Name: Date: AP Economics Monetary Policy Practice Questions I. At each meeting of the Federal Open Market Committee, the FED sets a target for which of the following? i. The Federal Funds Rate ii. The Prime Interest Rate Thi. The Market Interest Rate b. Ionly C, II only d, III only e. I and III only f. I. II, and III 2. Which of the following can the FED do to decrease the equilibrium interest rate? a. Increase the money supply b. Increase the money demand c. Decrease the money supply d. Decrease the money demand e: Both A and D 3. Contractionary monetary policy attempts to aggregate demand by interest rates? a Decrease Increasing b. Increase Decreasing C. Decrease Decreasing d. Increase Increasing e. Increase Holding 4. Which of the following is a goal of Monetary Policy? a. Zero inflation b. Deflation c Price stability d. Increase potential output e. Decrease actual real GDP 5. When implementing monetary policy the FED attempts to achieve? a An explicit target of RGDP growth. b. Zero inflation C. A low rate of deflation d. An explicit target of inflation rate. c. 4-5% inflation on average.Name: Date: 6. Assume the economy is in recession. What can the FED do with each of its three primary tools to fight the recession? You will need three answers. 7. Use a correctly labeled graph of the money market to explain how the FED's use of expansionary monetary policy affects interest rates in the short run. 8. Explain how interest rate changes you graphed in #8 affects aggregate supply and demand in the short run. 9. Use a correctly labeled graph of AD/AS to show how a contractionary monetary policy in the short run. Explain