Question 1

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 B

Question 2

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

Accepted Answer

A) True 
 B)False  True

Question 3

The amount of inflation caused by expansionary monetary policy depends on the slope of the aggregate supply curve.

Accepted Answer

A) True 
 B)False  True

Question 4

Proponents of Fed independence maintain that

Accepted Answer

A) independence helps ensure low unemployment rates. 
B) money is too important to be left to the bankers. 
C) independence permits objective decisions not based on politics. 
D) only the Federal Reserve knows how to act wisely. 
A) independence helps ensure low unemployment rates. 
B) money is too important to be left to the bankers. 
C) independence permits objective decisions not based on politics. 
D) only the Federal Reserve knows how to act wisely.

Question 5

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 6

How are Treasury bond prices affected when the interest rate rises?

Accepted Answer

A) The purchaser of the bond needs to spend less money to obtain a given number of dollars of interest per year, so the price of the bond must decrease. 
B) The purchaser of the bond needs to spend more money to obtain a given number of dollars of interest per year, so the price of the bond must increase. 
C) The purchaser of the bond needs to spend more money to obtain a given number of dollars of interest per year, so the price of the bond must decrease. 
D) The purchaser of the bond needs to spend less money to obtain a given number of dollars of interest per year, so the price of the bond must increase. 
A) The purchaser of the bond needs to spend less money to obtain a given number of dollars of interest per year, so the price of the bond must decrease. 
B) The purchaser of the bond needs to spend more money to obtain a given number of dollars of interest per year, so the price of the bond must increase. 
C) The purchaser of the bond needs to spend more money to obtain a given number of dollars of interest per year, so the price of the bond must decrease. 
D) The purchaser of the bond needs to spend less money to obtain a given number of dollars of interest per year, so the price of the bond must increase.

Question 7

Why do economists insist on emphasizing the difference between money and income? Why is this difference important in macroeconomics?

Accepted Answer

Money is a stock variable that has a val

Question 8

The reason that the Fed does not actively use discount rate policy to control the money supply is because the Fed

Accepted Answer

A) acts when a majority of member banks agree on policy and the banks rarely agree. 
B) earns interest on discounting and cannot afford to lose the revenue. 
C) does not know how banks will respond to discount rate changes. 
D) has been directed by Congress to set the discount rate at a permanent level. 
A) acts when a majority of member banks agree on policy and the banks rarely agree. 
B) earns interest on discounting and cannot afford to lose the revenue. 
C) does not know how banks will respond to discount rate changes. 
D) has been directed by Congress to set the discount rate at a permanent level.

Question 9

The demand for reserves increases as the price level rises because

Accepted Answer

A) people want money to buy goods that will appreciate with inflation. 
B) people need more money to finance transactions. 
C) the opportunity cost of holding money increases. 
D) higher prices reduce the value of dollar assets. 
A) people want money to buy goods that will appreciate with inflation. 
B) people need more money to finance transactions. 
C) the opportunity cost of holding money increases. 
D) higher prices reduce the value of dollar assets.

Question 10

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 11

The creation of new bank reserves could lead to a multiple increase in the money supply.

Accepted Answer

A) True 
 B)False

Question 12

The quantity of reserves demanded decreases as the federal funds rate rises because

Accepted Answer

A) people want more liquid assets as the federal funds rate rises. 
B) the price of bonds rise as the federal funds rate rises. 
C) the opportunity cost of holding excess reserves increases as the federal funds rate rises. 
D) people want more money to invest as the federal funds rate rises. 
A) people want more liquid assets as the federal funds rate rises. 
B) the price of bonds rise as the federal funds rate rises. 
C) the opportunity cost of holding excess reserves increases as the federal funds rate rises. 
D) people want more money to invest as the federal funds rate rises.

