Question 1

Other things equal, an improvement in the expected rate of net proﬁt would

Accepted Answer

A)   reduce the price level and unemployment.
B)   decrease the interest rate and cause aggregate demand to increase.
C)   increase consumption and net exports, causing aggregate demand to shift rightward.
D)   increase investment spending, real GDP, and the price level.E) A) and D)
F) None of the above

Question 2

Refer to the diagram of the market for money. Other things equal, the money demand curve in the diagram would shift leftward if

Accepted Answer

A)   the asset demand for money increased.
B)   the transactions demand for money increased.
C)   nominal GDP decreased.
D)   the overall price level rose.E) C) and D)
F) None of the above

Question 3

Explain how a change in the reserve ratio affects the money supply.

Accepted Answer

A change in the reserve ratio affects th...

Question 4

All else equal, when the Federal Reserve Banks engage in an expansionary monetary policy, the interest rates received on government bonds usually

Accepted Answer

A)   fall.
B)   rise.
C)   remain constant.
D)   move in the same direction as the bonds' price.E) A) and B)
F) All of the above

Question 5

In 2008, at the depth of the Great Recession, the Fed moved toward a ZIRP when it aimed to keep the Federal funds rate between

Accepted Answer

A)   2.5 percent and 3.0 percent.
B)   2 percent and 2.5 percent.
C)   1.0 percent and 1.25 percent.
D)   0 and 0.25 percent.E) B) and D)
F) All of the above

Question 6

After the 2008 ﬁnancial crisis, why did the Federal Reserve effectively lose its ability to increase the money supply by manipulating the federal funds rate target?

Accepted Answer

A)   Regulatory changes in response to the ﬁnancial crisis signiﬁcantly restricted the use of the federal funds rate target.
B)   The increase in excess reserves in the banking system virtually eliminated the need for banks to borrow in the federal funds market.
C)   Borrowing of excess reserves moved from traditional banks to the shadow banking industry.
D)   The federal funds rate rose signiﬁcantly and would not respond to Fed changes in the supply of reserves.E) None of the above
F) B) and D)

Question 7

According to the Taylor rule, when the economy has a zero-unemployment gap and the inﬂation rate is equal to its target rate of 2 percent, the Fed's targeted interest rate should be

Accepted Answer

A)   2 percent, and this implies a real interest rate of 0 percent.
B)   2 percent, and this implies a real interest rate of 4 percent.
C)   4 percent, and this implies a real interest rate of 2 percent.
D)   4 percent, and this implies a real interest rate of 4 percent.E) None of the above
F) B) and D)

Question 8

In the cause-effect chain linking changes in the banks' excess reserves and the resulting changes in output and employment in the economy,

Accepted Answer

A)   a decrease in aggregate demand will increase output.
B)   an increase in the money supply will decrease the rate of interest.
C)   a decrease in excess reserves will increase the money supply.
D)   a decrease in the rate of interest will decrease aggregate demand.E) A) and B)
F) None of the above

Question 9

Which of the following statements is correct?

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 inﬂation and inversely during recessions.E) None of the above
F) A) and D)

Question 10

A decrease in the nominal GDP, other things remaining the same, will decrease both the total demand for money and the equilibrium
rate of interest in the economy.

Accepted Answer

A) True 
 B)False

Question 11

A few years ago, you bought a bond with no expiration and a ﬁxed annual interest payment of $1,000 at a price of $10,000. If the interest rate in the economy is now 12.5 percent a year and you want to sell the bond, the maximum price that you can get for it is

Accepted Answer

A)   $7,500.
B)   $8,000.
C)   $9,750.
D)   $12,500.E) None of the above
F) All of the above

Question 12

In a repo transaction (or repurchase agreement) , the one "buying" the collateral asset (with the promise of selling it back soon)  is the

Accepted Answer

A)   lender.
B)   borrower.
C)   broker.
D)   speculator.E) A) and B)
F) None of the above

Question 13

Suppose the economy is at full employment with a high inﬂation rate. Which combination of government policies is most likely to reduce the inﬂation rate?

