Question 1

Since the financial crisis of 2008, the main tool of expansionary monetary policy used by the Fed has been

Accepted Answer

A)  changes in reserve requirements.
B)  quantitative easing.
C)  tariffs and fees.
D)  too-big-to-fail.E) A) and C)
F) C) and D)

Question 2

As expansionary monetary policy tools, quantitative easing (QE)  and traditional open-market purchase differ in terms of the following, except

Accepted Answer

A)  the intended effect on the federal funds rate.
B)  securities purchased by the Fed.
C)  the mechanics of how the Fed buys the securities.
D)  the desired goal of shifting aggregate demand.E) None of the above
F) All of the above

Question 3

Upon which of the following industries is a restrictive monetary policy likely to be most effective?

Accepted Answer

A)  furniture
B)  clothing
C)  food processing
D)  residential constructionE) B) and C)
F) A) and D)

Question 4

Assume that the required reserve ratio for the commercial banks is 25 percent.If the Federal Reserve Banks buy $3 billion in government securities from the nonbank securities dealers, then, as a result of this transaction, the lending ability of the commercial banking system will increase by

Accepted Answer

A)  $4.5 billion.
B)  $9 billion.
C)  $12 billion.
D)  $15 billion.E) None of the above
F) A) and B)

Question 5

Typically the largest asset item in the Federal Reserve Banks' consolidated balance sheet (as illustrated in the book, for April 2016)  is

Accepted Answer

A)  loans to commercial banks.
B)  Federal Reserve notes.
C)  Treasury deposits.
D)  securities.E) A) and C)
F) A) and B)

Question 6

The total demand for money curve will shift to the right as a result of

Accepted Answer

A)  an increase in nominal GDP.
B)  an increase in the interest rate.
C)  a decline in the interest rate.
D)  a decline in nominal GDP.E) A) and B)
F) A) and D)

Question 7

The Federal Reserve can increase aggregate demand by

Accepted Answer

A)  reducing the money supply.
B)  reducing the discount rate.
C)  raising the reserve requirement.
D)  selling government securities in the open market.E) B) and D)
F) A) and B)

Question 8

The major purpose of the Federal Reserve buying government securities in open-market operations is to

Accepted Answer

A)  increase interest rates.
B)  raise money for government spending.
C)  reduce the excess reserves of banks.
D)  allow banks to increase their lending.E) B) and D)
F) A) and B)

Question 9

A bond with no expiration date has a face value of $10,000 and pays a fixed 10 percent interest.If the market price of the bond rises to $11,000, the annual yield approximately equals

Accepted Answer

A)  11 percent.
B)  10 percent.
C)  9 percent.
D)  8 percent.E) A) and D)
F) None of the above

Question 10

When the required reserve ratio is increased, the excess reserves of member banks are

Accepted Answer

A)  reduced, but the multiple by which the commercial banking system can lend is unaffected.
B)  reduced and the multiple by which the commercial banking system can lend is increased.
C)  increased and the multiple by which the commercial banking system can lend is increased.
D)  reduced and the multiple by which the commercial banking system can lend is reduced.E) C) and D)
F) All of the above

Question 11

Changes in the interest rate are more likely to affect investment spending than consumer spending.

Accepted Answer

A) True 
 B)False

Question 12

Assume that there is a 25 percent reserve ratio and that the Federal Reserve buys $200 million worth of government securities.If the securities are purchased from the public, then this action has the potential to increase bank lending by a maximum of

Accepted Answer

A)  $600 million, and also by $600 million if the securities are purchased directly from commercial banks.
B)  $800 million, and also by $800 million if the securities are purchased directly from commercial banks.
C)  $600 million, but by $800 million if the securities are purchased directly from commercial banks.
D)  $800 million, but only by $600 million if the securities are purchased directly from commercial banks.E) A) and B)
F) B) and C)

Question 13

A bond with no expiration date is priced at $10,000 when the interest rate in the economy is 6 percent.If the interest rate falls to 5.5 percent, then this bond's price would decrease.

Accepted Answer

A) True 
 B)False

Question 14

Reserves borrowed at the federal funds rate are usually repaid

Accepted Answer

A)  in one year.
B)  in five years.
C)  at the end of the month.
D)  the next day.E) None of the above
F) A) and C)

Question 15

When the Fed sells government securities in the open market, its intent is to try to increase aggregate demand.

Accepted Answer

A) True 
 B)False

Question 16

The federal funds rate is the interest rate that charge(s)  .