Question 13

Table 29-1
Effects of an open-market transaction on the balance sheets of banks and the fed (in millions of dollars)   ​
-In Table 29-1, the Federal Reserve System has

Accepted Answer

A) sold $10 million in government securities to banks, taking payment in cash. 
B) sold $10 million in government securities to banks, taking payment from the bank's reserves. 
C) purchased $10 million in government securities from banks, paying for them with increases in banks' reserves. 
D) purchased $10 million in government securities from banks, paying for them with new Federal Reserve notes. 
A) sold $10 million in government securities to banks, taking payment in cash. 
B) sold $10 million in government securities to banks, taking payment from the bank's reserves. 
C) purchased $10 million in government securities from banks, paying for them with increases in banks' reserves. 
D) purchased $10 million in government securities from banks, paying for them with new Federal Reserve notes.

Question 14

Monetary policy is the system of actions taken by the Fed to influence the money supply.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is an unconventional monetary policy?

Accepted Answer

A) Lending to banks in unprecedented volume 
B) Lending to companies other than banks 
C) Reducing the federal funds rate to zero 
D) All of these are unconventional monetary policies. 
A) Lending to banks in unprecedented volume 
B) Lending to companies other than banks 
C) Reducing the federal funds rate to zero 
D) All of these are unconventional monetary policies.

Question 16

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 17

In the Keynesian causal chain, changes in GDP cause changes in the level of interest rates.

Accepted Answer

A) True 
 B)False

Question 18

The correct chain of causation illustrating the changes caused by monetary policy is

Accepted Answer

A) money, interest rates, C + I + G + (X − IM), I. 
B) money, interest rates, I, C + I + G + (X − IM). 
C) C + I + G + (X − IM), I, interest rates, money. 
D) I, C + I + G + (X − IM), money, interest rates. 
A) money, interest rates, C + I + G + (X − IM), I. 
B) money, interest rates, I, C + I + G + (X − IM). 
C) C + I + G + (X − IM), I, interest rates, money. 
D) I, C + I + G + (X − IM), money, interest rates.

Question 19

Which of the following is an income number?

Accepted Answer

A) M1 
B) M2 
C) GDP 
D) Cash 
A) M1 
B) M2 
C) GDP 
D) Cash

Question 20

When the Fed wants to expand the money supply, it

Accepted Answer

A) buys government securities. 
B) sells government securities. 
C) buys common stock. 
D) sells common stock. 
A) buys government securities. 
B) sells government securities. 
C) buys common stock. 
D) sells common stock.

Exam 29: Monetary Policy: Conventional and Unconventional

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

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

The amount of inflation caused by expansionary monetary policy depends on the slope of the aggregate supply curve.

Proponents of Fed independence maintain that

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?

How are Treasury bond prices affected when the interest rate rises?

Why do economists insist on emphasizing the difference between money and income? Why is this difference important in macroeconomics?

The reason that the Fed does not actively use discount rate policy to control the money supply is because the Fed

The demand for reserves increases as the price level rises because

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

The creation of new bank reserves could lead to a multiple increase in the money supply.

The quantity of reserves demanded decreases as the federal funds rate rises because

Table 29-1 Effects of an open-market transaction on the balance sheets of banks and the fed (in millions of dollars) ​ -In Table 29-1, the Federal Reserve System has

Monetary policy is the system of actions taken by the Fed to influence the money supply.

Which of the following is an unconventional monetary policy?

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

In the Keynesian causal chain, changes in GDP cause changes in the level of interest rates.

The correct chain of causation illustrating the changes caused by monetary policy is

Which of the following is an income number?

When the Fed wants to expand the money supply, it

What Is Economics

The Economony: 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

The Financial Markets and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

The Case for Free Markets: the Price System

Monopoly

Between Competition and Monopoly

Limiting Market Power: Antitrust and Regulation

The Shortcomings of Free Markets

The Economics of 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

Contemporary Issues in the Useconomy

Filters

Table 29-1 Effects of an open-market transaction on the balance sheets of banks and the fed (in millions of dollars) -In Table 29-1, the Federal Reserve System has