SOLVED

17.5Â Â A Closer Look at the Fed’s Setting of Monetary Policy Targets 1) Under the monetary growth rule proposed by the monetarists, the money supply would grow each year at a constant rate equal to the long-run rate of growth of A) inflation. B) real GDP. C) interest rates. D) employment. 2) Monetarists think that the Fed should use ________ as a target when conducting monetary policy. A) the money supply B) the federal funds rate C) the Treasury bill rate D) the inflation rate E) the unemployment rate 3) With a monetary growth rule as proposed by the monetarists, during a recession the rate of growth of the money supply would A) decrease. B) increase. C) not change. D) decrease or increase depending on economic conditions. 4) The supporters of a monetary growth rule believe that active monetary policy A) stabilizes the economy, decreasing the number of recessions and their severity. B) destabilizes the economy, increasing the number of recessions and their severity. C) cannot change the inflation rate. D) cannot change real GDP. 5) Most of the pressure for a monetary growth rule has disappeared because since 1980, A) the relationship between movements in the money supply and movements in real GDP and the price level have become much stronger. B) the relationship between movements in the money supply and movements in real GDP and the price level have become much weaker. C) the relationship between movements in interest rates and movements in real GDP and the price level have become much stronger. D) the relationship between movements in interest rates and movements in real GDP and the price level have become much weaker. 6) Most economists believe that the best monetary policy target is A) an interest rate. B) the money supply. C) total bank reserves. D) the discount rate. 7) The Federal Reserve cannot target both the money supply and the interest rate because it does not control A) bank reserves. B) money demand. C) the discount rate. D) open market operations. 8) If the Federal Reserve targets the money supply, and the money demand curve shifts to the left, then the Fed A) cannot maintain the money supply target. B) can maintain the money supply target, but at a lower interest rate. C) can maintain the money supply target, but at a higher interest rate. D) can maintain the money supply target with no change in the interest rate. 9) If the Federal Reserve targets the interest rate and the money demand curve shifts to the left, then the Fed A) cannot maintain the interest rate target. B) can maintain the interest rate target, but at a lower quantity of the money supply. C) can maintain the interest rate target, but at a higher quantity of the money supply. D) can maintain the interest rate target with no change in the money supply. 10) The Federal Reserve does not target both the money supply and an interest rate because A) it would be too confusing to Wall Street and would disrupt the financial markets. B) it would be too easy for Wall Street to determine what policy the Fed is following and this would destabilize the economy. C) it would be illegal according to the Federal Reserve Act. D) the Fed cannot achieve a target for both the money supply and an interest rate at the same time.