Q1: What is the Fed Funds rate?

a. The interest rate in the overnight loans market.

b.A medium-term, real interest rate.

c. A long-term, real interest rate.

d. A long-term, nominal interest rate.

Q2: What is the slope of the yield curve in normal times?

a. Downward sloping. A multi-year commitment requires a smaller sacrifice than a one-year commitment.

b. Flat. Sloping up signals an oncoming expansion and sloping down a recession.

c. Upward sloping. A multi-year commitment requires a greater sacrifice than a one-year commitment.

d. Flat. Sloping up signals an oncoming recession and sloping down an expansion.

Q3: What does adaptive expectations mean?

a. It means that economic agents expect this year's inflation to adapt to the unemployment rate.

b. It means that economic agents expect this year's inflation to be equal to last year's.

c. It means that businesses expect this year's inflation to be equal to the MPK.

d. It means that businesses expect this year's inflation to be equal to the Fed Funds rate.

Q4: Suppose the Fed wants to increase the money supply. Which open market operation will achieve this goal?

a. Sell government bonds from the private sector. This will inject cash into the economy.

b. Sell mortgage-backed securities. This will inject cash into the economy.

c. Increasing the discount rate.

d. Buy government bonds from the private sector. This will inject money into the economy.