Question 1

Bank depositors will not lose their deposits in a banking panic if:

Accepted Answer

A) there is fractional reserve banking. 
B) there is 100% reserve banking. 
C) there is a central bank. 
D) the actual reserve/deposit ratio equals the desired reserve/deposit ratio. 
A) there is fractional reserve banking. 
B) there is 100% reserve banking. 
C) there is a central bank. 
D) the actual reserve/deposit ratio equals the desired reserve/deposit ratio.

Question 2

Lower nominal interest rates ______ the amount of money demanded and a lower price level ______ the amount of money demanded.

Accepted Answer

A) increase; increases 
B) increase; decreases 
C) increase; does not change 
D) decrease; decreases 
A) increase; increases 
B) increase; decreases 
C) increase; does not change 
D) decrease; decreases

Question 3

To close a recessionary gap, the Federal Reserve must ______ real interest rates by ______ the money supply.

Accepted Answer

A) increase; increasing 
B) increase; decreasing 
C) decrease; decreasing 
D) decrease; increasing 
A) increase; increasing 
B) increase; decreasing 
C) decrease; decreasing 
D) decrease; increasing

Question 4

The equilibrium quantity of money in circulation is determined by:

Accepted Answer

A) the interaction of an upward-sloping money supply curve and a downward-sloping money demand curve. 
B) the nominal interest rate, real income, and the price level. 
C) the Federal Reserve. 
D) the decentralized interactions between households and businesses. 
A) the interaction of an upward-sloping money supply curve and a downward-sloping money demand curve. 
B) the nominal interest rate, real income, and the price level. 
C) the Federal Reserve. 
D) the decentralized interactions between households and businesses.

Question 5

A banking panic is an episode in which:

Accepted Answer

A) depositors, spurred by news or rumors of possible bankruptcy of one bank, rush to withdraw deposits from the banking system. 
B) commercial banks, fearing Federal Reserve sanctions, unwillingly participate in open-market operations. 
C) commercial banks, concerned about high interest rates, rush to borrow at the Federal Reserve discount rate. 
D) depositors, afraid of increasing interest rates, attempt to engage in discount-window borrowing at the Federal Reserve. 
A) depositors, spurred by news or rumors of possible bankruptcy of one bank, rush to withdraw deposits from the banking system. 
B) commercial banks, fearing Federal Reserve sanctions, unwillingly participate in open-market operations. 
C) commercial banks, concerned about high interest rates, rush to borrow at the Federal Reserve discount rate. 
D) depositors, afraid of increasing interest rates, attempt to engage in discount-window borrowing at the Federal Reserve.

Question 6

The U.S.Congress instituted a system of deposit insurance for banks in:

Accepted Answer

A) 1789. 
B) 1865. 
C) 1913. 
D) 1934. 
A) 1789. 
B) 1865. 
C) 1913. 
D) 1934.

Question 7

Three macroeconomic factors that affect the demand for money are:

Accepted Answer

A) the nominal interest rate, real income, and the price level. 
B) the nominal interest rate, capital, and labor. 
C) globalization, skill-biased technological change, and labor mobility. 
D) capital, labor, and technology. 
A) the nominal interest rate, real income, and the price level. 
B) the nominal interest rate, capital, and labor. 
C) globalization, skill-biased technological change, and labor mobility. 
D) capital, labor, and technology.

Question 8

A higher real interest rate ______ investment spending and ______ consumption spending.

Accepted Answer

A) increases; increases 
B) increases; decreases 
C) decreases; decreases 
D) decreases; increases 
A) increases; increases 
B) increases; decreases 
C) decreases; decreases 
D) decreases; increases

Question 9

In a certain economy, the components of planned spending are given by: C = 500 + 0.8(Y - T) - 300r
Ip = 200 - 400r
G = 200
NX = 10
T = 150
Given the information about the economy above, which expression below gives autonomous expenditures?

Accepted Answer

A) 0.8Y 
B) [790 - 700r] 
C) [910 - 700r] 
D) [760 - 700r] 
A) 0.8Y 
B) [790 - 700r] 
C) [910 - 700r] 
D) [760 - 700r]

Question 10

If the Federal Reserve wants to decrease the money supply, it should:

Accepted Answer

A) decrease reserve requirements. 
B) decrease the discount rate. 
C) decrease the interest that it pays on reserves. 
D) conduct open-market sales. 
A) decrease reserve requirements. 
B) decrease the discount rate. 
C) decrease the interest that it pays on reserves. 
D) conduct open-market sales.

