Question 1

An increase in nominal GDP increases the demand for money because

Accepted Answer

A)   interest rates will rise.
B)   more money is needed to ﬁnance a larger volume of transactions.
C)   bond prices will fall.
D)   the opportunity cost of holding money will decline.E) B) and C)
F) A) and B)

Question 2

The Federal Reserve System regulates the money supply primarily by

Accepted Answer

A)   controlling the production of coins at the U.S. mint.
B)   altering the reserve requirements of commercial banks and thereby the ability of banks to make loans.
C)   altering the reserves of commercial banks, largely through sales and purchases of government bonds.
D)   restricting the issuance of Federal Reserve Notes because paper money is the largest portion of the money supply.E) B) and D)
F) A) and C)

Question 3

If the Fed wants to maintain current interest rates, it would be buying government bonds in the open market when

Accepted Answer

A)   the demand for money decreases.
B)   the demand for money increases.
C)   investment demand decreases.
D)   the discount rate increases.E) C) and D)
F) None of the above

Question 4

Interest paid on excess reserves held at the Fed

Accepted Answer

A)   is available to the general public, but not to commercial banks.
B)   will incentivize ﬁnancial institutions to hold more reserves and reduce risky lending.
C)   is determined by the federal funds rate.
D)   totaled over $1 trillion in 2018.E) A) and C)
F) C) and D)

Question 5

A wealthy executive is holding money, waiting for a good time to invest in the stock market. This action would be an example of the

Accepted Answer

A)   transactions demand for money.
B)   asset demand for money.
C)   creation of ﬁat money.
D)   use of money as a medium of exchange.E) A) and D)
F) B) and C)

Question 6

Which of the following statements about quantitative easing is most accurate?

Accepted Answer

A)   Quantitative easing refers to the Fed's use of open-market operations to buy trillions of dollars' worth of medium- and longer-maturity ﬁnancial assets.
B)   Quantitative easing has become one of the permanently recognized tools of monetary policy.
C)   Quantitative easing signiﬁcantly lowered interest rates in the aftermath of the ﬁnancial crisis.
D)   Quantitative easing is the new oﬃcial name for open-market operations.E) All of the above
F) A) and C)

Question 7

According to the Taylor rule, if the target rate of inﬂation for the Fed is 2 percent and inﬂation rises to 3 percent at full unemployment, then the Fed should

Accepted Answer

A)   raise the real federal funds rate by one percentage point.
B)   lower the real federal funds rate by one percentage point.
C)   raise their targeted interest rate by half of a percentage point.
D)   lower their targeted interest rate by half of a percentage point.E) B) and D)
F) C) and D)

Question 8

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

Accepted Answer

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

Question 9

A consumer holds money to meet spending needs. This would be an example of the

Accepted Answer

A)   use of money as a measure of value.
B)   use of money as legal tender.
C)   transactions demand for money.
D)   asset demand for money.E) All of the above
F) A) and B)

Question 10

If the demand for money and the supply of money both decrease, the equilibrium

Accepted Answer

A)   interest rate will decline, but we cannot predict the change in the equilibrium quantity of money.
B)   quantity of money and the equilibrium interest rate will both increase.
C)   quantity of money will increase, but we cannot predict the change in the equilibrium interest rate.
D)   quantity of money will decline, but we cannot predict the change in the equilibrium interest rate.E) All of the above
F) B) and D)

Question 11

Interest Rate  Asset Demand for Money (Billions)  7%$200630054004500\begin{array} { | c | c | } \hline 	ext { Interest Rate } & 	ext { Asset Demand for Money (Billions)  } \\hline 7 \% & \$ 200 \\hline 6 & 300 \\hline 5 & 400 \\hline 4 & 500 \\hline\end{array} Interest Rate 7%654​ Asset Demand for Money (Billions)  $200300400500​​  Suppose that the transactions demand for money is equal to 20 percent of the nominal GDP, the supply of money is $800 billion, and the asset demand for money is that shown in the table. If the nominal GDP is $2,000 billion, the equilibrium interest rate is

Accepted Answer

A)   4 percent.
B)   5 percent.
C)   6 percent.
D)   7 percent. E) A) and B)
F) C) and D)

Question 12

A commercial bank can add to its actual reserves by

Accepted Answer

A)   lending money to bank customers.
B)   buying government securities from the public.
C)   buying government securities from a Federal Reserve Bank.
D)   borrowing from a Federal Reserve Bank.E) A) and D)
F) A) and B)

Question 13

Refer to the graph. If the interest rate rises from 2 percent to 3 percent, the supply of money must have

Accepted Answer

A)   decreased by $50 billion.
B)   decreased by $100 billion.
C)   decreased by $150 billion.
D)   increased by $50 billion.E) A) and B)
F) All of the above

Question 14

Which of the following is a difference between "quantitative easing" and ordinary open-market operations?

Accepted Answer

A)   There is no difference between the two policy tools.
B)   Open-market operations are done to lower interest rates; quantitative easing is done to increase the quantity of bank reserves.
C)   Quantitative easing is done in order to lower interest rates; open-market operations are merely intended to increase bank reserves.
D)   Open-market operations involve forward commitment; quantitative easing is intentionally vague to maintain ﬂexibility.E) A) and C)
F) A) and D)

Question 15

There is an asset demand for money because households and business ﬁrms use money as a store of value.

Accepted Answer

A) True 
 B)False

Question 16

The purpose of an expansionary monetary policy is to shift the

Accepted Answer

A)   aggregate demand curve leftward.
B)   aggregate demand curve rightward.
C)   aggregate supply curve leftward.
D)   investment demand curve leftward.E) None of the above
F) B) and C)

Question 17

What does it mean when economists say that the Fed has attempted to "normalize" monetary policy after the Great Recession?

