Question 1

An interesting development that happened in late 2008, relating to the Fed and bank reserves, was that the Fed

Accepted Answer

A)   reduced the reserve ratio drastically.
B)   required banks to hold more excess reserves.
C)   started paying interest on the banks' reserves.
D)   gave back all the reserves to the banks to hold as vault cash.E) C) and D)
F) A) and D)

Question 2

The commercial banking system borrows from the Federal Reserve Banks. As a result, the checkable deposits

Accepted Answer

A)   of commercial banks are unchanged, but their reserves increase.
B)   and reserves of commercial banks both decrease.
C)   of commercial banks are unchanged, but their reserves decrease.
D)   and reserves of commercial banks are both unchanged.E) C) and D)
F) A) and C)

Question 3

The most frequently used instrument of the Federal Reserve System to control the money supply is the required reserve ratio.

Accepted Answer

A) True 
 B)False

Question 4

If the quantity of money demanded exceeds the quantity supplied,

Accepted Answer

A)   the supply-of-money curve will shift to the left.
B)   the demand-for-money curve will shift to the right.
C)   the interest rate will rise.
D)   the interest rate will fall.E) A) and C)
F) B) and C)

Question 5

The interest rate at which the Federal Reserve Banks lend to commercial banks is called the

Accepted Answer

A)   prime rate.
B)   short-term rate.
C)   discount rate.
D)   federal funds rate.E) A) and B)
F) None of the above

Question 6

If the Fed seeks to maintain a ﬁxed targeted interest rate, then it will have to increase the money supply when the demand for money
increases as income increases.

Accepted Answer

A) True 
 B)False

Question 7

One new element of the Fed's open market operations is the use of government securities as collateral for loans to banks and other
ﬁnancial institutions.

Accepted Answer

A) True 
 B)False

Question 8

Which of the monetary policy tools can alter both the level of excess reserves and the money multiplier?

Accepted Answer

A)   open-market operations
B)   the reserve ratio
C)   the discount rate
D)   the federal funds rateE) A) and B)
F) B) and C)

Question 9

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) All of the above
F) None of the above

Question 10

If bond prices decrease, then the

Accepted Answer

A)   interest rate decreases.
B)   interest rate increases.
C)   transactions demand for money will decrease.
D)   transactions demand for money will increase.E) B) and D)
F) A) and D)

Question 11

The asset demand for money

Accepted Answer

A)   is unrelated to both the interest rate and the level of GDP.
B)   varies inversely with the rate of interest.
C)   varies inversely with the level of real GDP.
D)   varies directly with the level of nominal GDP.E) B) and C)
F) A) and B)

Question 12

(Advanced analysis)  Assume the equation for the total demand for money is L = 0.4Y + 80 − 4i, where L is the amount of money demanded, Y is gross domestic product, and i is the interest rate. If gross domestic product is $200 and the interest rate is 10 (percent) ,
What amount of money will society want to hold?

Accepted Answer

A)   $200
B)   $120
C)   $320
D)   $160E) All of the above
F) C) and D)

Question 13

Deﬁne the Taylor rule.

Accepted Answer

The Taylor rule is a monetary rule propo...

Question 14

Accepted Answer

A)   decrease aggregate demand by increasing the interest rate from 2 to 4 percent.
B)   decrease aggregate demand by increasing the interest rate from 4 to 6 percent.
C)   increase aggregate demand by decreasing the interest rate from 4 to 2 percent.
D)   increase the level of investment spending from $120 billion to $150 billion.E) B) and D)
F) A) and B)

Question 15

Accepted Answer

A)   increase the interest rate from 4 percent to 6 percent.
B)   decrease the interest rate from 4 percent to 2 percent.
C)   increase investment spending by $20 billion.
D)   maintain the interest rate at 4 percent.E) C) and D)
F) B) and C)

Question 16

Refer to the diagram of the market for money. The equilibrium interest rate is

Accepted Answer

A)    I1.I_1.I1​. 
B)    I2I _ { 2 }I2​ 
C)    I3I_ { 3 }I3​ 
D)   not determinable without additional information. E) A) and D)
F) None of the above

Question 17

Which of the following is a tool of monetary policy?

Accepted Answer

A)   open-market operations
B)   changes in banking laws
C)   changes in tax rates
D)   changes in government spendingE) None of the above
F) All of the above

Question 18

The Federal Reserve Banks buy government securities from commercial banks. As a result, the checkable deposits

Accepted Answer

A)   of commercial banks are unchanged, but their reserves increase.
B)   and reserves of commercial banks both decrease.
C)   of commercial banks are unchanged, but their reserves decrease.
D)   and reserves of commercial banks are both unchanged.E) A) and B)
F) B) and D)

Question 19

A liquidity trap occurs when the Federal Reserve reduces reserves in the system, choking off aggregate demand.