Question 11

The Federal Reserve can increase the money supply by:

Accepted Answer

A) reducing reserve requirements. 
B) increasing the discount rate. 
C) eliminating deposit insurance. 
D) conducting open market sales. 
A) reducing reserve requirements. 
B) increasing the discount rate. 
C) eliminating deposit insurance. 
D) conducting open market sales.

Question 12

One problem with using monetary policy to address "bubbles" in asset markets is that:

Accepted Answer

A) doing so presupposes that the Federal Reserve is better than financial-market professionals at identifying bubbles. 
B) monetary policy is well-suited for addressing the problem of inappropriately high asset prices. 
C) reducing the real interest rate to deal with the bubble could lead to inflation. 
D) the Federal Reserve is not interested in stabilizing output. 
A) doing so presupposes that the Federal Reserve is better than financial-market professionals at identifying bubbles. 
B) monetary policy is well-suited for addressing the problem of inappropriately high asset prices. 
C) reducing the real interest rate to deal with the bubble could lead to inflation. 
D) the Federal Reserve is not interested in stabilizing output.

Question 13

In a certain economy, the components of planned spending are given by: C = 500 + 0.8(Y - T) - 300r
Ip = 200 - 400r
G = 200
NX = 10
T = 150
Given the information about the economy above, what would be the impact on induced expenditures of a one-percentage-point increase in the real interest rate?

Accepted Answer

A) Induced expenditures would increase by 35 units. 
B) Induced expenditures would not change. 
C) Induced expenditures would decrease by 35 units. 
D) Induced expenditures would decrease by 7 units. 
A) Induced expenditures would increase by 35 units. 
B) Induced expenditures would not change. 
C) Induced expenditures would decrease by 35 units. 
D) Induced expenditures would decrease by 7 units.

Question 14

The interest rate the Federal Reserve charges commercial banks to borrow reserves is called the ______ rate.

Accepted Answer

A) Fed funds 
B) prime 
C) discount 
D) Federal 
A) Fed funds 
B) prime 
C) discount 
D) Federal

Question 15

Refer to the figure below.Based on the diagram, if potential output equals 5,000 and the real interest rate is 1%, then there is ______ gap and the Fed must ______ the real interest rate so that output will equal potential output.

Accepted Answer

A) a recessionary; raise 
B) a recessionary; reduce 
C) an expansionary; reduce 
D) an expansionary; raise 
A) a recessionary; raise 
B) a recessionary; reduce 
C) an expansionary; reduce 
D) an expansionary; raise

Question 16

Changes in consumption and planned investment spending due to changes in the real interest rate alter:

Accepted Answer

A) the money supply. 
B) money demand. 
C) autonomous expenditures. 
D) induced expenditures. 
A) the money supply. 
B) money demand. 
C) autonomous expenditures. 
D) induced expenditures.

Question 17

Refer to the figure below.Based on the diagram, the nominal interest rate equals ______ and the money supply equals ____.

Accepted Answer

A) 7%; 300 
B) 1%; 500 
C) 5%; 500 
D) 3%; 700 
A) 7%; 300 
B) 1%; 500 
C) 5%; 500 
D) 3%; 700

Question 18

When Argentines increase their savings in U.S.dollars, the U.S.money:

Accepted Answer

A) supply curve shifts left. 
B) supply curve shifts right. 
C) demand curve shifts right. 
D) demand curve shifts left. 
A) supply curve shifts left. 
B) supply curve shifts right. 
C) demand curve shifts right. 
D) demand curve shifts left.

Question 19

Lower real income ______ the demand for money and a lower price level ______ the demand for money.

Accepted Answer

A) increases; increases 
B) increases; decreases 
C) increases; does not change 
D) decreases; decreases 
A) increases; increases 
B) increases; decreases 
C) increases; does not change 
D) decreases; decreases

Question 20

Refer to the figure below.If the Federal Reserve wants to raise the interest rate to 7%, it must ______ the money supply to _____.

Accepted Answer

A) increase; 300 
B) decrease; 300 
C) increase; 900 
D) increase; 700 
A) increase; 300 
B) decrease; 300 
C) increase; 900 
D) increase; 700

Bank depositors will not lose their deposits in a banking panic if:

Lower nominal interest rates the amount of money demanded and a lower price level the amount of money demanded.

To close a recessionary gap, the Federal Reserve must real interest rates by the money supply.

The equilibrium quantity of money in circulation is determined by:

A banking panic is an episode in which:

The U.S.Congress instituted a system of deposit insurance for banks in:

Three macroeconomic factors that affect the demand for money are:

A higher real interest rate investment spending and consumption spending.

In a certain economy, the components of planned spending are given by: C = 500 + 0.8(Y - T) - 300r Ip = 200 - 400r G = 200 NX = 10 T = 150 Given the information about the economy above, which expression below gives autonomous expenditures?