Accepted Answer

A)   buy government securities in the open market, do bond reverse-repos, and increase taxes
B)   buy government securities in the open market, do bond repos, and decrease taxes
C)   sell government securities in the open market, do bond repos, and increase government spending
D)   sell government securities in the open market, do bond reverse-repos, and cut government spendingE) All of the above
F) A) and B)

Question 14

The major problem facing the economy is high unemployment and weak economic growth. The inﬂation rate is low and stable. Therefore, the Federal Reserve decides to pursue a policy to increase the rate of economic growth. Which policy changes by the Fed
Would tend to offset each other in trying to achieve that objective?

Accepted Answer

A)   selling government securities and raising the discount rate
B)   selling government securities and raising the reserve ratio
C)   buying government securities and raising the discount rate
D)   buying government securities and lowering the reserve ratioE) A) and B)
F) C) and D)

Question 15

Other things equal, an expansionary monetary policy will shift the economy's aggregate demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 16

When the Fed pays interest on excess reserves held at Fed banks, the interest rate used is the discount rate.

Accepted Answer

A) True 
 B)False

Question 17

A restrictive monetary policy reduces investment spending and shifts the economy's aggregate demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 18

Interest Rate  Transactions Demand for  Money  Asset Demand for Money  Money Supply 2%$220$300446042202804606220260460822024046010220220460\begin{array} { | c | c | c | c | } \hline 	ext { Interest Rate } & \begin{array} { c } 	ext { Transactions Demand for } \	ext { Money }\end{array} & 	ext { Asset Demand for Money } & 	ext { Money Supply } \\hline 2 \% & \$ 220 & \$ 300 & 4460 \\hline 4 & 220 & 280 & 460 \\hline 6 & 220 & 260 & 460 \\hline 8 & 220 & 240 & 460 \\hline 10 & 220 & 220 & 460 \\hline\end{array} Interest Rate 2%46810​ Transactions Demand for  Money ​$220220220220220​ Asset Demand for Money $300280260240220​ Money Supply 4460460460460460​​  Based on the given table, an increase in the money supply of $20 billion will cause the equilibrium interest rate to

Accepted Answer

A)   fall by 4 percentage points.
B)   fall by 2 percentage points.
C)   rise by 4 percentage points.
D)   rise by 2 percentage points. E) A) and B)
F) A) and C)

Question 19

Accepted Answer

A)   an increase in the money supply from $80 to $100 will shift the aggregate demand curve rightward by $50 billion at each price level.
B)   an increase in the money supply from $80 to $100 will shift the aggregate demand curve leftward by $40 billion at each price level.
C)   a decrease in the interest rate from 9 percent to 6 percent will shift the aggregate demand curve leftward by $100 billion at each price level.
D)   a decrease in the interest rate from 6 percent to 3 percent will shift the aggregate demand curve leftward by $50 billion at each price level.E) B) and C)
F) C) and D)

Question 20

The price of a bond with no expiration date is originally $1,000 and has a ﬁxed annual interest payment of $150. If the price of the bond then falls by $100, what will be the interest rate yield to a new buyer of the bond?

Accepted Answer

A)   17.8 percent
B)   16.7 percent
C)   15 percent
D)   11.2 percentE) C) and D)
F) A) and B)

Exam 16: Interest Rates and Monetary Policy

Other things equal, an expansionary monetary policy will shift the economy's aggregate demand curve to the right.

Correct Answer
verified

A restrictive monetary policy reduces investment spending and shifts the economy's aggregate demand curve to the right.

Correct Answer
verified

Explain how a change in the reserve ratio affects the money supply.

Correct Answer
verified
A change in the reserve ratio affects th...
View Answer

A few years ago, you bought a bond with no expiration and a ﬁxed annual interest payment of $1,000 at a price of $10,000. If the interest rate in the economy is now 12.5 percent a year and you want to sell the bond, the maximum price that you can get for it is

Correct Answer
verified

Suppose the economy is at full employment with a high inﬂation rate. Which combination of government policies is most likely to reduce the inﬂation rate?

Correct Answer
verified

A decrease in the nominal GDP, other things remaining the same, will decrease both the total demand for money and the equilibrium rate of interest in the economy.

