Question 1

The discount rate is the interest rate at which commercial banks lend to their best corporate customers.

Accepted Answer

A) True 
 B)False

Question 2

The level of GDP, ceteris paribus, will tend to increase when

Accepted Answer

A)  reserve requirements are increased.
B)  there is an increase in the discount rate.
C)  the Federal Reserve buys government securities in the open market.
D)  the Federal Reserve sells government securities in the open market.E) B) and D)
F) All of the above

Question 3

Suppose that, for every 1-percentage-point decline of the discount rate, commercial banks collectively borrow an additional $2 billion from Federal Reserve Banks.Also assume that the reserve ratio is 20 percent.If the Fed increases the discount rate from 4.0 percent to 4.25 percent, bank reserves will

Accepted Answer

A)  increase by $0.5 billion and the money supply will increase by $2.5 billion.
B)  decline by $0.5 billion and the money supply will decline by $2.5 billion.
C)  increase by $0.75 billion and the money supply will increase by $3.75 billion.
D)  increase by $1 billion and the money supply will increase by $5 billion.E) C) and D)
F) A) and B)

Question 4

The purpose of an expansionary monetary policy is to increase

Accepted Answer

A)  the GDP gap.
B)  the inflation rate.
C)  real GDP.
D)  interest rates.E) B) and D)
F) A) and D)

Question 5

An increase in the money supply, ceteris paribus, usually

Accepted Answer

A)  increases the interest rate and increases aggregate demand.
B)  increases the interest rate and decreases aggregate demand.
C)  decreases the interest rate and increases aggregate demand.
D)  decreases the interest rate and decreases aggregate demand.E) All of the above
F) None of the above

Question 6

Which of the following statements is most accurate about the Fed's use of the federal funds rate target since the financial crisis of 2007-2009?

Accepted Answer

A)  It stimulated quick recovery from the Great Recession, and the target is now at precrisis levels.
B)  The target has become significantly more important as a tool for signaling policy changes.
C)  The Fed effectively lost the ability to use the target for contractionary monetary policy, as the actual federal funds rate fell to nearly zero.
D)  The Fed effectively lost the ability to use the target for expansionary monetary policy, as the actual federal funds rate fell to nearly zero.E) A) and B)
F) A) and C)

Question 7

Which of the following is a monetary policy intended to rein in inflation?

Accepted Answer

A)  increase the money supply to shift the aggregate demand curve rightward
B)  reduce interest rates to increase investment spending
C)  reduce the interest paid on banks' reserves
D)  decrease the money supply to shift the aggregate demand curve leftwardE) C) and D)
F) A) and B)

Question 8

Which of the following statements is correct? Blooms: Understand

Accepted Answer

A)  Interest rates and bond prices vary directly.
B)  Interest rates and bond prices vary inversely.
C)  Interest rates and bond prices are unrelated.
D)  Interest rates and bond prices vary directly during inflations and inversely during recessions.E) C) and D)
F) None of the above

Question 9

The collateral used for repos and reverse repos is (are)

Accepted Answer

A)  corporate securities.
B)  autos.
C)  homes.
D)  government bonds.E) A) and B)
F) A) and C)

Question 10

The major advantages of monetary policy include its flexibility, speed, and political palatability.

Accepted Answer

A) True 
 B)False

Question 11

Assume that the required reserve ratio is 25 percent.If the Federal Reserve sells $120 million in government securities to the general public, the money supply will immediately

Accepted Answer

A)  decrease by $120 million with this transaction, and the decrease in money supply could eventually reach a maximum of $480 million.
B)  decrease by $120 million with this transaction, and the decrease in money supply could eventually reach a maximum of $360 million.
C)  increase by $120 million with this transaction, and the increase in money supply could eventually reach a maximum of $480 million.
D)  increase by $120 million with this transaction, and the increase in money supply could eventually reach a maximum of $360 million.E) C) and D)
F) A) and C)

Question 12

The use of monetary policy to shift aggregate demand to the right in a severe recession is like

Accepted Answer

A)  pushing on a string.
B)  putting all your eggs in one basket.
C)  pulling on one's purse-strings.
D)  pushing the envelope.E) B) and C)
F) A) and D)

Question 13

An expansionary monetary policy is one that reduces the supply of money.

Accepted Answer

A) True 
 B)False

Question 14

Federal Reserve Notes in circulation are

Accepted Answer

A)  an asset as viewed by the Federal Reserve Banks.
B)  a liability as viewed by the Federal Reserve Banks.
C)  neither an asset nor a liability as viewed by the Federal Reserve Banks.
D)  part of M1 but not of M2.E) A) and B)
F) None of the above

Question 15

If the Fed wants to discourage commercial bank lending, it will

Accepted Answer

A)  increase the interest paid on excess reserves held at the Fed.
B)  decrease the interest paid on excess reserves held at the Fed.
C)  buy government securities from commercial banks.
D)  lower the federal funds rate target.E) B) and D)
F) A) and B)

Question 16

When the Fed loans money in exchange for government bonds being posted as collateral, this is known as a

Accepted Answer

A)  mortgage-backed security.
B)  Federal Reserve note.
C)  repo.
D)  credit default swap.E) A) and C)
F) C) and D)

Question 17

Prior to the mortgage debt crisis, the most frequently employed restrictive monetary policy tool was

Accepted Answer

A)  raising the reserve ratio.
B)  selling bonds in the open market.
C)  raising the discount rate.
D)  raising the prime interest rate.E) A) and B)
F) A) and C)

Question 18

Loans of the Federal Reserve Banks to commercial banks are

Accepted Answer

A)  a liability of the Federal Reserve Banks and of the commercial banks.
B)  an asset of the Federal Reserve Banks and of the commercial banks.
C)  a liability of the Federal Reserve Banks and an asset for commercial banks.
D)  an asset of the Federal Reserve Banks and a liability for commercial banks.E) A) and D)
F) All of the above

Question 19

Which of the following is not a reason why after the Great Recession, when the recovery turned out to be very weak, economic policy in the U.S.had to turn forcefully toward fiscal policy?

