SOLVED

17.1  What Is Monetary Policy? 1) Toll Brothers, a residential home builder, did well during the recession in 2001 but did not do so well in 2007 after the housing bubble burst. The reason for this is A) the Fed lowered interest rates in 2001 but raised interest rates in 2007 to help fight inflation. B) the Fed lowered interest rates in 2001 but did not believe that cutting the interest rate in 2007 would be enough to revive the housing market. C) the Fed raised interest rates in 2001 but did not believe that cutting the interest rate in 2007 would be enough to revive the housing market. D) the Fed raised interest rates in 2001 but lowered interest rates in 2007 to revive the housing market. E) the Fed raised interest rates in 2001 and raised interest rates in 2007 to help fight inflation. 2) If the probability of losing your job remains ________, a recession would be a good time to purchase a home because the Fed usually ________ interest rates during this time. A) low; lowers B) low; raises C) high; lowers D) high; raises E) low; does not change 3) Monetary policy refers to the actions the A) President and Congress take to manage the money supply and interest rates to pursue their economic objectives. B) Federal Reserve takes to manage the money supply and interest rates to pursue its macroeconomic policy objectives. C) President and Congress take to manage government spending and taxes to pursue their economic objectives. D) Federal Reserve takes to manage government spending and taxes to pursue its economic objectives. 4) The Federal Reserve System’s four monetary policy goals are A) low government budget deficits, low current account deficits, high employment, and a high foreign exchange value of the dollar. B) low rate of bank failures, high reserve ratios, price stability, and economic growth. C) price stability, high employment, economic growth, and stability of financial markets and institutions. D) price stability, low government budget deficits, low current account deficits, and low rate of bank failures. 5) When the Federal Reserve System was established in 1913, its main policy goal was A) encouraging strong economic growth. B) promoting price stability. C) preventing bank panics. D) keeping employment high. 6) The top policy goal for Paul Volcker when he became chairman of the Federal Reserve’s Board of Governors in 1979 was A) fighting inflation. B) increasing employment. C) increasing economic growth. D) increasing regulation of commercial banks. E) a low current account deficit. 7) During the turmoil in the market for subprime mortgages in 2007 and 2008, the Fed increased the volume of discount loans. The goal of the Fed was to A) reduce the rate of inflation. B) stimulate economic growth. C) reduce unemployment. D) reassure financial markets and promote financial stability. E) reduce the current account deficit. 8) The goals of monetary policy tend to be interrelated. For example, when the Fed pursues the goal of ________, it also can achieve the goal of ________ simultaneously. A) high employment; economic growth B) high employment; lowering government spending C) economic growth; a low current account deficit D) stability of financial markets; a low current account deficit 9) One of the monetary policy goals of the Federal Reserve is price stability. 10) Since World War II, the Federal Reserve has not been involved in carrying out monetary policy. 11) Inflation rates during the years 1979-1981 were the highest the United States has ever experienced during peacetime. 12) List the Fed’s four main monetary goals. 2. High employment 3. Stability of financial markets and institutions. 4. Economic growth 13) What is a banking panic, and what role did banking panics play in the decision by Congress to establish the Federal Reserve? 1