Correct Answer
verified

In a repo transaction (or repurchase agreement) , the one "buying" the collateral asset (with the promise of selling it back soon) is the

Correct Answer
verified

Refer to the diagram of the market for money. Other things equal, the money demand curve in the diagram would shift leftward if

Correct Answer
verified

Correct Answer
verified

All else equal, when the Federal Reserve Banks engage in an expansionary monetary policy, the interest rates received on government bonds usually

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

In 2008, at the depth of the Great Recession, the Fed moved toward a ZIRP when it aimed to keep the Federal funds rate between

Correct Answer
verified

Correct Answer
verified

In the cause-effect chain linking changes in the banks' excess reserves and the resulting changes in output and employment in the economy,

Correct Answer
verified

When the Fed pays interest on excess reserves held at Fed banks, the interest rate used is the discount rate.

Correct Answer
verified

The price of a bond with no expiration date is originally $1,000 and has a ﬁxed annual interest payment of $150. If the price of the bond then falls by $100, what will be the interest rate yield to a new buyer of the bond?

Correct Answer
verified

Other things equal, an improvement in the expected rate of net proﬁt would

Correct Answer
verified

According to the Taylor rule, when the economy has a zero-unemployment gap and the inﬂation rate is equal to its target rate of 2 percent, the Fed's targeted interest rate should be

Correct Answer
verified

Correct Answer
verified

After the 2008 ﬁnancial crisis, why did the Federal Reserve effectively lose its ability to increase the money supply by manipulating the federal funds rate target?

Correct Answer
verified

Exam 16: Interest Rates and Monetary Policy

Other things equal, an expansionary monetary policy will shift the economy's aggregate demand curve to the right.

Correct AnswerverifiedShow Answer

A restrictive monetary policy reduces investment spending and shifts the economy's aggregate demand curve to the right.

Correct AnswerverifiedShow Answer

Explain how a change in the reserve ratio affects the money supply.

Correct AnswerverifiedA change in the reserve ratio affects th...View AnswerShow Answer

A few years ago, you bought a bond with no expiration and a ﬁxed annual interest payment of $1,000 at a price of $10,000. If the interest rate in the economy is now 12.5 percent a year and you want to sell the bond, the maximum price that you can get for it is

Correct AnswerverifiedShow Answer

Suppose the economy is at full employment with a high inﬂation rate. Which combination of government policies is most likely to reduce the inﬂation rate?

Correct AnswerverifiedShow Answer

A decrease in the nominal GDP, other things remaining the same, will decrease both the total demand for money and the equilibrium rate of interest in the economy.

Correct AnswerverifiedShow Answer

In a repo transaction (or repurchase agreement) , the one "buying" the collateral asset (with the promise of selling it back soon) is the

Correct AnswerverifiedShow Answer

Refer to the diagram of the market for money. Other things equal, the money demand curve in the diagram would shift leftward if

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

All else equal, when the Federal Reserve Banks engage in an expansionary monetary policy, the interest rates received on government bonds usually

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

In 2008, at the depth of the Great Recession, the Fed moved toward a ZIRP when it aimed to keep the Federal funds rate between

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the cause-effect chain linking changes in the banks' excess reserves and the resulting changes in output and employment in the economy,

Correct AnswerverifiedShow Answer

When the Fed pays interest on excess reserves held at Fed banks, the interest rate used is the discount rate.

Correct AnswerverifiedShow Answer

The price of a bond with no expiration date is originally $1,000 and has a ﬁxed annual interest payment of $150. If the price of the bond then falls by $100, what will be the interest rate yield to a new buyer of the bond?

Correct AnswerverifiedShow Answer

Other things equal, an improvement in the expected rate of net proﬁt would

Correct AnswerverifiedShow Answer

According to the Taylor rule, when the economy has a zero-unemployment gap and the inﬂation rate is equal to its target rate of 2 percent, the Fed's targeted interest rate should be

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

After the 2008 ﬁnancial crisis, why did the Federal Reserve effectively lose its ability to increase the money supply by manipulating the federal funds rate target?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
verified
A change in the reserve ratio affects th...
View Answer

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