Accepted Answer

A)   The Fed has tried to use monetary policy to restore the unemployment rate to its normal full employment rate of around 5 percent.
B)   The Fed has tried to use monetary policy to raise excess reserves back up to normal prerecession levels.
C)   The Fed has tried to make all of the monetary policy actions used during the ﬁnancial crisis a normal part of the monetary policy tool kit.
D)   The Fed has tried to use monetary policy to bring interest rates back to their historically normal levels.E) A) and C)
F) C) and D)

Question 18

The price of a bond having no expiration date is originally $8,000 and has a ﬁxed annual interest payment of $800. A fall in the price of the bond by $3,000 will provide a new buyer of the bond an interest rate of

Accepted Answer

A)   10 percent.
B)   12 percent.
C)   14 percent.
D)   16 percent.E) A) and B)
F) None of the above

Question 19

U.S. Treasury deposits at the Federal Reserve Banks are

Accepted Answer

A)   a liability of the Federal Reserve Banks and the U.S. Treasury.
B)   an asset of the Federal Reserve Banks and the U.S. Treasury.
C)   a liability of the Federal Reserve Banks and an asset for the U.S. Treasury.
D)   an asset of the Federal Reserve Banks and a liability for the U.S. Treasury.E) A) and B)
F) C) and D)

Question 20

Other things equal, an increase in input prices will

Accepted Answer

A)   reduce aggregate supply and reduce real output.
B)   increase the interest rate and lower the international value of the dollar.
C)   increase aggregate supply and increase the price level.
D)   increase net exports, increase investment, and reduce aggregate demand.E) A) and D)
F) A) and C)

Exam 16: Interest Rates and Monetary Policy

If the demand for money and the supply of money both decrease, the equilibrium

Correct Answer
verified

Which of the following is a difference between "quantitative easing" and ordinary open-market operations?

Correct Answer
verified

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

Correct Answer
verified

The Federal Reserve System regulates the money supply primarily by

Correct Answer
verified

A commercial bank can add to its actual reserves by

Correct Answer
verified

What does it mean when economists say that the Fed has attempted to "normalize" monetary policy after the Great Recession?

Correct Answer
verified

A consumer holds money to meet spending needs. This would be an example of the

Correct Answer
verified

The price of a bond having no expiration date is originally $8,000 and has a ﬁxed annual interest payment of $800. A fall in the price of the bond by $3,000 will provide a new buyer of the bond an interest rate of

Correct Answer
verified

Correct Answer
verified

According to the Taylor rule, if the target rate of inﬂation for the Fed is 2 percent and inﬂation rises to 3 percent at full unemployment, then the Fed should

Correct Answer
verified

If the Fed wants to maintain current interest rates, it would be buying government bonds in the open market when

Correct Answer
verified

Interest paid on excess reserves held at the Fed

Correct Answer
verified

Which of the following statements about quantitative easing is most accurate?

Correct Answer
verified

Refer to the graph. If the interest rate rises from 2 percent to 3 percent, the supply of money must have

Correct Answer
verified

A wealthy executive is holding money, waiting for a good time to invest in the stock market. This action would be an example of the

Correct Answer
verified

U.S. Treasury deposits at the Federal Reserve Banks are

Correct Answer
verified

An increase in nominal GDP increases the demand for money because

Correct Answer
verified

There is an asset demand for money because households and business ﬁrms use money as a store of value.

Correct Answer
verified

The purpose of an expansionary monetary policy is to shift the

Correct Answer
verified

Other things equal, an increase in input prices will

Correct Answer
verified

Exam 16: Interest Rates and Monetary Policy

If the demand for money and the supply of money both decrease, the equilibrium

Correct AnswerverifiedShow Answer

Which of the following is a difference between "quantitative easing" and ordinary open-market operations?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The Federal Reserve System regulates the money supply primarily by

Correct AnswerverifiedShow Answer

A commercial bank can add to its actual reserves by

Correct AnswerverifiedShow Answer

What does it mean when economists say that the Fed has attempted to "normalize" monetary policy after the Great Recession?

Correct AnswerverifiedShow Answer

A consumer holds money to meet spending needs. This would be an example of the

Correct AnswerverifiedShow Answer

The price of a bond having no expiration date is originally $8,000 and has a ﬁxed annual interest payment of $800. A fall in the price of the bond by $3,000 will provide a new buyer of the bond an interest rate of

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

According to the Taylor rule, if the target rate of inﬂation for the Fed is 2 percent and inﬂation rises to 3 percent at full unemployment, then the Fed should

Correct AnswerverifiedShow Answer

If the Fed wants to maintain current interest rates, it would be buying government bonds in the open market when

Correct AnswerverifiedShow Answer

Interest paid on excess reserves held at the Fed

Correct AnswerverifiedShow Answer

Which of the following statements about quantitative easing is most accurate?

Correct AnswerverifiedShow Answer

Refer to the graph. If the interest rate rises from 2 percent to 3 percent, the supply of money must have

Correct AnswerverifiedShow Answer

A wealthy executive is holding money, waiting for a good time to invest in the stock market. This action would be an example of the

Correct AnswerverifiedShow Answer

U.S. Treasury deposits at the Federal Reserve Banks are

Correct AnswerverifiedShow Answer

An increase in nominal GDP increases the demand for money because

Correct AnswerverifiedShow Answer

There is an asset demand for money because households and business ﬁrms use money as a store of value.

Correct AnswerverifiedShow Answer

The purpose of an expansionary monetary policy is to shift the

Correct AnswerverifiedShow Answer

Other things equal, an increase in input prices will

Correct AnswerverifiedShow Answer

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