Question 1

Refer to the given market-for-money diagrams. If the interest rate was at 8 percent, people would

Accepted Answer

A)   sell bonds, which would cause bond prices to fall and the interest rate to fall.
B)   buy bonds, which would cause bond prices to rise and the interest rate to fall.
C)   have insuﬃcient liquidity, which would cause them to reduce their spending on consumer goods.
D)   buy bonds, which would cause bond prices to fall and the interest rate to rise.E) C) and D)
F) B) and D)

Question 2

A restrictive monetary policy is designed to shift the

Accepted Answer

A)   aggregate demand curve rightward.
B)   aggregate demand curve leftward.
C)   aggregate supply curve rightward.
D)   aggregate supply curve leftward.E) A) and B)
F) A) and C)

Question 3

If, in the market for money, the quantity of money demanded exceeds the money supply, the interest rate will

Accepted Answer

A)   fall, causing households and businesses to hold less money.
B)   rise, causing households and businesses to hold less money.
C)   rise, causing households and businesses to hold more money.
D)   fall, causing households and businesses to hold more money.E) None of the above
F) A) and D)

Question 4

Assume that the stock of money is determined by the Federal Reserve and does not change when the interest rate changes. This situation means that the

Accepted Answer

A)   supply of money curve is vertical.
B)   supply of money curve is horizontal.
C)   demand for money curve is directly related to the interest rate.
D)   supply of money curve is inversely related to the interest rate.E) B) and D)
F) A) and B)

Question 5

The price of government bonds and the interest rate received by a bond buyer are

Accepted Answer

A)   positively related.
B)   unrelated.
C)   inversely related.
D)   independent of Federal Reserve open-market operations.E) A) and C)
F) B) and D)

Question 6

From September 2007 to April 2008, the Fed lowered the federal funds rate from 5.25 percent to 2 percent in a series of steps. The Fed's actions were largely in response to

Accepted Answer

A)   threats to the ﬁnancial system from the mortgage default crisis.
B)   forecasts of higher inﬂation rates.
C)   Chinese refusal to allow their exchange rate to reﬂect market conditions.
D)   pressure from the president to offset contractionary effects of a tax increase.E) None of the above
F) B) and C)

Question 7

Expansionary monetary policy beginning in December 2008 consisted mainly of quantitative easing (QE) which meant massive bond
purchases by the Fed to expand bank reserves and the Fed implementing a zero-interest-rate policy.

Accepted Answer

A) True 
 B)False

Question 8

In the United States, monetary policy is the responsibility of the

Accepted Answer

A)   U.S. Treasury.
B)   Department of Commerce.
C)   Board of Governors of the Federal Reserve System.
D)   U.S. Congress.E) B) and C)
F) All of the above

Question 9

What are the four principal tools of monetary policy? Explain how they can be used.

Accepted Answer

The four principal tools of monetary pol...

Question 10

If the Fed buys $1 million in government securities from Bank A, then the immediate effect of this transaction is an increase in

Accepted Answer

A)   money supply M1.
B)   Bank A's excess reserves.
C)   Bank A's liabilities.
D)   Bank A's required reserves.E) A) and C)
F) All of the above

Question 11

Accepted Answer

A)   B
B)   E
C)   F
D)   IE) B) and D)
F) A) and B)

Question 12

Money Supply  Money Demand  Interest Rate  Investment (at Interest  Rate Shown)  $400$6002%$700$4005003600$4004004500$4003005300$4002006200\begin{array} { | c | c | c | c | } \hline 	ext { Money Supply } & 	ext { Money Demand } & 	ext { Interest Rate } & \begin{array} { c } 	ext { Investment (at Interest } \	ext { Rate Shown)  }\end{array} \\hline \$ 400 & \$ 600 & 2 \% & \$ 700 \\hline \$ 400 & 500 & 3 & 600 \\hline \$ 400 & 400 & 4 & 500 \\hline \$ 400 & 300 & 5 & 300 \\hline \$ 400 & 200 & 6 & 200 \\hline\end{array} Money Supply $400$400$400$400$400​ Money Demand $600500400300200​ Interest Rate 2%3456​ Investment (at Interest  Rate Shown)  ​$700600500300200​​ 
Answer the question based on the information in the table. Suppose the legal reserve requirement is 10 percent and initially there are no excess reserves in the banking system. If the Fed wished to reduce the interest rate by 1 percentage point, it would

Accepted Answer

A)   sell $10 of government bonds in the open market.
B)   buy $100 of government bonds in the open market.
C)   sell $100 of government bonds in the open market.
D)   buy $10 of government bonds in the open market. E) B) and C)
F) A) and D)

Question 13

Which of the following is an asset on the consolidated balance sheet of the Federal Reserve Banks?

Accepted Answer

A)   loans to commercial banks
B)   Federal Reserve Notes in circulation
C)   Treasury deposits
D)   reserves of commercial banksE) A) and C)
F) None of the above

Question 14

The transactions demand for money is most closely related to money functioning as a

Accepted Answer

A)   unit of account.
B)   medium of exchange.
C)   store of value.
D)   measure of value.E) B) and C)
F) None of the above

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is least likely to be a problem for monetary policy?

