Question 1

The Fed's founders viewed the Fed as a means of maintaining the money supply during economic contractions and as a lender of last resort.

Accepted Answer

A) True 
 B)False

Question 2

If the Fed decides to buy T-bills,it increases the demand for T-bills.How will this affect the price of T-bills and the interest rate?

Accepted Answer

A)  T-bill prices fall and interest rates fall. 
B)  T-bill prices rise and interest rates rise. 
C)  T-bill prices rise and interest rates fall. 
D)  T-bill prices fall and interest rates rise. 
A)  T-bill prices fall and interest rates fall. 
B)  T-bill prices rise and interest rates rise. 
C)  T-bill prices rise and interest rates fall. 
D)  T-bill prices fall and interest rates rise.

Question 3

Why does the Fed have imperfect control over the money supply?

Accepted Answer

A)  Because the Fed does not know how much reserves will change when it buys or sells securities. 
B)  Because of unpredictable changes in the public's desire to hold cash and banks' desires to hold reserves. 
C)  Because of unpredictable changes in reserve requirements. 
D)  Because of the secrecy of FOMC meetings,which lead to policy surprises. 
A)  Because the Fed does not know how much reserves will change when it buys or sells securities. 
B)  Because of unpredictable changes in the public's desire to hold cash and banks' desires to hold reserves. 
C)  Because of unpredictable changes in reserve requirements. 
D)  Because of the secrecy of FOMC meetings,which lead to policy surprises.

Question 4

One of the principal ways in which Congress intended the Fed to provide insurance against financial panics was to act as a "lender of first resort."

Accepted Answer

A) True 
 B)False

Question 5

The Federal Reserve System is a(n)

Accepted Answer

A)  corporation owned by its member banks. 
B)  independent branch of the U.S.government. 
C)  corporation owned by the government and member banks. 
D)  agency created by presidential executive order. 
A)  corporation owned by its member banks. 
B)  independent branch of the U.S.government. 
C)  corporation owned by the government and member banks. 
D)  agency created by presidential executive order.

Question 6

The money supply can be increased by decreasing the required reserve ratio.

Accepted Answer

A) True 
 B)False

Question 7

The demand for reserves depends on income and the price level.

Accepted Answer

A) True 
 B)False

Question 8

If the price level rises,what will happen to the demand for reserves?

Accepted Answer

A)  It will shift outward. 
B)  It will shift inward. 
C)  It will remain unchanged. 
D)  It depends on what happens to interest rates. 
A)  It will shift outward. 
B)  It will shift inward. 
C)  It will remain unchanged. 
D)  It depends on what happens to interest rates.

Question 9

The central bank of the United States is known as the

Accepted Answer

A)  Internal Revenue Service. 
B)  Federal Reserve System. 
C)  Federal Deposit Insurance Corporation. 
D)  Department of Commerce. 
A)  Internal Revenue Service. 
B)  Federal Reserve System. 
C)  Federal Deposit Insurance Corporation. 
D)  Department of Commerce.

Question 10

Which of the following were not actions taken by the Federal Reserve in order to stimulate the economy during the recession of 2007-2009?

Accepted Answer

A)  decreasing the discount rate 
B)  suspending trading on the major stock exchanges 
C)  massive lending to banks 
D)  open market purchases of assets other than Treasury bills 
A)  decreasing the discount rate 
B)  suspending trading on the major stock exchanges 
C)  massive lending to banks 
D)  open market purchases of assets other than Treasury bills

Question 11

An increase in the average price level will lead to a decrease in the demand for reserves.

Accepted Answer

A) True 
 B)False

Question 12

Why is the Chair of the Fed Reserve considered by many to be the most powerful person in the economic world?

Accepted Answer

People in financial markets around the w

Question 13

If the Fed reduces the required reserve ratio,how will this affect excess reserves and the money supply?

Accepted Answer

A)  Both will increase. 
B)  Excess reserves increase and the money supply decreases. 
C)  Both will decrease. 
D)  Excess reserves decrease and the money supply increases. 
A)  Both will increase. 
B)  Excess reserves increase and the money supply decreases. 
C)  Both will decrease. 
D)  Excess reserves decrease and the money supply increases.

Question 14

If the Fed decides to sell T-bills,it increases the supply of T-bills.How will this affect the price of T-bills and the interest rate?

