Question 1

To increase the federal funds rate,the Fed can:

Accepted Answer

A)   buy government bonds from the public.
B)   decrease the discount rate.
C)   decrease the prime interest rate.
D)   sell government bonds to commercial banks.E) B) and D)
F) All of the above

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) All of the above
F) B) and D)

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

The Fed's initial step in pursuing restrictive monetary policy using the federal funds rate is to:

Accepted Answer

A)   announce a higher target.
B)   sell bonds to banks and the public.
C)   raise the discount rate.
D)   raise the prime interest rate.E) A) and B)
F) C) and D) A

Question 5

Reserves must be deposited in the Federal Reserve Banks by:

Accepted Answer

A)   only commercial banks that are members of the Federal Reserve System.
B)   all depository institutions,that is,all commercial banks and thrift institutions.
C)   state-chartered commercial banks only.
D)   federally chartered commercial banks only.E) A) and B)
F) A) and C)

Question 6

Answer the question on the basis of the following consolidated balance sheet of the commercial banking system.Assume that the reserve requirement is 20 percent.All figures are in billions and each question should be answered independently of changes specified in all preceding ones.   Assets‾ Reserves Securities Loans Property$200300500400 Liabilities & Net Worth ‾ Checkable Deposits Stock Shares$1,100400\begin{array}{c}\begin{array}{lll}\quad\quad\quad\underline{	ext { Assets}}\	ext { Reserves}\	ext { Securities}\	ext { Loans}\	ext { Property} \end{array}\begin{array}{l}\\$ 200 \300 \500 \400 \end{array}\begin{array}{lll}\quad\quad \underline{	ext { Liabilities \& Net Worth }}\	ext { Checkable Deposits}\	ext {  Stock Shares}\\\\end{array}\begin{array}{lll}\\$1,100\400\\\\end{array}\end{array} Assets​ Reserves Securities Loans Property​$200300500400​ Liabilities & Net Worth ​ Checkable Deposits Stock Shares​$1,100400​​

Refer to the given data.The monetary multiplier for the commercial banking system is:

Accepted Answer

A)   5.
B)   10.
C)   15.
D)   20. E) None of the above
F) A) and B)

Question 7

A decrease in the reserve ratio increases the:

Accepted Answer

A)   amount of actual reserves in the banking system.
B)   amount of excess reserves in the banking system.
C)   number of government securities held by the Federal Reserve Banks.
D)   ratio of coins to paper currency in the economy.E) C) and D)
F) A) and B)

Question 8

If the Fed were to set policy according to the Taylor rule,then if real GDP falls by 2 percent below potential GDP,the Fed should:

Accepted Answer

A)   raise the real federal funds rate by 1 percentage point.
B)   reduce the real federal funds rate by 1 percentage point.
C)   raise the inflation rate by 1 percentage point.
D)   change the real federal funds rate until inflation hits the target rate of 4 percent.E) B) and D)
F) A) and B)

Question 9

Upon which of the following industries is a restrictive monetary policy likely to be most effective?

Accepted Answer

A)   Furniture.
B)   Clothing.
C)   Food processing.
D)   Residential construction.E) B) and C)
F) All of the above

Question 10

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) A) and B)
F) A) and C)

Question 11

If the amount of money demanded exceeds the amount supplied,the:

Accepted Answer

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

Question 12

The Federal Reserve Banks sell government securities to the public.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 D)

Question 13

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 C

Question 14

Which of the following is correct?

Accepted Answer

A)   The asset demand for money is downsloping because the opportunity cost of holding money declines as the interest rate rises.
B)   The asset demand for money is downsloping because the opportunity cost of holding money increases as the interest rate rises.
C)   The transactions demand for money is downsloping because the opportunity cost of holding money varies inversely with the interest rate.
D)   The asset demand for money is downsloping because bond prices and the interest rate are directly related.E) C) and D)
F) B) and D)

Question 15

Answer the question on the basis of the information in the following table.  Money Supply‾$400400400400400 Money  Demanc ‾$600500400300200 Interest Rate ‾2%3456Investment (at Interest Rate Shown) ‾$700600500300200\begin{array}{c}\begin{array}{c}\	ext {Money}\\underline{	ext { Supply}}\ \$ 400 \400\400\400\400\end{array}\begin{array}{c}\	ext { Money }\\underline{	ext { Demanc }} \ \$ 600 \500 \400 \300 \200\end{array}\begin{array}{c}\	ext { Interest}\\underline{	ext { Rate }} \ 2 \% \3 \4 \5 \6\end{array}\begin{array}{c}	ext {Investment }\	ext {(at Interest}\\underline{	ext { Rate Shown) }}\\$ 700 \600 \500 \300 \200\end{array}\end{array}Money Supply​$400400400400400​ Money  Demanc ​$600500400300200​ Interest Rate ​2%3456​Investment (at Interest Rate Shown) ​$700600500300200​​ 
 Refer to the table.The equilibrium interest rate in this economy is:

Accepted Answer

A)   3 percent.
B)   4 percent.
C)   5 percent.
D)   6 percent. E) All of the above
F) B) and D)

Question 16

Open-market operations refer to:

Accepted Answer

A)   purchases of stocks in the New York Stock Exchange.
B)   the purchase or sale of government securities by the Fed.
C)   central bank lending to commercial banks.
D)   the specifying of loan maximums on stock purchases.E) B) and D)
F) C) and D)

Question 17

Which of the following is a concern about the consequences of ZIRP,QE,and Operation Twist?

