Question 1

Accepted Answer

A)   C
B)   D
C)   G
D)   IE) B) and C)
F) All of the above

Question 2

The discount rate is the interest

Accepted Answer

A)   rate at which the central banks lend to the U.S. Treasury.
B)   rate at which the Federal Reserve Banks lend to commercial banks.
C)   yield on long-term government bonds.
D)   rate at which commercial banks lend to the public.E) B) and D)
F) A) and C)

Question 3

The largest single liability of the Federal Reserve Banks is their outstanding loans to commercial banks.

Accepted Answer

A) True 
 B)False

Question 4

According to the Taylor rule, when the economy is at full employment and inﬂation is at its target rate of 2 percent, the Fed should

Accepted Answer

A)   carefully lower the federal funds rate in an attempt to stimulate noninﬂationary real GDP growth.
B)   raise the federal funds rate in an attempt to eliminate the remaining inﬂation.
C)   lower the federal funds rate to lower borrowing costs for the federal government.
D)   keep their targeted interest rate at 4 percent.E) A) and D)
F) B) and C)

Question 5

The price of a bond with no expiration date is $1,000, and the ﬁxed annual interest payment is $100. If the price of the bond falls to
$800, the interest rate to a new buyer of the bond is now 20 percent.

Accepted Answer

A) True 
 B)False

Question 6

The largest asset item in the Federal Reserve Banks' consolidated balance sheet (as of February 2019)  is

Accepted Answer

A)   loans to commercial banks.
B)   Federal Reserve notes.
C)   Treasury deposits.
D)   securities.E) B) and C)
F) C) and D)

Question 7

According to the Taylor rule, if the inﬂation rate is one percentage point below the target of 2 percent but at full employment, 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) None of the above
F) B) and D)

Question 8

Lowering the discount rate has the effect of

Accepted Answer

A)   turning required into excess reserves.
B)   turning excess into required reserves.
C)   making it less expensive for commercial banks to borrow from central banks.
D)   forcing commercial banks to call in outstanding loans from their best customers.E) B) and C)
F) C) and D)

Question 9

Why is the money demand curve downsloping?

Accepted Answer

The total money demand curve consists of...

Question 10

An increase in the money supply is likely to reduce

Accepted Answer

A)   the general price level.
B)   nominal income.
C)   money demand.
D)   interest rates.E) A) and B)
F) All of the above

Question 11

An increase in the money supply will

Accepted Answer

A)   lower interest rates and lower the equilibrium GDP.
B)   lower interest rates and increase the equilibrium GDP.
C)   increase interest rates and increase the equilibrium GDP.
D)   increase interest rates and lower the equilibrium GDP.E) C) and D)
F) A) and B)

Question 12

Accepted Answer

A)   increase the money supply from $80 to $100.
B)   increase the money supply from $80 to $120.
C)   maintain the money supply at $80.
D)   decrease the money supply from $80 to $60.E) None of the above
F) All of the above

Question 13

When the Fed sells government securities in the open market, its intent is to try to increase aggregate demand.

Accepted Answer

A) True 
 B)False

Question 14

Restrictive monetary policy since the mortgage debt crisis

Accepted Answer

A)   has been aggressively implemented to stop inﬂationary pressure fueled by quantitative easing.
B)   has raised interest rates back to pre-ﬁnancial crisis levels.
C)   has mainly been attempts to "normalize" monetary policy by paying interest on excess reserves and starting QT, quantitative tightening.
D)   has been limited by the zero lower bound problem.E) B) and D)
F) B) and C)

Question 15

Monetary policy is expected to have its greatest impact on

Accepted Answer

A)    xrrx _ { r r }xrr​ 
B)     Ig 	ext { Ig } Ig  
C)   C.
D)   G. E) A) and C)
F) A) and B)

Question 16

Assume the legal reserve ratio is 25 percent and the Fourth National Bank borrows $10,000 from the Federal Reserve Bank in its district. As a result,

Accepted Answer

A)   commercial bank reserves are increased by $10,000.
B)   the supply of money automatically declines by $7,500.
C)   commercial bank reserves are increased by $7,500.
D)   the supply of money is automatically increased by $10,000.E) All of the above
F) B) and C)

Question 17

Accepted Answer

A)   increase the money supply from $75 to $150 billion
B)   increase the money supply from $150 to $225 billion
C)   decrease the money supply from $225 to $150 billion
D)   make no change in the money supplyE) B) and C)
F) A) and D)

Question 18

Assume that the MPC is 0.75 and that the price level is "sticky." If the Federal Reserve increases the money supply and investment spending increases by $8 billion, then aggregate demand is likely to

