Question 1

An increase in the reserve supply

Accepted Answer

A) will result in inflation if the unemployment rate is high. 
B) causes interest rates to rise. 
C) shifts the aggregate demand curve inward. 
D) will probably cause inflation if the economy is at potential GDP. 
A) will result in inflation if the unemployment rate is high. 
B) causes interest rates to rise. 
C) shifts the aggregate demand curve inward. 
D) will probably cause inflation if the economy is at potential GDP.

Question 2

Open-market operations refer to the purchase and sales of stocks listed on the New York Stock Exchange.

Accepted Answer

A) True 
 B)False

Question 3

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 4

Suppose that all banks maintain a 100 percent reserve ratio.If an individual deposits $ 3,000 of currency in a bank,

Accepted Answer

A) the money supply is unaffected. 
B) the money supply rises by more than $3,000. 
C) the money supply rises by less than $3,000. 
D) the money supply decreased by less than $3,000. 
A) the money supply is unaffected. 
B) the money supply rises by more than $3,000. 
C) the money supply rises by less than $3,000. 
D) the money supply decreased by less than $3,000.

Question 5

The Federal Reserve System can be described as a bank for bankers.

Accepted Answer

A) True 
 B)False

Question 6

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 7

Required reserves are a fixed percentage of their

Accepted Answer

A) deposits. 
B) loans. 
C) government bonds. 
D) none of these. 
A) deposits. 
B) loans. 
C) government bonds. 
D) none of these.

Question 8

Explain the concept of "lender of last resort." What is discount rate?

Accepted Answer

When risky business prospects make comme

Question 9

An open-market purchase of Treasury bills by the Fed not only raises the money supply but also

Accepted Answer

A) drives up T-bill prices and pushes interest rates down. 
B) drives up T-bill prices and drives interest rates up. 
C) pushes T-bill prices down and pushes interest rates down. 
D) none of these. 
A) drives up T-bill prices and pushes interest rates down. 
B) drives up T-bill prices and drives interest rates up. 
C) pushes T-bill prices down and pushes interest rates down. 
D) none of these.

Question 10

Generally, most of the world's industrial countries believe that central banks should be independent of their governments.

Accepted Answer

A) True 
 B)False

Question 11

If the Fed increases the required reserve ratio, how will this affect excess reserves and the money supply?

Accepted Answer

A) Both will increase. 
B) Excess reserves increase and the money supply decreases. 
C) Both will decrease. 
D) Excess reserves decrease and the money supply increases. 
A) Both will increase. 
B) Excess reserves increase and the money supply decreases. 
C) Both will decrease. 
D) Excess reserves decrease and the money supply increases.

Question 12

The reserves supply schedule has a positive slope because

Accepted Answer

A) the Fed lowers the discount rate as interest rates rise. 
B) the Fed makes more money available at higher interest rates. 
C) as interest rates rise, banks will find loans more profitable. 
D) as interest rates rise, people will demand more loans. 
A) the Fed lowers the discount rate as interest rates rise. 
B) the Fed makes more money available at higher interest rates. 
C) as interest rates rise, banks will find loans more profitable. 
D) as interest rates rise, people will demand more loans.

Question 13

If there is 100 percent reserve banking, the money supply is unaffected by the proportion of the dollars that the public chooses to hold as currency versus deposits.

Accepted Answer

A) True 
 B)False

Question 14

Money and income are used interchangeably by noneconomists but mean different things.

Accepted Answer

A) True 
 B)False

Question 15

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 16

If the Fed buys $5 million in government bonds, how much will the money supply change?

Accepted Answer

A) It will increase by $5 million. 
B) It will increase by more than $5 million. 
C) It will decrease by $5 million. 
D) It will decrease by more than $5 million. 
A) It will increase by $5 million. 
B) It will increase by more than $5 million. 
C) It will decrease by $5 million. 
D) It will decrease by more than $5 million.

Question 17

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

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 18

The Federal Reserve System is a(n)

Accepted Answer

A) corporation owned by its member banks. 
B) independent branch of the U.S.government. 
C) corporation owned by the government and member banks. 
D) agency created by presidential executive order. 
A) corporation owned by its member banks. 
B) independent branch of the U.S.government. 
C) corporation owned by the government and member banks. 
D) agency created by presidential executive order.

Question 19

Table 29-1
Effects of an open-market transaction on the balance sheets of banks and the fed (in millions of dollars)   ​
-Assume the required reserve ratio is 20 percent and the FOMC orders an open-market purchase of $100 million in government securities from member banks.If the oversimplified money multiplier is assumed, then the money supply will

Accepted Answer

A) increase by $500 million. 
B) increase by $100 million. 
C) decrease by $100 million. 
D) decrease by $500 million. 
A) increase by $500 million. 
B) increase by $100 million. 
C) decrease by $100 million. 
D) decrease by $500 million.

Question 20

If the Fed purchases $100,000 of government bonds, and the reserve requirement is 20 percent, the maximum increase in the money supply is $ 500,000.

Accepted Answer

A) True 
 B)False

Exam 29: Monetary Policy: Conventional and Unconventional

An increase in the reserve supply

Open-market operations refer to the purchase and sales of stocks listed on the New York Stock Exchange.

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

Suppose that all banks maintain a 100 percent reserve ratio.If an individual deposits $ 3,000 of currency in a bank,

The Federal Reserve System can be described as a bank for bankers.

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

Required reserves are a fixed percentage of their

Explain the concept of "lender of last resort." What is discount rate?

An open-market purchase of Treasury bills by the Fed not only raises the money supply but also

Generally, most of the world's industrial countries believe that central banks should be independent of their governments.

If the Fed increases the required reserve ratio, how will this affect excess reserves and the money supply?

The reserves supply schedule has a positive slope because

If there is 100 percent reserve banking, the money supply is unaffected by the proportion of the dollars that the public chooses to hold as currency versus deposits.

Money and income are used interchangeably by noneconomists but mean different things.

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

If the Fed buys $5 million in government bonds, how much will the money supply change?

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

The Federal Reserve System is a(n)

If the Fed purchases $100,000 of government bonds, and the reserve requirement is 20 percent, the maximum increase in the money supply is $ 500,000.

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

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