Question 1

An increase in the reserve requirement will lead to increased net exports.

Accepted Answer

A) True 
 B)False  False

Question 2

Selling government bonds through open market operations allows the Federal Reserve to

Accepted Answer

A)  decrease money in the Treasury. 
B)  decrease the money supply in the private sector. 
C)  receive discounts on future sales. 
D)  receive a high rate of interest on the bonds. 
A)  decrease money in the Treasury. 
B)  decrease the money supply in the private sector. 
C)  receive discounts on future sales. 
D)  receive a high rate of interest on the bonds. B

Question 3

A rise in the value of a currency is called a(n)

Accepted Answer

A)  depreciation. 
B)  appreciation. 
C)  consolation. 
D)  integration. 
A)  depreciation. 
B)  appreciation. 
C)  consolation. 
D)  integration. B

Question 4

Once the Fed decides on the interest rate it wants in the federal funds market, its most common method of achieving this rate is by

Accepted Answer

A)  conducting open market operations. 
B)  changing reserve requirements. 
C)  changing tax rates. 
D)  altering exchange rates. 
A)  conducting open market operations. 
B)  changing reserve requirements. 
C)  changing tax rates. 
D)  altering exchange rates.

Question 5

A change in the reserve requirement is used infrequently by the Fed because it

Accepted Answer

A)  is disruptive to the banking system. 
B)  does not influence the money supply. 
C)  does not affect bank reserves. 
D)  does not affect the money multiplier. 
A)  is disruptive to the banking system. 
B)  does not influence the money supply. 
C)  does not affect bank reserves. 
D)  does not affect the money multiplier.

Question 6

An increase in the discount rate

Accepted Answer

A)  reduces the cost of reserves borrowed from the Fed. 
B)  signals the Fed's desire to increase the money supply. 
C)  signals the Fed's desire to lend increased reserves to banks. 
D)  increases the cost of reserves borrowed from the Fed. 
A)  reduces the cost of reserves borrowed from the Fed. 
B)  signals the Fed's desire to increase the money supply. 
C)  signals the Fed's desire to lend increased reserves to banks. 
D)  increases the cost of reserves borrowed from the Fed.

Question 7

The most commonly used tool in monetary policy is

Accepted Answer

A)  changes in required reserve ratios. 
B)  changes in the discount rate. 
C)  open market operations. 
D)  express lending transactions. 
A)  changes in required reserve ratios. 
B)  changes in the discount rate. 
C)  open market operations. 
D)  express lending transactions.

Question 8

If a bond was to pay off one year from now for $630 and was purchased for $600, what is the interest rate?

Accepted Answer

A)  3 percent 
B)  5 percent 
C)  15 percent 
D)  30 percent 
A)  3 percent 
B)  5 percent 
C)  15 percent 
D)  30 percent

Question 9

Recall the Application about the Fed's expanded involvement in the economy following the financial crisis in 2008 to answer the following question(s).
-Recall the Application. Prior to the financial crisis in 2008, the Fed's traditional method of conducting monetary policy to expand the money supply was

Accepted Answer

A)  purchasing Treasury securities. 
B)  purchasing mortgage-backed securities. 
C)  lowering reserve requirements. 
D)  raising the discount rate. 
A)  purchasing Treasury securities. 
B)  purchasing mortgage-backed securities. 
C)  lowering reserve requirements. 
D)  raising the discount rate.

Question 10

An open market ________ by the Fed increases interest rates and ________ output.

Accepted Answer

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

Question 11

Recall the Application about the possible link between the value of the U.S. dollar and the worldwide increase in commodity prices to answer the following question(s). Starting in the summer of 2010, there was a rise in prices of commodities such as oil and food worldwide. Some economists suggested that monetary policy in the United States was the cause of the worldwide commodity boom.
-According to this Application, some economists noticed that the U.S. dollar ________ largely because monetary policy in the United States had driven interest rates ________.

Accepted Answer

A)  depreciated; down 
B)  depreciated; up 
C)  appreciated; down 
D)  appreciated; up 
A)  depreciated; down 
B)  depreciated; up 
C)  appreciated; down 
D)  appreciated; up

Question 12

A U.S. company that wishes to sell more to other countries would favor

Accepted Answer

A)  an appreciation of the dollar. 
B)  a depreciation of the dollar. 
C)  neither an appreciation nor a depreciation of the dollar. 
D)  higher interest rates. 
A)  an appreciation of the dollar. 
B)  a depreciation of the dollar. 
C)  neither an appreciation nor a depreciation of the dollar. 
D)  higher interest rates.

Question 13

In the short run when prices don't have enough time to change, the Federal Reserve

Accepted Answer

A)  can influence the level of interest rates in the economy. 
B)  cannot influence the level of interest rates in the economy. 
C)  can influence the level of interest rates in the economy but generally will not because it would be destabilizing. 
D)  can only affect the amount of money in the economy. 
A)  can influence the level of interest rates in the economy. 
B)  cannot influence the level of interest rates in the economy. 
C)  can influence the level of interest rates in the economy but generally will not because it would be destabilizing. 
D)  can only affect the amount of money in the economy.

