FIN 350 Week 4 Quiz – Strayer



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Quiz 3 Chapter 5 and 6

Chapter 5—Monetary Policy

     1.   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.
a. True
b. False

                                          
          
          

     2.   The Fed can ____ the level of spending as a means of stimulating the economy by ____ the money supply.
a.
increase; decreasing
b.
decrease; increasing
c.
decrease; decreasing
d.
increase; increasing


                                          
          
          

     3.   A credit crunch occurs when:
a.
interest rates decline.
b.
interest rates rise.
c.
creditors restrict the amount of loans they are willing to provide.
d.
the economy is strong.


                                          
          
          

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

                                          
          
          

     5.   A passive monetary policy adjusts money supply automatically in response to economic conditions.
a. True
b. False

                                          
          
          

     6.   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.
a. True
b. False

                                          
          


     7.   In general, there is:
a.
a positive relationship between unemployment and inflation.
b.
an inverse relationship between unemployment and inflation.
c.
an inverse relationship between GNP and inflation.
d.
a positive relationship between GNP and unemployment.


                                          
          
          

     8.   A ____-money policy can reduce unemployment, and a ____-money policy can reduce inflation.
a.
tight; loose
b.
loose; tight
c.
tight; tight
d.
loose; loose


                                          
          
          

     9.   A loose money policy tends to ____ economic growth and ____ the inflation rate.
a.
stimulate; place downward pressure on
b.
stimulate; place upward pressure on
c.
dampen; place upward pressure on
d.
dampen; place downward pressure on


                                          
          


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

                                          
          


   11.   ____ serves as the most direct indicator of economic growth in the United States.
a.
Gross domestic product (GDP)
b.
National income
c.
The unemployment rate
d.
The industrial production index


                                          
          
          

   12.   Which of the following is not an indicator of inflation?
a.
housing price indexes
b.
wage rates
c.
oil prices
d.
consumer confidence surveys


                                          
          
          

   13.   The ____ indicators tend to occur before a business cycle.
a.
leading
b.
lagging
c.
coincident
d.
none of the above


                                          
          
          

   14.   The ____ indicators tend to occur after a business cycle.
a.
leading
b.
lagging
c.
coincident
d.
none of the above


                                          
          
          

   15.   The ____ indicators tend to occur before a business cycle.
a.
leading
b.
lagging
c.
coincident
d.
none of the above


                                          
          
          

   16.   The time lag between when an economic problem arises and when it is reported in economic statistics is the
a.
recognition lag.
b.
implementation lag.
c.
impact lag.
d.
open-market lag.


                                          
          
          

   17.   The time between when an economic problem is realized and when the Fed tries to correct it with its policies is the
a.
recognition lag.
b.
implementation lag.
c.
impact lag.
d.
open-market lag.


                                          
          
          

   18.   The time between when the Fed adjusts the money supply and when interest rates change reflects the
a.
recognition lag.
b.
implementation lag.
c.
impact lag.
d.
open-market lag.


                                          
          
          

   19.   If the Fed attempts to reduce inflation, it would likely increase money supply growth.
a. True
b. False

                                          
          
          

   20.   Which of the following best describes the relationship between the Fed and the Administration?
a.
The Fed must receive approval by the Administration before conducting monetary policy.
b.
The Fed must implement a monetary policy specifically to the support the Administration's policy.
c.
The Administration must receive approval from the Fed before implementing fiscal policy.
d.
A and C
e.
none of the above


                                          
          


   21.   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.
a.
upward; upward
b.
upward; downward
c.
downward; downward
d.
downward; upward


                                          
          



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