Accepted Answer

A)  banks; other banks
B)  the Fed; commercial banks
C)  banks; their best corporate customers
D)  banks; on federal student loansE) All of the above
F) A) and C)

Question 17

The total demand for money will shift to the left as a result of

Accepted Answer

A)  a decline in nominal GDP.
B)  an increase in the price level.
C)  a change in the interest rate.
D)  an increase in nominal GDP.E) None of the above
F) B) and C)

Question 18

Which of the following would most likely result from the Fed imposing negative nominal interest rates in response to a financial crisis and recession?

Accepted Answer

A)  The negative interest rates would stimulate massive borrowing and spending, triggering rapid inflation in the short term.
B)  It would signal trouble to financial markets, causing people to deposit more money in banks to enhance feelings of financial security.
C)  Banks would freeze customer accounts so that they couldn't withdraw money, inciting financial panic.
D)  Customers would withdraw deposits, banks would have less money to lend, and the money supply and aggregate demand would both fall.E) All of the above
F) B) and D)

Question 19

Prior to the financial crisis of 2007-2009, the Fed would typically initiate an expansionary monetary policy by

Accepted Answer

A)  setting a lower target for the federal funds rate.
B)  setting a lower discount rate.
C)  setting a lower reserve ratio.
D)  buying bonds in the open market.E) A) and B)
F) B) and C)

Question 20

Assume the commercial banking system has checkable deposits of $20 billion and excess reserves of $2 billion when the reserve ratio is 25 percent.If the reserve ratio is then lowered to 20 percent, we can conclude that the

Accepted Answer

A)  banking system now has excess reserves of $3 billion.
B)  monetary multiplier has decreased.
C)  maximum money-creating potential of the banking system has been increased by $7 billion.
D)  Fed has decided that money supply needed to be reduced.E) All of the above
F) A) and C)

Exam 36: Interest Rates and Monetary Policy

Which of the following would most likely result from the Fed imposing negative nominal interest rates in response to a financial crisis and recession?

Correct AnswerverifiedShow Answer

A bond with no expiration date has a face value of $10,000 and pays a fixed 10 percent interest.If the market price of the bond rises to $11,000, the annual yield approximately equals

Correct AnswerverifiedShow Answer

When the Fed sells government securities in the open market, its intent is to try to increase aggregate demand.

Correct AnswerverifiedShow Answer

A bond with no expiration date is priced at $10,000 when the interest rate in the economy is 6 percent.If the interest rate falls to 5.5 percent, then this bond's price would decrease.

Correct AnswerverifiedShow Answer

Upon which of the following industries is a restrictive monetary policy likely to be most effective?

Correct AnswerverifiedShow Answer

The total demand for money curve will shift to the right as a result of

Correct AnswerverifiedShow Answer

The total demand for money will shift to the left as a result of

Correct AnswerverifiedShow Answer

Reserves borrowed at the federal funds rate are usually repaid

Correct AnswerverifiedShow Answer

As expansionary monetary policy tools, quantitative easing (QE) and traditional open-market purchase differ in terms of the following, except

Correct AnswerverifiedShow Answer

Typically the largest asset item in the Federal Reserve Banks' consolidated balance sheet (as illustrated in the book, for April 2016) is

Correct AnswerverifiedShow Answer

The Federal Reserve can increase aggregate demand by

Correct AnswerverifiedShow Answer

The major purpose of the Federal Reserve buying government securities in open-market operations is to

Correct AnswerverifiedShow Answer

Assume the commercial banking system has checkable deposits of $20 billion and excess reserves of $2 billion when the reserve ratio is 25 percent.If the reserve ratio is then lowered to 20 percent, we can conclude that the

Correct AnswerverifiedShow Answer

Changes in the interest rate are more likely to affect investment spending than consumer spending.

Correct AnswerverifiedShow Answer

Assume that there is a 25 percent reserve ratio and that the Federal Reserve buys $200 million worth of government securities.If the securities are purchased from the public, then this action has the potential to increase bank lending by a maximum of

Correct AnswerverifiedShow Answer

When the required reserve ratio is increased, the excess reserves of member banks are

Correct AnswerverifiedShow Answer

Since the financial crisis of 2008, the main tool of expansionary monetary policy used by the Fed has been

Correct AnswerverifiedShow Answer

Assume that the required reserve ratio for the commercial banks is 25 percent.If the Federal Reserve Banks buy $3 billion in government securities from the nonbank securities dealers, then, as a result of this transaction, the lending ability of the commercial banking system will increase by

Correct AnswerverifiedShow Answer

Prior to the financial crisis of 2007-2009, the Fed would typically initiate an expansionary monetary policy by

Correct AnswerverifiedShow Answer

The federal funds rate is the interest rate that charge(s) .

Correct AnswerverifiedShow Answer

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