The recession of 2008-2009 was preceded by A. a sharp decline in housing prices.

Question

The recession of 2008-2009 was preceded by A. a sharp decline in housing prices. B. rises in mortgage defaults and home foreclosures. C. large loses among financial institutions that owned mortgage-backed securities. D. all of the above 42. Monetary policy is determined by A. the president and Congress and involves changing government spending and taxation. B. the president and Congress and involves changing the money supply. C. the Federal Reserve and involves changing government spending and taxation. D. the Federal Reserve and involves changing the money supply. 43. Which of the following Fed actions would both decrease the money supply? A. buy bonds and lower the reserve requirement B. sell bonds and raise the reserve requirement C. sell bonds and lower the reserve requirement D. buy bonds and raise the reserve requirement 44. The opportunity cost of holding money A. decreases when the interest rate decreases, so people desire to hold less of it. B. increase when the interest rate decreases, so people desire to hold more of it. C. increases whom the interest rate decreases, so people desire to hold less of it. D. decreases when the interest rate decreases, so people desire to hold more of it. 45. Which of the following events would shift money demand to the right? A. an increase in the interest rate or an increase in the price level B. neither an increase in the interest rate nor an increase in the price level C. an increase in the price level, but not an increase in the interest rate D. an increase in the interest rate, but not an increase in the price level 46. The Federal Funds rate is the interest rate A. the Fed pays on deposits. B. interest rate on 3 month Treasury bills.

Explanation / Answer

41) d,

A recession normally takes place when consumers lose confidence in the growth of the economy and spend less.

This leads to a decreased demand for goods and services, which in turn leads to a decrease in production, lay-offs and a sharp rise in unemployment.

42) d, expansionary monetary policy results in decrease in interest rates and contractionarypolicy results in increase in interest rates

43) b , selling bonds would withdraw money from market whereas increase in reserve requirement would decrease the amount of money available for lending

44) d, as interest rates decrease opportunity cost of holding money decrease and people tend to hold more

45) a, an increase in quantity of money demanded will increase price of money or interest rate there by shifting money demand curve to the right

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