ch14Student: ___________________________________________________________________________1.In the AS/AD model, an increase in the money supply causes an increase in the interest rate and an increase in investment spending. True False2.A contractionary monetary policy decreases the money supply and the interest rate, which decreases investment and output. 3.The Fed's duties include acting as a lender of last resort and supervising or regulating a variety of financial institutions. 4.The three tools of monetary policy are open market operations, setting prices, and setting the velocity of money. 5.An increase in the federal funds rate is a signal that the Fed wants a tighter monetary policy. True False6.The Federal funds rate is the rate banks charge one another for overnight loans. 7.A decrease in the Federal funds rate is an indication that monetary policy is expansionary. 8.The Taylor Rule relates changes in the money supply to changes in interest rates. 9.The art of monetary policy is acting in accordance with the Taylor Rule. True False10.According to the Taylor Rule, if current inflation is 2.5 percent, the target inflation rate is 2 percent, and output is 1 percent above potential, the Fed will target the Federal funds rate at 5.25 percent. 11.The Fed targets the interest rate by adjusting the money demand so that its targeted interest rate will equalize the supply and demand for money.