Accepted Answer

A) True 
 B)False

Question 20

An expansionary monetary policy may be frustrated if the

Accepted Answer

A)   demand-for-money curve shifts to the right.
B)   investment-demand curve shifts to the left.
C)   saving schedule shifts downward.
D)   investment-demand curve shifts to the right.E) C) and D)
F) B) and C)

Exam 16: Interest Rates and Monetary Policy

A liquidity trap occurs when the Federal Reserve reduces reserves in the system, choking off aggregate demand.

Correct Answer
verified

The Federal Reserve Banks buy government securities from commercial banks. As a result, the checkable deposits

Correct Answer
verified

Correct Answer
verified

Which of the following is a tool of monetary policy?

Correct Answer
verified

Deﬁne the Taylor rule.

Correct Answer
verified
The Taylor rule is a monetary rule propo...
View Answer

If the Fed seeks to maintain a ﬁxed targeted interest rate, then it will have to increase the money supply when the demand for money increases as income increases.

Correct Answer
verified

Correct Answer
verified

Which of the monetary policy tools can alter both the level of excess reserves and the money multiplier?

Correct Answer
verified

An interesting development that happened in late 2008, relating to the Fed and bank reserves, was that the Fed

Correct Answer
verified

The most frequently used instrument of the Federal Reserve System to control the money supply is the required reserve ratio.

Correct Answer
verified

If the quantity of money demanded exceeds the quantity supplied,

Correct Answer
verified

One new element of the Fed's open market operations is the use of government securities as collateral for loans to banks and other ﬁnancial institutions.

Correct Answer
verified

If bond prices decrease, then the

Correct Answer
verified

The commercial banking system borrows from the Federal Reserve Banks. As a result, the checkable deposits

Correct Answer
verified

An expansionary monetary policy may be frustrated if the

Correct Answer
verified

$Refer to the diagram of the market for money. The equilibrium interest rate is A) I_1. B) I _ { 2 } C) I_ { 3 } D) not determinable without additional information.$ Refer to the diagram of the market for money. The equilibrium interest rate is

Correct Answer
verified

Federal Reserve Notes in circulation are

Correct Answer
verified

The interest rate at which the Federal Reserve Banks lend to commercial banks is called the

Correct Answer
verified

Correct Answer
verified

The asset demand for money

Correct Answer
verified

Exam 16: Interest Rates and Monetary Policy

A liquidity trap occurs when the Federal Reserve reduces reserves in the system, choking off aggregate demand.

Correct AnswerverifiedShow Answer

The Federal Reserve Banks buy government securities from commercial banks. As a result, the checkable deposits

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is a tool of monetary policy?

Correct AnswerverifiedShow Answer

Deﬁne the Taylor rule.

Correct AnswerverifiedThe Taylor rule is a monetary rule propo...View AnswerShow Answer

If the Fed seeks to maintain a ﬁxed targeted interest rate, then it will have to increase the money supply when the demand for money increases as income increases.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the monetary policy tools can alter both the level of excess reserves and the money multiplier?

Correct AnswerverifiedShow Answer

An interesting development that happened in late 2008, relating to the Fed and bank reserves, was that the Fed

Correct AnswerverifiedShow Answer

The most frequently used instrument of the Federal Reserve System to control the money supply is the required reserve ratio.

Correct AnswerverifiedShow Answer

If the quantity of money demanded exceeds the quantity supplied,

Correct AnswerverifiedShow Answer

One new element of the Fed's open market operations is the use of government securities as collateral for loans to banks and other ﬁnancial institutions.

Correct AnswerverifiedShow Answer

If bond prices decrease, then the

Correct AnswerverifiedShow Answer

The commercial banking system borrows from the Federal Reserve Banks. As a result, the checkable deposits

Correct AnswerverifiedShow Answer

An expansionary monetary policy may be frustrated if the

Correct AnswerverifiedShow Answer

Refer to the diagram of the market for money. The equilibrium interest rate is

Correct AnswerverifiedShow Answer

Federal Reserve Notes in circulation are

Correct AnswerverifiedShow Answer

The interest rate at which the Federal Reserve Banks lend to commercial banks is called the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The asset demand for money

Correct AnswerverifiedShow Answer

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The Taylor rule is a monetary rule propo...
View Answer

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$Refer to the diagram of the market for money. The equilibrium interest rate is A) I_1. B) I _ { 2 } C) I_ { 3 } D) not determinable without additional information.$ Refer to the diagram of the market for money. The equilibrium interest rate is

Correct Answer
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