Accepted Answer

A)  T-bill prices fall and interest rates fall. 
B)  T-bill prices rise and interest rates rise. 
C)  T-bill prices rise and interest rates fall. 
D)  T-bill prices fall and interest rates rise. 
A)  T-bill prices fall and interest rates fall. 
B)  T-bill prices rise and interest rates rise. 
C)  T-bill prices rise and interest rates fall. 
D)  T-bill prices fall and interest rates rise.

Question 15

The Fed conducts an open market purchase of Treasury bills of $10 million.If the required reserve ratio is 0.10,what change in the money supply can be expected using the oversimplified money multiplier?

Accepted Answer

A)  $100 million 
B)  $10 million 
C)  0 
D)  −$10 million 
E)  −$100 million 
A)  $100 million 
B)  $10 million 
C)  0 
D)  −$10 million 
E)  −$100 million

Question 16

Interest rates declined in 2007.What happened to bond prices during this time?

Accepted Answer

A)  They were unchanged. 
B)  They increased. 
C)  They decreased. 
D)  Not enough data to answer. 
A)  They were unchanged. 
B)  They increased. 
C)  They decreased. 
D)  Not enough data to answer.

Question 17

The quantity of reserves supplied increases as interest rates rise because

Accepted Answer

A)  the Treasury borrows more at higher interest rates. 
B)  consumers don't want to borrow as much so more money is left in banks. 
C)  as interest rates rise,banks fear losses so they decrease lending. 
D)  banks find it more profitable to loan out excess reserves to other banks. 
A)  the Treasury borrows more at higher interest rates. 
B)  consumers don't want to borrow as much so more money is left in banks. 
C)  as interest rates rise,banks fear losses so they decrease lending. 
D)  banks find it more profitable to loan out excess reserves to other banks.

Question 18

If the FOMC orders a purchase of government securities from member banks,where does the FOMC get the money to pay for the securities?

Accepted Answer

A)  It creates money to pay for the securities by adding the purchase amount to the banks' reserves. 
B)  It pays for the securities with new Federal Reserve notes. 
C)  It borrows the necessary funds from the Treasury. 
D)  It auctions off part of the securities it already owns. 
A)  It creates money to pay for the securities by adding the purchase amount to the banks' reserves. 
B)  It pays for the securities with new Federal Reserve notes. 
C)  It borrows the necessary funds from the Treasury. 
D)  It auctions off part of the securities it already owns.

Question 19

The Federal Open Market Committee meets

Accepted Answer

A)  once a month. 
B)  eight times a year. 
C)  four times a year. 
D)  semi-annually. 
A)  once a month. 
B)  eight times a year. 
C)  four times a year. 
D)  semi-annually.

Question 20

After the transaction in Table 13-1 is completed,what happens to actual reserves,required reserves,and excess reserves? Assume the required reserve ratio is 25 percent.

Accepted Answer

A)  Actual reserves increase by $10 million,required reserves increase $2.5 million,and excess reserves increase by $7.5 million. 
B)  Actual reserves decrease by $10 million,required reserves decrease $2.5 million,and excess reserves decrease by $7.5 million. 
C)  Actual reserves increase by $10 million,required reserves are unchanged,and excess reserves increase by $10 million. 
D)  Actual reserves decrease by $10 million,required reserves decrease by $10 million,and excess reserves are unchanged. 
A)  Actual reserves increase by $10 million,required reserves increase $2.5 million,and excess reserves increase by $7.5 million. 
B)  Actual reserves decrease by $10 million,required reserves decrease $2.5 million,and excess reserves decrease by $7.5 million. 
C)  Actual reserves increase by $10 million,required reserves are unchanged,and excess reserves increase by $10 million. 
D)  Actual reserves decrease by $10 million,required reserves decrease by $10 million,and excess reserves are unchanged.

The Fed's founders viewed the Fed as a means of maintaining the money supply during economic contractions and as a lender of last resort.

If the Fed decides to buy T-bills,it increases the demand for T-bills.How will this affect the price of T-bills and the interest rate?

Why does the Fed have imperfect control over the money supply?

One of the principal ways in which Congress intended the Fed to provide insurance against financial panics was to act as a "lender of first resort."

The Federal Reserve System is a(n)

The money supply can be increased by decreasing the required reserve ratio.