Accepted Answer

A)   Increased government borrowing to fund deficit spending.
B)   Increased taxes to pay for the monetary stimulus.
C)   The stimulus to aggregate demand would be too sudden and result in runaway inflation.
D)   The weakening of the U.S.dollar would worsen the U.S.trade balance.E) B) and C)
F) A) and D)

Question 18

If the Federal Reserve System buys government securities from commercial banks and the public:

Accepted Answer

A)   commercial bank reserves will decline.
B)   commercial bank reserves will be unaffected.
C)   it will be easier to obtain loans at commercial banks.
D)   the money supply will contract.E) C) and D)
F) B) and C) C

Question 19

Which of the following best describes the cause-effect chain of a restrictive monetary policy?

Accepted Answer

A)   A decrease in the money supply will lower the interest rate,increase investment spending,and increase aggregate demand and GDP.
B)   A decrease in the money supply will raise the interest rate,decrease investment spending,and decrease aggregate demand and GDP.
C)   An increase in the money supply will raise the interest rate,decrease investment spending,and decrease aggregate demand and GDP.
D)   An increase in the money supply will lower the interest rate,decrease investment spending,and increase aggregate demand and GDP.E) A) and B)
F) A) and C)

Question 20

The liquidity trap refers to the situation where:

Accepted Answer

A)   the Fed adds excess reserves to the banking system,but it has minimal positive effect on lending,investment,or aggregate demand.
B)   excessive consumer debt limits the growth in consumer spending necessary to bring the economy out of recession.
C)   the public debt is so large that federal borrowing drives up interest rates and discourages private sector spending.
D)   a financial crisis causes a run on banks and the elimination of billions in excess reserves.E) B) and C)
F) A) and D)

Exam 35: Interest Rates and Monetary Policy

To increase the federal funds rate,the Fed can:

Correct Answer
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The Federal Reserve System regulates the money supply primarily by:

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

Correct Answer
verified

The Fed's initial step in pursuing restrictive monetary policy using the federal funds rate is to:

Correct Answer
verified
A

Reserves must be deposited in the Federal Reserve Banks by:

Correct Answer
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Correct Answer
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A decrease in the reserve ratio increases the:

Correct Answer
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If the Fed were to set policy according to the Taylor rule,then if real GDP falls by 2 percent below potential GDP,the Fed should:

Correct Answer
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Upon which of the following industries is a restrictive monetary policy likely to be most effective?

Correct Answer
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The purpose of an expansionary monetary policy is to shift the:

Correct Answer
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If the amount of money demanded exceeds the amount supplied,the:

Correct Answer
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The Federal Reserve Banks sell government securities to the public.As a result,the checkable deposits:

Correct Answer
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In the United States,monetary policy is the responsibility of the:

Correct Answer
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C

Which of the following is correct?

Correct Answer
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Correct Answer
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Open-market operations refer to:

Correct Answer
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Which of the following is a concern about the consequences of ZIRP,QE,and Operation Twist?

Correct Answer
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If the Federal Reserve System buys government securities from commercial banks and the public:

Correct Answer
verified
C

Which of the following best describes the cause-effect chain of a restrictive monetary policy?

Correct Answer
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The liquidity trap refers to the situation where:

Correct Answer
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Exam 35: Interest Rates and Monetary Policy

To increase the federal funds rate,the Fed can:

Correct AnswerverifiedShow Answer

The Federal Reserve System regulates the money supply primarily by:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The Fed's initial step in pursuing restrictive monetary policy using the federal funds rate is to:

Correct AnswerverifiedA

Reserves must be deposited in the Federal Reserve Banks by:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A decrease in the reserve ratio increases the:

Correct AnswerverifiedShow Answer

If the Fed were to set policy according to the Taylor rule,then if real GDP falls by 2 percent below potential GDP,the Fed should:

Correct AnswerverifiedShow Answer

Upon which of the following industries is a restrictive monetary policy likely to be most effective?

Correct AnswerverifiedShow Answer

The purpose of an expansionary monetary policy is to shift the:

Correct AnswerverifiedShow Answer

If the amount of money demanded exceeds the amount supplied,the:

Correct AnswerverifiedShow Answer

The Federal Reserve Banks sell government securities to the public.As a result,the checkable deposits:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedC

Which of the following is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Open-market operations refer to:

Correct AnswerverifiedShow Answer

Which of the following is a concern about the consequences of ZIRP,QE,and Operation Twist?

Correct AnswerverifiedShow Answer

If the Federal Reserve System buys government securities from commercial banks and the public:

Correct AnswerverifiedC

Which of the following best describes the cause-effect chain of a restrictive monetary policy?

Correct AnswerverifiedShow Answer

The liquidity trap refers to the situation where:

Correct AnswerverifiedShow Answer

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A

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C

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C

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