53) Which of the following statements about the ripple effects of monetary policy is FALSE? Monetary policy can Select one: a. raise the federal funds rate and shift the aggregate demand curve leftward. b. raise the federal funds rate, thereby raising the real interest rate and increasing potential GDP. c. raise the federal funds rate, thereby decreasing the quantity of money, raising the real interest rate, and decreasing investment.

Figure 15-1 Price Level ON OB to point D B to point C B to point A O A to point C 0 SRAS₂ AD1 SRASI AD2 Real GDP Refer to Figure 15-1. One argument against the use of activist monetary policy claims that it can destabilize the economy. For example, suppose we are in a recessionary gap. Expansionary monetary policy is implemented, but there are so many lags that by the time it has its effect, self-regulation has already closed the gap by itself. The end result is a movement from point

Suppose the Federal Reserve (the US central bank) increases the money stock. Which of the following statements describes the effect of monetary expansion on real GDP and the price level in the Short Run?     A) The price level will increase, and real GDP will remain at its natural level.       B) The price level will increase, and real GDP will increase above its natural level.       C) The price level will decrease, and real GDP will remain at its natural level.       D) The price level will decrease, and real GDP will decrease below its natural level.

Match the correct policy with its description. Column A 1. 2. 3. 4. During a contraction or recession, the government can do two things: Decrease Taxes Or Increase Spending During a period of excessive inflation (during a period of expansion), the government can do two things: Increase Taxes Or Decrease Spending Increased lending by banks to customers (increased money supply) Lower Interest Rates on loans and bank accounts Increased borrowing from the Fed by banks Decreased lending by banks to customers (decreased money supply) Higher Interest Rates on loans and bank accounts Decreased borrowing from the Fed by banks % 5 M Column B a. Expansionary Fiscal Policy b. Contractionary Monetary Policy c. Contractionary Fiscal Policy d. Expansionary Monetary Policy