The demand for reserves depends on income and the price level.

If the price level rises,what will happen to the demand for reserves?

The central bank of the United States is known as the

Which of the following were not actions taken by the Federal Reserve in order to stimulate the economy during the recession of 2007-2009?

An increase in the average price level will lead to a decrease in the demand for reserves.

Why is the Chair of the Fed Reserve considered by many to be the most powerful person in the economic world?

If the Fed reduces the required reserve ratio,how will this affect excess reserves and the money supply?

If the Fed decides to sell T-bills,it increases the supply of T-bills.How will this affect the price of T-bills and the interest rate?

The Fed conducts an open market purchase of Treasury bills of $10 million.If the required reserve ratio is 0.10,what change in the money supply can be expected using the oversimplified money multiplier?

Interest rates declined in 2007.What happened to bond prices during this time?

The quantity of reserves supplied increases as interest rates rise because

If the FOMC orders a purchase of government securities from member banks,where does the FOMC get the money to pay for the securities?

The Federal Open Market Committee meets

After the transaction in Table 13-1 is completed,what happens to actual reserves,required reserves,and excess reserves? Assume the required reserve ratio is 25 percent.

What Is Economics

The Economy Myth and Reality

The Fundamental Economic Problem Scarcity and Choice

Supply and Demand An Initial Look

An Introduction To Macroeconomics

The Goals Of Macroeconomic Policy

Economic Growth Theory And Policy

Aggregate Demand and The Powerful Consumer

Demand Side Equilibrium Unemployment Or Inflation

Bringing In The Supply Side Unemployment and Inflation

Managing Aggregate Demand Fiscal Policy

Money and The Banking System

The Financial Crisis and The Great Recession

The Debate Over Monetary and Fiscal Policy

Budget Deficits In The Short and Long Run

The Trade Off Between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System Order Or Disorder

Exchange Rates and The Macroeconomy

Filters

Exam 13: Monetary Policy Conventional and Unconventional

The Fed's founders viewed the Fed as a means of maintaining the money supply during economic contractions and as a lender of last resort.

If the Fed decides to buy T-bills,it increases the demand for T-bills.How will this affect the price of T-bills and the interest rate?

Why does the Fed have imperfect control over the money supply?

One of the principal ways in which Congress intended the Fed to provide insurance against financial panics was to act as a "lender of first resort."

The Federal Reserve System is a(n)

The money supply can be increased by decreasing the required reserve ratio.

The demand for reserves depends on income and the price level.

If the price level rises,what will happen to the demand for reserves?

The central bank of the United States is known as the

Which of the following were not actions taken by the Federal Reserve in order to stimulate the economy during the recession of 2007-2009?

An increase in the average price level will lead to a decrease in the demand for reserves.

Why is the Chair of the Fed Reserve considered by many to be the most powerful person in the economic world?

If the Fed reduces the required reserve ratio,how will this affect excess reserves and the money supply?

If the Fed decides to sell T-bills,it increases the supply of T-bills.How will this affect the price of T-bills and the interest rate?

The Fed conducts an open market purchase of Treasury bills of $10 million.If the required reserve ratio is 0.10,what change in the money supply can be expected using the oversimplified money multiplier?

Interest rates declined in 2007.What happened to bond prices during this time?

The quantity of reserves supplied increases as interest rates rise because

If the FOMC orders a purchase of government securities from member banks,where does the FOMC get the money to pay for the securities?

The Federal Open Market Committee meets

After the transaction in Table 13-1 is completed,what happens to actual reserves,required reserves,and excess reserves? Assume the required reserve ratio is 25 percent.

What Is Economics

The Economy Myth and Reality

The Fundamental Economic Problem Scarcity and Choice

Supply and Demand An Initial Look

An Introduction To Macroeconomics

The Goals Of Macroeconomic Policy

Economic Growth Theory And Policy

Aggregate Demand and The Powerful Consumer

Demand Side Equilibrium Unemployment Or Inflation

Bringing In The Supply Side Unemployment and Inflation

Managing Aggregate Demand Fiscal Policy

Money and The Banking System

The Financial Crisis and The Great Recession

The Debate Over Monetary and Fiscal Policy

Budget Deficits In The Short and Long Run

The Trade Off Between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System Order Or Disorder

Exchange Rates and The Macroeconomy

Filters