for quality.
B. Increased penalties for white-collar crime and obstruction of official investigations.
C. Requires a CEO and CFO to certify that periodic financial statements and disclosure of the firm are accurate.
D. Requires investment banks to make public their analysts' recommendations.
Q:
Explain how the market can reduce the incentive for credit-rating firms to take advantage of conflicts of interest.
Q:
Everything else held constant, if aggregate output is to the right of the IS curve, then there is an excess ________ of goods which will cause aggregate output to ________.
A. supply; fall
B. supply; rise
C. demand; fall
D. demand; rise
Q:
Everything else held constant, if aggregate output is to the left of the IS curve, then there is an excess ________ of goods which will cause aggregate output to ________.
A. supply; fall
B. supply; rise
C. demand; fall
D. demand; rise
Q:
The negative relation between investment spending and the interest rate is what gives the ________ curve its ________ slope.
A. IS; upward
B. IS; downward
C. LM; downward
D. LM; upward
Q:
An increase in interest rates
A. increases the value of the dollar, net exports, and equilibrium output.
B. increases the value of the dollar, reducing net exports and equilibrium output.
C. reduces the value of the dollar, net exports, and equilibrium output.
D. reduces the value of the dollar, increasing net exports and equilibrium output.
Q:
All of the following might create problems from financial liberalization in emerging countries EXCEPT
A. ineffective screening of borrowers.
B. limits on risk-taking.
C. lax government supervision of banks.
D. lenders failure to monitor borrowers.
Q:
Real business cycle theory states that the most important cause of business cycles is
A. shocks to the money supply.
B. interest rate shocks.
C. Federal Reserve policy decisions.
D. shocks to tastes and technology.
Q:
In a study published in 1963, Milton Friedman and Anna Schwartz found that in every business cycle they studied over nearly a hundred-year period
A. the growth rate of the money supply decreased before output decreased.
B. interest rates decreased before output decreased.
C. the growth rate of federal government spending decreased before output decreased.
D. the growth rate of state and local government spending decreased before output decreased.
Q:
During the Great Depression, real interest rates
A. rose to unprecedentedly high levels.
B. rose only slightly above the long-run trend.
C. fell to unprecedentedly low levels.
D. fell only slightly below the long-run trend.
Q:
Monetarists' preference for reduced-form models is based on their belief that
A. reverse causation is a problem.
B. structural models may understate money's effect on economic activity.
C. money supply changes are always endogenous.
D. monetary policy affects only investment spending.
Q:
Early Keynesians concluded that changes in monetary policy had no impact on aggregate output because early empirical studies found no linkage between movements in ________ and ________.
A. nominal interest rates; investment spending
B. real interest rates; investment spending
C. money supply; aggregate output
D. investment spending; aggregate output
Q:
To lower interest rates on residential mortgages to stimulate the housing market, the Fed extended its open market operations to purchase
A. mortgage-backed securities.
B. commercial papers.
C. long-term Treasuries.
D. Treasury bills and Treasury notes.
Q:
The facility that was created in December of 2007 that banks can use to borrow from the Fed that has less of a stigma for banks compared to borrowing from the discount window is the
A. Term Securities Lending Facility.
B. Term Auction Facility.
C. Primary Dealer Credit Facility.
D. Commercial Paper Funding Facility.
Q:
When the Fed wants to raise interest rates after banks have accumulated large amounts of excess reserves, it would
A. increase the interest rate paid on excess reserves.
B. increase discount rate.
C. increase the required reserve ratio.
D. conduct massive open market purchase.
Q:
A decrease in ________ increases the money supply since it causes the ________ to rise.
A. reserve requirements; monetary base
B. reserve requirements; money multiplier
C. margin requirements; monetary base
D. margin requirements; money multiplier