Question 1

Personal consumption spending is the most sensitive component of aggregate demand to monetary policy.

Accepted Answer

A) True 
 B)False  False

Question 2

The Fed is institutionally independent.A major disadvantage of this is that monetary policy

Accepted Answer

A)  will always be coordinated with fiscal policy. 
B)  is not subject to democratic control as other policies are. 
C)  will never offset fiscal policy. 
D)  cannot be changed once it has been instituted. 
A)  will always be coordinated with fiscal policy. 
B)  is not subject to democratic control as other policies are. 
C)  will never offset fiscal policy. 
D)  cannot be changed once it has been instituted. B

Question 3

Recessions are typically associated with increases on interest rates on risky securities coupled with increases on interest rates on Treasury securities.

Accepted Answer

A) True 
 B)False  False

Question 4

When the Fed buys a Treasury bill from the public, how does it usually pay for the T-bill?

Accepted Answer

A)  by writing a check on a commercial bank account 
B)  by printing new Federal Reserve notes 
C)  by creating new reserves in bank accounts 
D)  by prepaying taxes into the Treasury's account 
A)  by writing a check on a commercial bank account 
B)  by printing new Federal Reserve notes 
C)  by creating new reserves in bank accounts 
D)  by prepaying taxes into the Treasury's account

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

When the Federal Reserve System was first established, its founders intended the Fed to

Accepted Answer

A)  assist the Treasury in collecting taxes. 
B)  be primarily responsible for government regulations. 
C)  pursue an active monetary policy to stabilize the economy. 
D)  provide protection against financial panics by acting as the lender of last resort. 
A)  assist the Treasury in collecting taxes. 
B)  be primarily responsible for government regulations. 
C)  pursue an active monetary policy to stabilize the economy. 
D)  provide protection against financial panics by acting as the lender of last resort.

Question 7

If the Fed raises the discount rate, what will be the effect on the money supply?

Accepted Answer

A)  It will decrease the money supply. 
B)  It will increase the money supply. 
C)  No change in the money supply. 
D)  Not enough data to give an answer. 
A)  It will decrease the money supply. 
B)  It will increase the money supply. 
C)  No change in the money supply. 
D)  Not enough data to give an answer.

Question 8

Currently, in the United States, you can expect the discount rate to be

Accepted Answer

A)  used often to change the money supply. 
B)  raised in periods of recession. 
C)  fixed at the bank rate. 
D)  adjusted to follow market rates of interest. 
A)  used often to change the money supply. 
B)  raised in periods of recession. 
C)  fixed at the bank rate. 
D)  adjusted to follow market rates of interest.

Question 9

Under what conditions will the inflationary impact of an expansionary monetary policy be the largest?

Accepted Answer

A)  When equilibrium real GDP is at potential real GDP. 
B)  When there is a recessionary gap. 
C)  When unemployment rates are high and there is substantial excess industrial capacity. 
D)  When real GDP is falling and the price level is decreasing. 
A)  When equilibrium real GDP is at potential real GDP. 
B)  When there is a recessionary gap. 
C)  When unemployment rates are high and there is substantial excess industrial capacity. 
D)  When real GDP is falling and the price level is decreasing.

Question 10

The original goal of the Fed's founders was to prevent the

Accepted Answer

A)  supply of money from increasing too rapidly. 
B)  supply of money from decreasing during downturns. 
C)  possibility of hyperinflation. 
D)  possibility of interest rates falling too rapidly. 
A)  supply of money from increasing too rapidly. 
B)  supply of money from decreasing during downturns. 
C)  possibility of hyperinflation. 
D)  possibility of interest rates falling too rapidly.

Question 11

An increase in the interest rate is associated with an increase in bond prices.

Accepted Answer

A) True 
 B)False

Question 12

The Fed conducts an open market sale of Treasury bills of $5 million.If the required reserve ratio is 0.20, what change in the money supply can be expected using the oversimplified money multiplier?

Accepted Answer

A)  $25 million 
B)  $5 million 
C)  0 
D)  -$5 million 
E)  -$25 million 
A)  $25 million 
B)  $5 million 
C)  0 
D)  -$5 million 
E)  -$25 million

Question 13

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 14

The concept of "lender of last resort" is that when

Accepted Answer

A)  lending decreases, the Fed will be the last to resort to higher interest rates. 
B)  borrowing increases, the Fed will be the last to increase lending. 
C)  commercial banks are hesitant to lend, the Fed will step in and increase reserves. 
D)  a borrower has tried everyone else, the Fed will lend directly to them. 
A)  lending decreases, the Fed will be the last to resort to higher interest rates. 
B)  borrowing increases, the Fed will be the last to increase lending. 
C)  commercial banks are hesitant to lend, the Fed will step in and increase reserves. 
D)  a borrower has tried everyone else, the Fed will lend directly to them.

