Which of the following sequence of events follows a contractionary monetary policy?   money demand rises---interest rates fall---consumption & investment fall and real GDP falls 2. money demand falls---interest rates rise---consumption & investment fall-----real GDP falls 3. money demand falls---interest rates fall---consumption & investment fall----real GDP falls 4. money demand falls---interest rates rise---consumption & investment falls---real GDP rises

17. Which of the following sequence of events follows an expansionary monetary policy?   interest rate(up)----consumption & investment(up)----Aggregate demand(down)----real GDP(up) 2. interest rate(down)---consumption & investment(down)----Aggregate demand(up)----real GDP(down) 3. interest rate(up)----consumption & investment(down)----Aggregate demand(down)----real GDP(down) 4. interest rate(down)---consumption & investment(up)-----Aggregate demand(up)-----real GDP(up)

1. Explain how to the Central Bank can reduce the money supply with open market operations. Show the impact of this contractionary monetary policy on the interest rate and discuss the implications to the economy. 2. Suppose the economy is in a recession with high unemployment. a. Identify a monetary policy that would restore the economy to its natural rate of employment and steady-state equilibrium output levels. Draw a graph of the money market to illustrate the effect of this monetary policy. Show the resulting change in the interest rate and discuss the implications. b. Identify a fiscal policy that would restore the economy to its natural rate of employment. Discuss the drawbacks and the benefits of this policy.

1. Microsoft company is considering an investment project which costs $3 million today and it's payoff would be $5 at the end of year 7. If the interest rate is 9%, should Microsoft incest in the new project?  2. Using a graph of money market demonstrate what happens to the value of money and the price level if: a) The Fed sells government bonds in open-market operations. b) A decrease in real GDP decreases the demand for money

5. The Federal Reserve's organization There are Federal Reserve regional banks. Which of the following is a responsibility of the Federal Open Market Committee (FOMC)? Making decisions regarding monetary policy Buying and selling stocks Issuing mortgages to homeowners The Federal Reserve's primary tool for changing the money supply is . In order to increase the number of dollars in the U.S. economy (the money supply), the Federal Reserve will government bonds. O O

Figure 15-1 Interest Rate 4% 3% 2% MS b d Money Demand Quantity of Money Refer to the Figure 15-1. At an interest rate of 4 percent, how much is the excess money demand or supply? There is an excess money supply equal to the distance between b and a. There is an excess money demand equal to the distance between a and b. There is an excess money demand equal to the distance between b and c. There is an excess money supply equal to the distance between c and b.

8 99 Interest rate (percent) 4 2 0 MS1 MS2 E₁ 200 400 600 800 Quantity of money (billions of dollars) MD Starting from an equilibrium at E, in Exhibit 16-2, a rightward shift of the money supply curve from MS, to MS₂ would cause excess: A demand for money, leading people to sell bonds. B supply of money, leading people to buy bonds. supply of money, leading people to sell bonds. demand for money, leading people to buy bonds.

6. An economy is facing a recessionary gap and the Federal Reserve decides to engage in expansionary monetary policy. What are the three tools that the Federal Reserve can use to get the money supply to grow and what direction should each take?

26. A contractionary monetary policy combined with an expansionary fiscal policy will (A) decrease both income and consumption (B) increase both income and consumption (C) have uncertain effects on the interest rate and investment D) increase the interest rate and decrease investment (E) increase both the interest rate and investment

1. Which do you think would be more harmful to the economy—an inflation rate that averages 5 percent a year that has a high standard deviation or an inflation rate of 7 percent that has a standard deviation close to zero?  2.  Suppose a major bank needs to borrow $20 billion overnight that it cannot obtain from private creditors. The Fed is willing to make a discount loan of $20 billion provided that it will not alter the aggregate supply of reserves to the banking system. How can it do so?