1. If the economy is at potential output and the Fed decreases the money supply

Question

1. If the economy is at potential output and the Fed decreases the money supply so that actual output is less than potential output, eventually nominal wages will decrease. T/F

2. Janet Yellen is the chair of the Board of Governors of the Federal Reserve T/F

3. If the opportunity cost of holding money rises, then the money demand curve shifts to the left. T/F

4. The interest rate is determined in the money market in the short run. T/F

5. When the Fed changes tax rates, interest rates change, and this changes real GDP. T/F

6. If the actual interest rate is below the target rate, the Fed should sell Treasury bills. T/F

7. Expansionary monetary policy may increase consumer spending. T/F

8. Between 2004 and 2006, the Fed raised its target federal funds rate to prevent inflation. T/F

Explanation / Answer

1. This is True. As aggregate demand falls.

2. This is False. Its Jerome Powell.

3. This is True. People hold less money.

4. This is True. Through the demand and supply of money.

5. This is False. Fed does not change tax rates.

6. This is True. This will raise interest rates.

7. This is True. As money supply rises.

8. This is True.

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