Accepted Answer

A)  Monetary policy suffered from cyclical asymmetry.
B)  The banking system fell into a liquidity trap.
C)  Interest rates had already been cut to very low levels.
D)  There was a time lag implementing monetary policy.E) A) and D)
F) C) and D)

Question 20

The Fed's response to the zero lower bound problem was quantitative easing (or "QE") , where the Fed buys large amounts of bonds in order to

Accepted Answer

A)  lower the interest rates.
B)  increase banks' reserves.
C)  lower bond prices.
D)  reduce money supply.E) B) and C)
F) A) and C)

Exam 36: Interest Rates and Monetary Policy

The Fed's response to the zero lower bound problem was quantitative easing (or "QE") , where the Fed buys large amounts of bonds in order to

Correct Answer
verified

Which of the following statements is correct? Blooms: Understand

Correct Answer
verified

Which of the following is not a reason why after the Great Recession, when the recovery turned out to be very weak, economic policy in the U.S.had to turn forcefully toward fiscal policy?

Correct Answer
verified

An increase in the money supply, ceteris paribus, usually

Correct Answer
verified

The purpose of an expansionary monetary policy is to increase

Correct Answer
verified

Which of the following statements is most accurate about the Fed's use of the federal funds rate target since the financial crisis of 2007-2009?

Correct Answer
verified

Correct Answer
verified

The use of monetary policy to shift aggregate demand to the right in a severe recession is like

Correct Answer
verified

The discount rate is the interest rate at which commercial banks lend to their best corporate customers.

Correct Answer
verified

When the Fed loans money in exchange for government bonds being posted as collateral, this is known as a

Correct Answer
verified

Which of the following is a monetary policy intended to rein in inflation?

Correct Answer
verified

If the Fed wants to discourage commercial bank lending, it will

Correct Answer
verified

Federal Reserve Notes in circulation are

Correct Answer
verified

The major advantages of monetary policy include its flexibility, speed, and political palatability.

Correct Answer
verified

The level of GDP, ceteris paribus, will tend to increase when

Correct Answer
verified

Loans of the Federal Reserve Banks to commercial banks are

Correct Answer
verified

The collateral used for repos and reverse repos is (are)

Correct Answer
verified

An expansionary monetary policy is one that reduces the supply of money.

Correct Answer
verified

Assume that the required reserve ratio is 25 percent.If the Federal Reserve sells $120 million in government securities to the general public, the money supply will immediately

Correct Answer
verified

Prior to the mortgage debt crisis, the most frequently employed restrictive monetary policy tool was

Correct Answer
verified

Exam 36: Interest Rates and Monetary Policy

The Fed's response to the zero lower bound problem was quantitative easing (or "QE") , where the Fed buys large amounts of bonds in order to

Correct AnswerverifiedShow Answer

Which of the following statements is correct? Blooms: Understand

Correct AnswerverifiedShow Answer

Which of the following is not a reason why after the Great Recession, when the recovery turned out to be very weak, economic policy in the U.S.had to turn forcefully toward fiscal policy?

Correct AnswerverifiedShow Answer

An increase in the money supply, ceteris paribus, usually

Correct AnswerverifiedShow Answer

The purpose of an expansionary monetary policy is to increase

Correct AnswerverifiedShow Answer

Which of the following statements is most accurate about the Fed's use of the federal funds rate target since the financial crisis of 2007-2009?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The use of monetary policy to shift aggregate demand to the right in a severe recession is like

Correct AnswerverifiedShow Answer

The discount rate is the interest rate at which commercial banks lend to their best corporate customers.

Correct AnswerverifiedShow Answer

When the Fed loans money in exchange for government bonds being posted as collateral, this is known as a

Correct AnswerverifiedShow Answer

Which of the following is a monetary policy intended to rein in inflation?

Correct AnswerverifiedShow Answer

If the Fed wants to discourage commercial bank lending, it will

Correct AnswerverifiedShow Answer

Federal Reserve Notes in circulation are

Correct AnswerverifiedShow Answer

The major advantages of monetary policy include its flexibility, speed, and political palatability.

Correct AnswerverifiedShow Answer

The level of GDP, ceteris paribus, will tend to increase when

Correct AnswerverifiedShow Answer

Loans of the Federal Reserve Banks to commercial banks are

Correct AnswerverifiedShow Answer

The collateral used for repos and reverse repos is (are)

Correct AnswerverifiedShow Answer

An expansionary monetary policy is one that reduces the supply of money.

Correct AnswerverifiedShow Answer

Assume that the required reserve ratio is 25 percent.If the Federal Reserve sells $120 million in government securities to the general public, the money supply will immediately

Correct AnswerverifiedShow Answer

Prior to the mortgage debt crisis, the most frequently employed restrictive monetary policy tool was

Correct AnswerverifiedShow Answer

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