Accepted Answer

A)   increase by $6 billion.
B)   increase by $8 billion.
C)   increase by $32 billion.
D)   decrease by $8 billion.E) A) and C)
F) A) and B)

Question 19

An increase in the legal reserve ratio

Accepted Answer

A)   increases the money supply by increasing excess reserves and increasing the monetary multiplier.
B)   decreases the money supply by decreasing excess reserves and decreasing the monetary multiplier.
C)   increases the money supply by decreasing excess reserves and decreasing the monetary multiplier.
D)   decreases the money supply by increasing excess reserves and decreasing the monetary multiplier.E) None of the above
F) B) and D)

Question 20

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

Accepted Answer

A)   raising the reserve ratio.
B)   open-market operations.
C)   raising the discount rate.
D)   raising the prime interest rate.E) B) and C)
F) B) and D)

Exam 16: Interest Rates and Monetary Policy

The largest asset item in the Federal Reserve Banks' consolidated balance sheet (as of February 2019) is

Correct Answer
verified

The price of a bond with no expiration date is $1,000, and the ﬁxed annual interest payment is $100. If the price of the bond falls to $800, the interest rate to a new buyer of the bond is now 20 percent.

Correct Answer
verified

An increase in the legal reserve ratio

Correct Answer
verified

According to the Taylor rule, when the economy is at full employment and inﬂation is at its target rate of 2 percent, the Fed should

Correct Answer
verified

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

Correct Answer
verified

Lowering the discount rate has the effect of

Correct Answer
verified

Correct Answer
verified

Restrictive monetary policy since the mortgage debt crisis

Correct Answer
verified

An increase in the money supply will

Correct Answer
verified

Assume that the MPC is 0.75 and that the price level is "sticky." If the Federal Reserve increases the money supply and investment spending increases by $8 billion, then aggregate demand is likely to

Correct Answer
verified

The largest single liability of the Federal Reserve Banks is their outstanding loans to commercial banks.

Correct Answer
verified

When the Fed sells government securities in the open market, its intent is to try to increase aggregate demand.

Correct Answer
verified

Why is the money demand curve downsloping?

Correct Answer
verified
The total money demand curve consists of...
View Answer

According to the Taylor rule, if the inﬂation rate is one percentage point below the target of 2 percent but at full employment, then the Fed should

Correct Answer
verified

Assume the legal reserve ratio is 25 percent and the Fourth National Bank borrows $10,000 from the Federal Reserve Bank in its district. As a result,

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The discount rate is the interest

Correct Answer
verified

Monetary policy is expected to have its greatest impact on

Correct Answer
verified

An increase in the money supply is likely to reduce

Correct Answer
verified

Exam 16: Interest Rates and Monetary Policy

The largest asset item in the Federal Reserve Banks' consolidated balance sheet (as of February 2019) is

Correct AnswerverifiedShow Answer

The price of a bond with no expiration date is $1,000, and the ﬁxed annual interest payment is $100. If the price of the bond falls to $800, the interest rate to a new buyer of the bond is now 20 percent.

Correct AnswerverifiedShow Answer

An increase in the legal reserve ratio

Correct AnswerverifiedShow Answer

According to the Taylor rule, when the economy is at full employment and inﬂation is at its target rate of 2 percent, the Fed should

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Lowering the discount rate has the effect of

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Restrictive monetary policy since the mortgage debt crisis

Correct AnswerverifiedShow Answer

An increase in the money supply will

Correct AnswerverifiedShow Answer

Assume that the MPC is 0.75 and that the price level is "sticky." If the Federal Reserve increases the money supply and investment spending increases by $8 billion, then aggregate demand is likely to

Correct AnswerverifiedShow Answer

The largest single liability of the Federal Reserve Banks is their outstanding loans to commercial banks.

Correct AnswerverifiedShow Answer

When the Fed sells government securities in the open market, its intent is to try to increase aggregate demand.

Correct AnswerverifiedShow Answer

Why is the money demand curve downsloping?

Correct AnswerverifiedThe total money demand curve consists of...View AnswerShow Answer

According to the Taylor rule, if the inﬂation rate is one percentage point below the target of 2 percent but at full employment, then the Fed should

Correct AnswerverifiedShow Answer

Assume the legal reserve ratio is 25 percent and the Fourth National Bank borrows $10,000 from the Federal Reserve Bank in its district. As a result,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The discount rate is the interest

Correct AnswerverifiedShow Answer

Monetary policy is expected to have its greatest impact on

Correct AnswerverifiedShow Answer

An increase in the money supply is likely to reduce

Correct AnswerverifiedShow Answer

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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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 total money demand curve consists of...
View Answer

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Correct Answer
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Correct Answer
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