If the Federal Reserve wants to decrease the money supply, it should:

The Federal Reserve can increase the money supply by:

One problem with using monetary policy to address "bubbles" in asset markets is that:

In a certain economy, the components of planned spending are given by: C = 500 + 0.8(Y - T) - 300r Ip = 200 - 400r G = 200 NX = 10 T = 150 Given the information about the economy above, what would be the impact on induced expenditures of a one-percentage-point increase in the real interest rate?

The interest rate the Federal Reserve charges commercial banks to borrow reserves is called the ______ rate.

Refer to the figure below.Based on the diagram, if potential output equals 5,000 and the real interest rate is 1%, then there is gap and the Fed must the real interest rate so that output will equal potential output.

Changes in consumption and planned investment spending due to changes in the real interest rate alter:

Refer to the figure below.Based on the diagram, the nominal interest rate equals __ and the money supply equals .

When Argentines increase their savings in U.S.dollars, the U.S.money:

Lower real income the demand for money and a lower price level the demand for money.

Refer to the figure below.If the Federal Reserve wants to raise the interest rate to 7%, it must __ the money supply to _.

Thinking Like an Economist

Comparative Advantage

Spending, Income, and GDP

Inflation and the Price Level

Wages and Unemployment

Economic Growth

Saving, Capital Formation, and Financial Markets

Money, Prices, and the Financial System

Short-Term Economic Fluctuations

Spending, Output, and Fiscal Policy

Aggregate Demand, Aggregate Supply, and Business Cycles

Macroeconomic Policy

Exchange Rates, International Trade, and Capital Flows

Filters

Exam 12: Monetary Policy and the Federal Reserve

Bank depositors will not lose their deposits in a banking panic if:

Lower nominal interest rates ______ the amount of money demanded and a lower price level ______ the amount of money demanded.

To close a recessionary gap, the Federal Reserve must ______ real interest rates by ______ the money supply.

The equilibrium quantity of money in circulation is determined by:

A banking panic is an episode in which:

The U.S.Congress instituted a system of deposit insurance for banks in:

Three macroeconomic factors that affect the demand for money are:

A higher real interest rate ______ investment spending and ______ consumption spending.

In a certain economy, the components of planned spending are given by: C = 500 + 0.8(Y - T) - 300r Ip = 200 - 400r G = 200 NX = 10 T = 150 Given the information about the economy above, which expression below gives autonomous expenditures?

If the Federal Reserve wants to decrease the money supply, it should:

The Federal Reserve can increase the money supply by:

One problem with using monetary policy to address "bubbles" in asset markets is that:

In a certain economy, the components of planned spending are given by: C = 500 + 0.8(Y - T) - 300r Ip = 200 - 400r G = 200 NX = 10 T = 150 Given the information about the economy above, what would be the impact on induced expenditures of a one-percentage-point increase in the real interest rate?

The interest rate the Federal Reserve charges commercial banks to borrow reserves is called the ______ rate.

Refer to the figure below.Based on the diagram, if potential output equals 5,000 and the real interest rate is 1%, then there is ______ gap and the Fed must ______ the real interest rate so that output will equal potential output.

Changes in consumption and planned investment spending due to changes in the real interest rate alter:

Refer to the figure below.Based on the diagram, the nominal interest rate equals ______ and the money supply equals ____.

When Argentines increase their savings in U.S.dollars, the U.S.money:

Lower real income ______ the demand for money and a lower price level ______ the demand for money.

Refer to the figure below.If the Federal Reserve wants to raise the interest rate to 7%, it must ______ the money supply to _____.

Thinking Like an Economist

Comparative Advantage

Spending, Income, and GDP

Inflation and the Price Level

Wages and Unemployment

Economic Growth

Saving, Capital Formation, and Financial Markets

Money, Prices, and the Financial System

Short-Term Economic Fluctuations

Spending, Output, and Fiscal Policy

Aggregate Demand, Aggregate Supply, and Business Cycles

Macroeconomic Policy

Exchange Rates, International Trade, and Capital Flows

Filters

Lower nominal interest rates the amount of money demanded and a lower price level the amount of money demanded.

To close a recessionary gap, the Federal Reserve must real interest rates by the money supply.

A higher real interest rate investment spending and consumption spending.

Refer to the figure below.Based on the diagram, if potential output equals 5,000 and the real interest rate is 1%, then there is gap and the Fed must the real interest rate so that output will equal potential output.

Refer to the figure below.Based on the diagram, the nominal interest rate equals __ and the money supply equals .

Lower real income the demand for money and a lower price level the demand for money.

Refer to the figure below.If the Federal Reserve wants to raise the interest rate to 7%, it must __ the money supply to _.