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17.2  The Money Market and the Fed’s Choice of Monetary Policy Targets 1) The Federal Reserve’s two main ________ are the money supply and the interest rate. A) monetary policy targets B) policy tools C) fiscal policy targets D) fiscal tools 2) The Federal Reserve can directly affect its monetary policy ________, which then affect its monetary policy ________. A) goals; targets B) goals; tools C) targets; goals D) targets; tools 3) The money demand curve has a A) negative slope because an increase in the interest rate decreases the quantity of money demanded. B) positive slope because an increase in the interest rate increases the quantity of money demanded. C) negative slope because an increase in the price level decreases the quantity of money demanded. D) positive slope because an increase in the price level increases the quantity of money demanded. 4) An increase in the interest rate A) decreases the opportunity cost of holding money. B) increases the opportunity cost of holding money. C) decreases the percentage yield of holding money. D) increases the percentage yield of holding money. 5) An increase in the interest rate causes A) a movement up along the money demand curve. B) a movement down along the money demand curve. C) the money demand curve to shift to the left. D) the money demand curve to shift to the right. 6) An increase in the price level causes A) the money demand curve to shift to the left. B) the money demand curve to shift to the right. C) a movement up along the money demand curve. D) a movement down along the money demand curve. 7) Which of the following would cause the money demand curve to shift to the left? A) an open market purchase of Treasury securities by the Federal Reserve B) an increase in the interest rate C) an increase in the price level D) a decrease in real GDP 8) Refer to Figure 17-1. In the figure, the money demand curve would move from MD1 to MD2 if A) real GDP increased. B) the price level decreased. C) the interest rate increased. D) the Federal Reserve sold Treasury securities. 9) Using the money demand and money supply model, an open market purchase of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to A) increase. B) decrease. C) not change. D) increase if the economy is in a recession. 10) Using the money demand and money supply model, an open market sale of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to A) increase. B) decrease. C) not change. D) increase, then decrease.

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