Question 1

Which is an example of quantitative easing by the Federal Reserve?

Accepted Answer

A)  The Fed purchases $100,000 worth of short-term government bonds. 
B)  The Fed purchases $50,000 worth of long-term government bonds. 
C)  The Fed raises the money multiplier. 
D)  The Fed lowers interest rates. 
A)  The Fed purchases $100,000 worth of short-term government bonds. 
B)  The Fed purchases $50,000 worth of long-term government bonds. 
C)  The Fed raises the money multiplier. 
D)  The Fed lowers interest rates.

Question 2

The extra lending by the Fed during the 2007-2009 recession was done primarily to:

Accepted Answer

A)  lower interest rates. 
B)  restore confidence in the banking system. 
C)  restore liquidity to credit markets. 
D)  increase the money supply. 
A)  lower interest rates. 
B)  restore confidence in the banking system. 
C)  restore liquidity to credit markets. 
D)  increase the money supply.

Question 3

If the Fed wants short-term interest rates to rise, it could:

Accepted Answer

A)  carry out open market purchases. 
B)  engage in a monetary contraction. 
C)  buy T-bills. 
D)  issue a directive for banks to raise interest rates. 
A)  carry out open market purchases. 
B)  engage in a monetary contraction. 
C)  buy T-bills. 
D)  issue a directive for banks to raise interest rates.

Question 4

As the reserve ratio rises:

Accepted Answer

A)  a bank's opportunity cost of holding reserves rises. 
B)  the interest rate on money will fall. 
C)  the money multiplier will decrease. 
D)  more loans will be extended. 
A)  a bank's opportunity cost of holding reserves rises. 
B)  the interest rate on money will fall. 
C)  the money multiplier will decrease. 
D)  more loans will be extended.

Question 5

Describe the structure of the Federal Reserve System and its relationship to the federal government.

Accepted Answer

The Federal Reserve System is the centra

Question 6

Which asset is the LEAST liquid?

Accepted Answer

A)  cash 
B)  savings deposits 
C)  checkable deposits 
D)  bank reserves 
A)  cash 
B)  savings deposits 
C)  checkable deposits 
D)  bank reserves

Question 7

What is the central bank in the United States, what is its primary function, and how does it carry out this function?

Accepted Answer

The U. S. central bank is the Federal Re

Question 8

In what ways is the Federal Reserve System independent of the political process in the United States?

Accepted Answer

Although members of the Board of Governo

Question 9

Suppose the Fed has increased the discount rate. With the aid of an AD-AS diagram, explain how this monetary policy action will affect real growth and inflation in the short run and the long run.

Accepted Answer

@#IMG-DLM& In the diagram, the economy is initiall

Question 10

The Federal Reserve has the power to create money.

Accepted Answer

A) True 
 B)False

Question 11

When the Fed buys bonds, it increases the demand for bonds, which pushes:

Accepted Answer

A)  up the price of bonds, thus raising the interest rate. 
B)  up the price of bonds, thus lowering the interest rate. 
C)  down the price of bonds, thus raising the interest rate. 
D)  down the price of bonds, thus lowering the interest rate. 
A)  up the price of bonds, thus raising the interest rate. 
B)  up the price of bonds, thus lowering the interest rate. 
C)  down the price of bonds, thus raising the interest rate. 
D)  down the price of bonds, thus lowering the interest rate.

Question 12

The major tools that the Fed uses to control the money supply include:

Accepted Answer

A)  controlling the amount of government spending. 
B)  discount rate lending. 
C)  open market operations. 
D)  discount rate lending and open market operations. 
A)  controlling the amount of government spending. 
B)  discount rate lending. 
C)  open market operations. 
D)  discount rate lending and open market operations.

Question 13

The monetary base consists of currency:

Accepted Answer

A)  plus checkable deposits. 
B)  plus checkable and savings deposits. 
C)  plus total reserves held at the Fed. 
D)  with the inclusion of coins. 
A)  plus checkable deposits. 
B)  plus checkable and savings deposits. 
C)  plus total reserves held at the Fed. 
D)  with the inclusion of coins.

