Question 1

The president has influence on Federal Reserve policy because

Accepted Answer

A) he can veto any Fed policy. 
B) he appoints the board members and the chair. 
C) he can fire the chair. 
D) he can replace board members at any time. 
A) he can veto any Fed policy. 
B) he appoints the board members and the chair. 
C) he can fire the chair. 
D) he can replace board members at any time.

Question 2

If the Federal Reserve Bank wants to lower the supply of money, it sells government bonds from its portfolio to the public in the nation's bond markets.

Accepted Answer

A) True 
 B)False

Question 3

When the Fed wishes to decrease the money supply, it can

Accepted Answer

A) ask people to buy more bonds. 
B) turn additional funds over to the Treasury. 
C) increase the required reserve ratio. 
D) decrease the required reserve ratio. 
A) ask people to buy more bonds. 
B) turn additional funds over to the Treasury. 
C) increase the required reserve ratio. 
D) decrease the required reserve ratio.

Question 4

What determines the magnitude of the changes in price level when central bank takes monetary policy measures that leads to a change in the aggregate demand?

Accepted Answer

A) Changes in the money supply 
B) Slope of the aggregate supply curve 
C) Rate of change of interest rate 
D) Total money supply in the economy 
A) Changes in the money supply 
B) Slope of the aggregate supply curve 
C) Rate of change of interest rate 
D) Total money supply in the economy

Question 5

Members of the Board of Governors of the Federal Reserve System are

Accepted Answer

A) elected by member banks to serve four-year terms. 
B) appointed by Congress for 14-year terms. 
C) appointed by the president for 14-year terms. 
D) appointed by the Supreme Court for lifetime terms. 
A) elected by member banks to serve four-year terms. 
B) appointed by Congress for 14-year terms. 
C) appointed by the president for 14-year terms. 
D) appointed by the Supreme Court for lifetime terms.

Question 6

When the Fed purchases government securities from a commercial bank, the bank

Accepted Answer

A) loses its ability to make loans. 
B) automatically becomes poorer. 
C) loses equity in the Fed. 
D) receives reserves that can be loaned out. 
A) loses its ability to make loans. 
B) automatically becomes poorer. 
C) loses equity in the Fed. 
D) receives reserves that can be loaned out.

Question 7

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 8

Why does the economy's aggregate demand curve have a negative slope?

Accepted Answer

At higher price levels, the quantity of

Question 9

Higher interest rates cause investment spending to fall and pull down aggregate demand via the multiplier mechanism.

Accepted Answer

A) True 
 B)False

Question 10

Figure 29-1
​  
-In Figure 29-1, which panel shows the effect of a recession on the interest rate?

Accepted Answer

A) Panel (
A)  
B) Panel (
B)  
C) Panel (
C)  
D) Panel (
D)  
A) Panel (
A)  
B) Panel (
B)  
C) Panel (
C)  
D) Panel (
D)

Question 11

Quantitative easing refers to open-market purchases of assets other than Treasury bills.

Accepted Answer

A) True 
 B)False

Question 12

Unconventional monetary policies include massive lending to banks and open-market purchases of assets other than Treasury bills.

Accepted Answer

A) True 
 B)False

Question 13

The quantity of reserves supplied increases as interest rates rise because

Accepted Answer

A) the Treasury borrows more at higher interest rates. 
B) consumers don't want to borrow as much so more money is left in banks. 
C) as interest rates rise, banks fear losses so they decrease lending. 
D) banks find it more profitable to loan out excess reserves to other banks. 
A) the Treasury borrows more at higher interest rates. 
B) consumers don't want to borrow as much so more money is left in banks. 
C) as interest rates rise, banks fear losses so they decrease lending. 
D) banks find it more profitable to loan out excess reserves to other banks.

Question 14

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.

Question 15

When the Fed sells a government security to the public, how does it usually receive payment for the security?

Accepted Answer

A) By accepting checks on bank accounts 
B) By drawing money out of circulation 
C) By decreasing member bank profits not distributed by the Fed 
D) By decreasing reserves in bank accounts at the Fed 
A) By accepting checks on bank accounts 
B) By drawing money out of circulation 
C) By decreasing member bank profits not distributed by the Fed 
D) By decreasing reserves in bank accounts at the Fed

Question 16

The federal funds rate is the short-term interest rate that banks charge one another for loans.

Accepted Answer

A) True 
 B)False

Question 17

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 18

An open-market sale 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 19

An increase in the reserve requirement

Accepted Answer

A) increases the money multiplier and increases the money supply. 
B) reduces the money multiplier and reduces the money supply. 
C) increases the money multiplier and reduces the money supply. 
D) none of these. 
A) increases the money multiplier and increases the money supply. 
B) reduces the money multiplier and reduces the money supply. 
C) increases the money multiplier and reduces the money supply. 
D) none of these.

Question 20

Are money and income the same thing?

Accepted Answer

A) No, money is measured at a point in time and income is measured for a period of time. 
B) No, money is measured for a period of time and income is measured at a point in time. 
C) Yes, they are just measured in different ways. 
D) Yes, the only difference is real versus nominal. 
A) No, money is measured at a point in time and income is measured for a period of time. 
B) No, money is measured for a period of time and income is measured at a point in time. 
C) Yes, they are just measured in different ways. 
D) Yes, the only difference is real versus nominal.

Exam 29: Monetary Policy: Conventional and Unconventional

The president has influence on Federal Reserve policy because

If the Federal Reserve Bank wants to lower the supply of money, it sells government bonds from its portfolio to the public in the nation's bond markets.

When the Fed wishes to decrease the money supply, it can

What determines the magnitude of the changes in price level when central bank takes monetary policy measures that leads to a change in the aggregate demand?

Members of the Board of Governors of the Federal Reserve System are

When the Fed purchases government securities from a commercial bank, the bank

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

Why does the economy's aggregate demand curve have a negative slope?

Higher interest rates cause investment spending to fall and pull down aggregate demand via the multiplier mechanism.

Figure 29-1 ​ -In Figure 29-1, which panel shows the effect of a recession on the interest rate?

Quantitative easing refers to open-market purchases of assets other than Treasury bills.

Unconventional monetary policies include massive lending to banks and open-market purchases of assets other than Treasury bills.

The quantity of reserves supplied increases as interest rates rise because

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

When the Fed sells a government security to the public, how does it usually receive payment for the security?

The federal funds rate is the short-term interest rate that banks charge one another for loans.

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

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

An increase in the reserve requirement

Are money and income the same thing?

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

Figure 29-1 -In Figure 29-1, which panel shows the effect of a recession on the interest rate?