Tackle the Test: Multiple-Choice Questions

1. Question

   At each meeting of the Federal Open Market Committee, the Federal Reserve sets a target for which of the following?

   
   

   
   

   1. the federal funds rate

      
      
   
   

   2. the prime interest rate

      
      
   
   

   3. the market interest rate

      
      
   
   

   A.

   I only

   B.

   II only

   C.

   III only

   D.

   I and III only

   E.

   I, II, and III

   At each meeting of the Federal Open Market Committee, the Federal Reserve sets a target for which of the following?

2. Question

   Which of the following actions can the Fed take to decrease the equilibrium interest rate?

   A.

   increase the money supply

   B.

   increase money demand

   C.

   decrease the money supply

   D.

   decrease money demand

   E.

   both (a) and (d)

   Which of the following actions can the Fed take to decrease the equilibrium interest rate?

3. Question

   Contractionary monetary policy attempts to ______ aggregate demand by ______ interest rates.
   

   A.

   decreaseincreasing

   B.

   increasedecreasing

   C.

   decreasedecreasing

   D.

   increaseincreasing

   E.

   increasemaintaining

   Contractionary monetary policy attempts to ______ aggregate demand by ______ interest rates.

4. Question

   Which of the following is a goal of monetary policy?

   A.

   zero inflation

   B.

   deflation

   C.

   price stability

   D.

   increased potential output

   E.

   decreased actual real GDP

   Which of the following is a goal of monetary policy?

5. Question

   When implementing monetary policy, the Federal Reserve attempts to achieve

   A.

   an explicit target real GDP growth rate.

   B.

   zero inflation.

   C.

   a low rate of deflation.

   D.

   an explicit target inflation rate.

   E.

   4–5% inflation.

   When implementing monetary policy, the Federal Reserve attempts to achieve