ECO372/T Wk 5 - Apply: Summative Assessment: Fiscal and Monetary Policy Quiz / Strategies Review of key Quizzes & Correct Answers.

Assessment: Fiscal and Monetary Policy



Quiz____?

A newspaper headline reads: "Fed Cuts Federal Funds Rate for Fifth Time This Year." This
headline indicates that the Federal Reserve is most likely trying to -

Answer✓✓

ease monetary policy




Quiz____?

Smoothing the peaks and troughs of the business cycle with fiscal policy is -

Answer✓✓

difficult, because the government lacks important information about the economy.




Quiz____?

Suppose the reserve requirement is initially set at 8%.



Instructions: In parts a and c, round your answers to two decimal places. In parts b and d,
round your answers to one decimal place.



a. At a reserve requirement of 8%, what is the value of the money multiplier?



b. If the reserve requirement is 8% and the Fed increases reserves by $20 billion, what is the
total increase in the money supply?



1

, $ billion



c. Suppose the Fed raises the reserve requirement to 18%. What is the value of the money
multiplier now?



e. Raising the reserve requirement from 8% to 18%

decreases increases the money multiplier and

decreases increases the money supply. -

Answer✓✓

a) 12.5




b) 250 billion




c) 5.56




d) 111.2 billion



e) decreases / decreases




Quiz____?

Use the following graph to answer the next question.



The horizontal axis is labeled real domestic output, GDP and the vertical axis is labeled
price level. Three decreasing curves are drawn parallel to each other and are labeled from
bottom to top as AD3, AD1, and AD2.




2