Question 15

In its original role as "lender of last resort" the Fed was supposed to

Accepted Answer

A)  lend money to people in regions without banks. 
B)  lend money to developing nations. 
C)  keep the money supply from drying up during financial panics. 
D)  provide mortgage lending to returning soldiers. 
A)  lend money to people in regions without banks. 
B)  lend money to developing nations. 
C)  keep the money supply from drying up during financial panics. 
D)  provide mortgage lending to returning soldiers.

Question 16

If the Federal Open Market Committee decides to expand the money supply, then it will

Accepted Answer

A)  raise the discount rate to member banks. 
B)  issue directions to purchase government securities, thus putting more reserves in member banks. 
C)  issue directions to sell government securities, thus taking reserves from member banks. 
D)  order new Federal Reserve notes delivered to member banks. 
A)  raise the discount rate to member banks. 
B)  issue directions to purchase government securities, thus putting more reserves in member banks. 
C)  issue directions to sell government securities, thus taking reserves from member banks. 
D)  order new Federal Reserve notes delivered to member banks.

Question 17

The Fed's principal objective is to

Accepted Answer

A)  make profits to pay into the U.S.Treasury. 
B)  collect tax revenues. 
C)  supervise the business decisions of banks. 
D)  manage the money supply and interest rates. 
A)  make profits to pay into the U.S.Treasury. 
B)  collect tax revenues. 
C)  supervise the business decisions of banks. 
D)  manage the money supply and interest rates.

Question 18

People are often heard saying, "She makes good money." An economic interpretation of this statement would be that

Accepted Answer

A)  she has an honest job. 
B)  she makes money that is not counterfeit. 
C)  she has a high income. 
D)  there is little inflation. 
A)  she has an honest job. 
B)  she makes money that is not counterfeit. 
C)  she has a high income. 
D)  there is little inflation.

Question 19

An open market purchase of T-bonds by the Fed causes the money supply to

Accepted Answer

A)  fall and bond prices to fall. 
B)  rise and bond prices to fall. 
C)  rise and bond prices to rise. 
D)  fall and bond prices to rise. 
A)  fall and bond prices to fall. 
B)  rise and bond prices to fall. 
C)  rise and bond prices to rise. 
D)  fall and bond prices to rise.

Question 20

The discount rate is the rate that the

Accepted Answer

A)  Treasury pays on savings bonds. 
B)  Fed charges member banks. 
C)  Fed charges on government securities. 
D)  Fed charges the Treasury for sales of securities. 
A)  Treasury pays on savings bonds. 
B)  Fed charges member banks. 
C)  Fed charges on government securities. 
D)  Fed charges the Treasury for sales of securities.

Exam 30: Monetary Policy: Conventional and Unconventional

Personal consumption spending is the most sensitive component of aggregate demand to monetary policy.

The Fed is institutionally independent.A major disadvantage of this is that monetary policy

Recessions are typically associated with increases on interest rates on risky securities coupled with increases on interest rates on Treasury securities.

When the Fed buys a Treasury bill from the public, how does it usually pay for the T-bill?

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

When the Federal Reserve System was first established, its founders intended the Fed to

If the Fed raises the discount rate, what will be the effect on the money supply?

Currently, in the United States, you can expect the discount rate to be

Under what conditions will the inflationary impact of an expansionary monetary policy be the largest?

The original goal of the Fed's founders was to prevent the

An increase in the interest rate is associated with an increase in bond prices.

The Fed conducts an open market sale of Treasury bills of $5 million.If the required reserve ratio is 0.20, what change in the money supply can be expected using the oversimplified money multiplier?

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 concept of "lender of last resort" is that when

In its original role as "lender of last resort" the Fed was supposed to

If the Federal Open Market Committee decides to expand the money supply, then it will

The Fed's principal objective is to

People are often heard saying, "She makes good money." An economic interpretation of this statement would be that

An open market purchase of T-bonds by the Fed causes the money supply to

The discount rate is the rate that the

What Is Economics?

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: An Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: The Importance of Marginal Analysis

Securities: Business Finance, and the Economy: The Tail that Wags the Dog?

The Firm and the Industry under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets I: The Price System

The Shortcomings of Free Markets

The Market's Prime Achievement: Innovation and Growth

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: The Human Inputs

Poverty, Inequality, and Discrimination

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

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