1. Assume the US economy is operating a full employment and the...

1. Assume the US economy is operating a full employment and the Federal Reserve decides to
peruse expansionary monetary policy. What actions should the Fed take?
a. Increase the Reserve Ratio; Increase the Discount Rate; Sell Bonds
b. Increase the Reserve Ratio; Increase the Discount Rate; Buy Bonds
c. Increase the Reserve Ratio; Decrease the Discount Rate; Buy Bonds
d. Decrease the Reserve Ratio; Decrease the Discount Rate; Buy Bonds
e. Decrease the Reserve Ratio; Decrease the Discount Rate; Sell Bonds

2. What effect does expansionary policy have on the Money Market?
a. Money Supply would shift Right
b. Money Supply would shift Left
c. Money Demand would shift Right
d. Money Demand would shift Left
e. Monetary Policy has no effect on the Money Market

3. What would happen to the equilibrium interest rate and quantity of money if expansionary
monetary policy is implemented?
a. The equilibrium interest rate would increase and the quantity of money would increase.
b. The equilibrium interest rate would increase and the quantity of money would decrease.
c. The equilibrium interest rate would decrease and the quantity of money would increase.
d. The equilibrium interest rate would decrease and the quantity of money would decrease.
e. There would be no effect on the interest rate and quantity of money.
 

4. In the Short run, what effect does expansionary monetary policy have on the Aggregate Demand and Short Run Aggregate Supply in the US Economy?
a. Aggregate Demand would shift Right
b. Aggregate Demand would shift Left
c. Short Run Aggregate Supply would shift Right
d. Short Run Aggregate Supply would shift Left
e. There would be no effect on Aggregate Demand and Short Run Aggregate Supply

5. What would happen to the Price Level and Output in the AS/AD model if expansionary monetary
policy is implemented?
a. The Price Level would increase and Output would increase.
b. The Price Level would increase and Output would decrease.
c. The Price Level would decrease and Output would increase.
d. The Price Level would decrease and Output would decrease.
e. There would be no effect on Price Level and Output

6. According to the Taylor rule, if inflation is 10% and a recessionary gap of $5 billion exists what is
the interest rate that the Federal Open Market Committee should target?
a. 18.5%
b. 10.5%
c. 13.5%
d. 10%
e. 5%

7. ____ states that monetary policy should not be discretionary but rather should follow a formula
that sets interest rates based on unemployment and output
a. Regulation Q
b. The Glass Stegall Act
c. The Dodd-Frank Act
d. The Sherman Antitrust Act
e. The Taylor Rule