Question 14

A decrease in the discount rate

Accepted Answer

A)  reduces the cost of borrowing from the Fed. 
B)  signals the Fed's desire to decrease the money supply. 
C)  signals the Fed's desire to reduce lending to commercial banks. 
D)  increases the cost of reserves borrowed from the Fed. 
A)  reduces the cost of borrowing from the Fed. 
B)  signals the Fed's desire to decrease the money supply. 
C)  signals the Fed's desire to reduce lending to commercial banks. 
D)  increases the cost of reserves borrowed from the Fed.

Question 15

Decreased investment spending in the economy would be a possible result of

Accepted Answer

A)  a decrease in interest rates. 
B)  an open market purchase of bonds by the Fed. 
C)  an open market sale of bonds by the Fed. 
D)  an increase in the money supply. 
A)  a decrease in interest rates. 
B)  an open market purchase of bonds by the Fed. 
C)  an open market sale of bonds by the Fed. 
D)  an increase in the money supply.

Question 16

The Federal Reserve influences the level of interest rates in the short run by changing the

Accepted Answer

A)  demand for money through open market operations. 
B)  demand for money through changes in reserve requirements. 
C)  supply of money through open market operations. 
D)  supply of money through changes in stock market operations. 
A)  demand for money through open market operations. 
B)  demand for money through changes in reserve requirements. 
C)  supply of money through open market operations. 
D)  supply of money through changes in stock market operations.

Question 17

The prime rate is the interest rate at which banks can borrow from the Fed.

Accepted Answer

A) True 
 B)False

Question 18

If the quantity of money demanded is less than the quantity of money supplied, then the

Accepted Answer

A)  interest rate stays the same. 
B)  interest rate will increase. 
C)  interest rate will decrease. 
D)  effect on the interest rate is indeterminate. 
A)  interest rate stays the same. 
B)  interest rate will increase. 
C)  interest rate will decrease. 
D)  effect on the interest rate is indeterminate.

Question 19

If a bond was to pay off one year from now for $440 and the interest rate is 10 percent, what is the price of the bond?

Accepted Answer

A)  $44 
B)  $400 
C)  $440 
D)  $484 
A)  $44 
B)  $400 
C)  $440 
D)  $484

Question 20

The nominal interest rate is determined in the

Accepted Answer

A)  stock market. 
B)  money market. 
C)  exchange market. 
D)  bond market. 
A)  stock market. 
B)  money market. 
C)  exchange market. 
D)  bond market.

An increase in the reserve requirement will lead to increased net exports.

Selling government bonds through open market operations allows the Federal Reserve to

A rise in the value of a currency is called a(n)

Once the Fed decides on the interest rate it wants in the federal funds market, its most common method of achieving this rate is by

A change in the reserve requirement is used infrequently by the Fed because it

An increase in the discount rate

The most commonly used tool in monetary policy is

If a bond was to pay off one year from now for $630 and was purchased for $600, what is the interest rate?

An open market by the Fed increases interest rates and output.

A U.S. company that wishes to sell more to other countries would favor

In the short run when prices don't have enough time to change, the Federal Reserve

A decrease in the discount rate

Decreased investment spending in the economy would be a possible result of

The Federal Reserve influences the level of interest rates in the short run by changing the

The prime rate is the interest rate at which banks can borrow from the Fed.

If the quantity of money demanded is less than the quantity of money supplied, then the

If a bond was to pay off one year from now for $440 and the interest rate is 10 percent, what is the price of the bond?

The nominal interest rate is determined in the

Introduction: What Is Economics?

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nation's Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow?

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Income-Expenditure Model

Investment and Financial Markets

Money and the Banking System

Modern Macroeconomics: From the Short Run to the Long Run

The Dynamics of Inflation and Unemployment

Macroeconomic Policy Debates

International Trade and Public Policy

The World of International Finance

Filters

Exam 14: The Federal Reserve and Monetary Policy

An increase in the reserve requirement will lead to increased net exports.

Selling government bonds through open market operations allows the Federal Reserve to

A rise in the value of a currency is called a(n)

Once the Fed decides on the interest rate it wants in the federal funds market, its most common method of achieving this rate is by

A change in the reserve requirement is used infrequently by the Fed because it

An increase in the discount rate

The most commonly used tool in monetary policy is

If a bond was to pay off one year from now for $630 and was purchased for $600, what is the interest rate?

An open market ________ by the Fed increases interest rates and ________ output.

A U.S. company that wishes to sell more to other countries would favor

In the short run when prices don't have enough time to change, the Federal Reserve

A decrease in the discount rate

Decreased investment spending in the economy would be a possible result of

The Federal Reserve influences the level of interest rates in the short run by changing the

The prime rate is the interest rate at which banks can borrow from the Fed.

If the quantity of money demanded is less than the quantity of money supplied, then the

If a bond was to pay off one year from now for $440 and the interest rate is 10 percent, what is the price of the bond?

The nominal interest rate is determined in the

Introduction: What Is Economics?

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nation's Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow?

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Income-Expenditure Model

Investment and Financial Markets

Money and the Banking System

Modern Macroeconomics: From the Short Run to the Long Run

The Dynamics of Inflation and Unemployment

Macroeconomic Policy Debates

International Trade and Public Policy

The World of International Finance

Filters

An open market by the Fed increases interest rates and output.