Question 14

Required reserves are the percent of:

Accepted Answer

A)  reserves that banks are required to return to customers. 
B)  loans that banks are required to hold as reserves. 
C)  deposits banks are required to hold as reserves. 
D)  loans the Fed is required to make to banks. 
A)  reserves that banks are required to return to customers. 
B)  loans that banks are required to hold as reserves. 
C)  deposits banks are required to hold as reserves. 
D)  loans the Fed is required to make to banks.

Question 15

Quantitative easing occurs when the:

Accepted Answer

A)  Fed sells long-term securities. 
B)  Fed buys long-term securities. 
C)  government lowers income and other taxes. 
D)  government raises income and other taxes. 
A)  Fed sells long-term securities. 
B)  Fed buys long-term securities. 
C)  government lowers income and other taxes. 
D)  government raises income and other taxes.

Question 16

Ben Bernanke was _____ during the financial crisis of 2008.

Accepted Answer

A)  Secretary of the U.S. Treasury 
B)  Chairman of the President's Council of Economic Advisors 
C)  Vice President of the United States 
D)  Chairman of the Federal Reserve 
A)  Secretary of the U.S. Treasury 
B)  Chairman of the President's Council of Economic Advisors 
C)  Vice President of the United States 
D)  Chairman of the Federal Reserve

Question 17

The Term Auction Facility involves the Federal Reserve:

Accepted Answer

A)  buying and selling government bonds. 
B)  lending reserves directly to banks. 
C)  providing reserves to banks through an auction. 
D)  competing with investment banks for Treasury securities. 
A)  buying and selling government bonds. 
B)  lending reserves directly to banks. 
C)  providing reserves to banks through an auction. 
D)  competing with investment banks for Treasury securities.

Question 18

Why do banks hold reserves?

Accepted Answer

Banks hold some reserves because they ar

Question 19

Which is NOT one of the three major tools the Fed uses to control the money supply?

Accepted Answer

A)  discount rate lending and the Term Auction Facility 
B)  printing paper money 
C)  open market operations 
D)  paying interest on reserves held by banks at the Fed 
A)  discount rate lending and the Term Auction Facility 
B)  printing paper money 
C)  open market operations 
D)  paying interest on reserves held by banks at the Fed

Question 20

When the Fed buys short-term Treasury securities, short-term interest rates:

Accepted Answer

A)  fall. 
B)  rise. 
C)  could rise or fall. 
D)  stay the same. 
A)  fall. 
B)  rise. 
C)  could rise or fall. 
D)  stay the same.

Exam 15: The Federal Reserve System and Open Market Operations

Which is an example of quantitative easing by the Federal Reserve?

The extra lending by the Fed during the 2007-2009 recession was done primarily to:

If the Fed wants short-term interest rates to rise, it could:

As the reserve ratio rises:

Describe the structure of the Federal Reserve System and its relationship to the federal government.

Which asset is the LEAST liquid?

What is the central bank in the United States, what is its primary function, and how does it carry out this function?

In what ways is the Federal Reserve System independent of the political process in the United States?

Suppose the Fed has increased the discount rate. With the aid of an AD-AS diagram, explain how this monetary policy action will affect real growth and inflation in the short run and the long run.

The Federal Reserve has the power to create money.

When the Fed buys bonds, it increases the demand for bonds, which pushes:

The major tools that the Fed uses to control the money supply include:

The monetary base consists of currency:

Required reserves are the percent of:

Quantitative easing occurs when the:

Ben Bernanke was _____ during the financial crisis of 2008.

The Term Auction Facility involves the Federal Reserve:

Why do banks hold reserves?

Which is NOT one of the three major tools the Fed uses to control the money supply?

When the Fed buys short-term Treasury securities, short-term interest rates:

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