Accepted Answer

A)   the recognition lag
B)   the operational lag
C)   the administrative lag
D)   cyclical asymmetryE) A) and B)
F) None of the above

Question 17

Accepted Answer

A)    sm3s _ { m 3 }sm3​  and the interest rate will be 4 percent.
B)    sm3s _ { m 3 }sm3​  and the interest rate will be 8 percent.
C)    Sm1S _ { m 1 }Sm1​  and the interest rate will be 8 percent.
D)    Sm1S _ { m 1 }Sm1​  and the interest rate will be 4 percent. E) A) and B)
F) A) and C)

Question 18

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) All of the above
F) None of the above

Question 19

Compared to ﬁscal policy, monetary policy has a much shorter

Accepted Answer

A)   recognition lag.
B)   administrative lag.
C)   operational lag.
D)   effects lag.E) C) and D)
F) A) and B)

Question 20

The asset demand for money is downsloping because

Accepted Answer

A)   the opportunity cost of holding money increases as the interest rate rises.
B)   it is more attractive to hold money at high interest rates than at low interest rates.
C)   bond prices rise as interest rates rise.
D)   the opportunity cost of holding money declines as the interest rate rises.E) B) and C)
F) A) and D)

Exam 16: Interest Rates and Monetary Policy

If the Fed buys $1 million in government securities from Bank A, then the immediate effect of this transaction is an increase in

Correct Answer
verified

Which of the following is an asset on the consolidated balance sheet of the Federal Reserve Banks?

Correct Answer
verified

A restrictive monetary policy is designed to shift the

Correct Answer
verified

The transactions demand for money is most closely related to money functioning as a

Correct Answer
verified

Correct Answer
verified

Assume that the stock of money is determined by the Federal Reserve and does not change when the interest rate changes. This situation means that the

Correct Answer
verified

Compared to ﬁscal policy, monetary policy has a much shorter

Correct Answer
verified

If, in the market for money, the quantity of money demanded exceeds the money supply, the interest rate will

Correct Answer
verified

The asset demand for money is downsloping because

Correct Answer
verified

The purpose of an expansionary monetary policy is to increase

Correct Answer
verified

In the United States, monetary policy is the responsibility of the

Correct Answer
verified

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

Correct Answer
verified

Expansionary monetary policy beginning in December 2008 consisted mainly of quantitative easing (QE) which meant massive bond purchases by the Fed to expand bank reserves and the Fed implementing a zero-interest-rate policy.

Correct Answer
verified

Correct Answer
verified

Which of the following is least likely to be a problem for monetary policy?

Correct Answer
verified

Refer to the given market-for-money diagrams. If the interest rate was at 8 percent, people would

Correct Answer
verified

$A) s _ { m 3 } and the interest rate will be 4 percent. B) s _ { m 3 } and the interest rate will be 8 percent. C) S _ { m 1 } and the interest rate will be 8 percent. D) S _ { m 1 } and the interest rate will be 4 percent.$

Correct Answer
verified

The price of government bonds and the interest rate received by a bond buyer are

Correct Answer
verified

What are the four principal tools of monetary policy? Explain how they can be used.

Correct Answer
verified
The four principal tools of monetary pol...
View Answer

From September 2007 to April 2008, the Fed lowered the federal funds rate from 5.25 percent to 2 percent in a series of steps. The Fed's actions were largely in response to

Correct Answer
verified

Exam 16: Interest Rates and Monetary Policy

If the Fed buys $1 million in government securities from Bank A, then the immediate effect of this transaction is an increase in

Correct AnswerverifiedShow Answer

Which of the following is an asset on the consolidated balance sheet of the Federal Reserve Banks?

Correct AnswerverifiedShow Answer

A restrictive monetary policy is designed to shift the

Correct AnswerverifiedShow Answer

The transactions demand for money is most closely related to money functioning as a

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Assume that the stock of money is determined by the Federal Reserve and does not change when the interest rate changes. This situation means that the

Correct AnswerverifiedShow Answer

Compared to ﬁscal policy, monetary policy has a much shorter

Correct AnswerverifiedShow Answer

If, in the market for money, the quantity of money demanded exceeds the money supply, the interest rate will

Correct AnswerverifiedShow Answer

The asset demand for money is downsloping because

Correct AnswerverifiedShow Answer

The purpose of an expansionary monetary policy is to increase

Correct AnswerverifiedShow Answer

In the United States, monetary policy is the responsibility of the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Expansionary monetary policy beginning in December 2008 consisted mainly of quantitative easing (QE) which meant massive bond purchases by the Fed to expand bank reserves and the Fed implementing a zero-interest-rate policy.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is least likely to be a problem for monetary policy?

Correct AnswerverifiedShow Answer

Refer to the given market-for-money diagrams. If the interest rate was at 8 percent, people would

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The price of government bonds and the interest rate received by a bond buyer are

Correct AnswerverifiedShow Answer

What are the four principal tools of monetary policy? Explain how they can be used.

Correct AnswerverifiedThe four principal tools of monetary pol...View AnswerShow Answer

From September 2007 to April 2008, the Fed lowered the federal funds rate from 5.25 percent to 2 percent in a series of steps. The Fed's actions were largely in response to

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The four principal tools of monetary pol...
View Answer

Correct Answer
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