C increase the money supply to reduce inflationary

C) increase the money supply to reduce inflationary pressures.
D) increase the money supply to reduce unemployment.
Answer: D
Diff: 2
Topic: The Behavior of the Fed
Skill: Analytic
AACSB: Analytic Skills
7) Refer to Figure 15.3. If the economy is currently at the intersection of AS and AD , an
expansionary monetary policy which does not shift AD to the upward sloping portion of the
AS curve will
A) be an inflationary policy.
B) not be an inflationary policy.
C) not be effective.
D) increase the price level without increasing output.
Answer: B
Diff: 2
Topic: The Behavior of the Fed
Skill: Analytic
AACSB: Analytic Skills
8) Refer to Figure 15.3. If the economy is currently at the intersection of AS and AD , stagflation
would be caused by
A) an increase in AS . B) a decrease in AS .
C) an increase in AD . D) a decrease in AD .
Answer: B
Diff: 2
Topic: The Behavior of the Fed
Skill: Analytic
AACSB: Analytic Skills
413

9) Refer to Figure 15.3. Stagflation would cause
A) a higher price level and lower output. B) a higher price level and higher output.
C) a lower price level and lower output. D) a lower price level and higher output.
Answer: A
Diff: 2
Topic: The Behavior of the Fed
Skill: Analytic
AACSB: Analytic Skills
10) Refer to Figure 15.3. Stagflation would NOT be caused by a
A) decrease in AS .
B) higher price level with lower output.
C) higher price level with higher unemployment.
D) shift to the right of AD.
Answer: D
Diff: 2
Topic: The Behavior of the Fed
Skill: Analytic
AACSB: Analytic Skills
11) When there is stagflation, the policy choices facing the FED are
A) increasing monetary growth to increase GDP but that will make inflation worse.
B) increasing monetary growth to increase GDP and reduce inflation.
C) reducing monetary growth to reduce inflation, but that will make shortfall in GDP
worse.
D) A and C
Answer: D
Diff: 2
Topic: The Behavior of the Fed
Skill: Conceptual
AACSB: Reflective Thinking
414

Refer to the information provided in Figure 15.4 below to answer the questions that follow.
Figure 15.4
12) Refer to Figure 15.4. If the economy is currently at the intersection of AS and AD , the Fed
should
A) increase money supply to reduce the unemployment rate.
B) increase money supply to move closer to capacity.
C) decrease money supply to reduce inflationary pressures.
D) decrease money supply to increase output.
Answer: C
Diff: 2
Topic: The Behavior of the Fed
Skill: Analytic
AACSB: Analytic Skills
13) Refer to Figure 15.4. If the economy is currently at the intersection of AS and AD , a
contractionary monetary policy
A) does not create a recession. B) is an inflationary policy.
C) is a recessionary policy. D) none of the above
Answer: A
Diff: 2
Topic: The Behavior of the Fed
Skill: Analytic
AACSB: Analytic Skills
14) The Federal Reserve ʹ s policy to ʺ lean against the wind ʺ means that
A) interest rates are decreased as the economy expands.
B) reserve requirements are decreased as the economy expands.