Question 1

If the Fed sells a T-bill to a commercial bank, how will this affect the money supply?

Accepted Answer

A) It will increase the money supply. 
B) It will increase bank reserves. 
C) It will decrease the money supply. 
D) It will have no effect on the money supply. 
A) It will increase the money supply. 
B) It will increase bank reserves. 
C) It will decrease the money supply. 
D) It will have no effect on the money supply.

Question 2

Explain the relationship between interest rates and (1) investments in housing, and (2) business investments.

Accepted Answer

As the interest cost of a home mortgage

Question 3

The Fed is unlike other central banks in that it

Accepted Answer

A) has 12 branches. 
B) is completely centralized. 
C) has no real powers. 
D) also has control over fiscal policy. 
A) has 12 branches. 
B) is completely centralized. 
C) has no real powers. 
D) also has control over fiscal policy.

Question 4

Open-market operations generally involve the purchase and sales of

Accepted Answer

A) government securities. 
B) stocks and bonds. 
C) coins and currency. 
D) Federal Reserve notes. 
A) government securities. 
B) stocks and bonds. 
C) coins and currency. 
D) Federal Reserve notes.

Question 5

Which of the following will increase interest rates in the short run?

Accepted Answer

A) An decrease in reserve requirements 
B) Open-market sales by the Fed 
C) A decrease in real GDP 
D) A decrease in the price level 
A) An decrease in reserve requirements 
B) Open-market sales by the Fed 
C) A decrease in real GDP 
D) A decrease in the price level

Question 6

Which of the following observations is true?

Accepted Answer

A) State governments are the shareholders of the Fed. 
B) The Fed chairman is appointed for a ten-year term. 
C) FOMC decisions largely determine short-term interest rates. 
D) Member banks proportionately share all of Federal Reserve's profits. 
A) State governments are the shareholders of the Fed. 
B) The Fed chairman is appointed for a ten-year term. 
C) FOMC decisions largely determine short-term interest rates. 
D) Member banks proportionately share all of Federal Reserve's profits.

Question 7

Income is to money as

Accepted Answer

A) short story is to novel. 
B) video is to digital photo. 
C) song is to symphony. 
D) entree is to dessert. 
A) short story is to novel. 
B) video is to digital photo. 
C) song is to symphony. 
D) entree is to dessert.

Question 8

Suppose that the Fed purchases a $1,000 government bond from you.If you deposit the entire $1,000 in your bank, what is the total potential change in the money supply as a result of the Fed's action if reserve requirements are 10 percent?

Accepted Answer

A) $10,000 
B) $5,000 
C) $3,000 
D) $2,000 
A) $10,000 
B) $5,000 
C) $3,000 
D) $2,000

Question 9

The Fed does not have perfect control over the money supply in the short run.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) Lowers T-bill prices and raises interest rates. 
B) Drives up T-bill prices and pushes down interest rates. 
C) Lowers T-bill prices and pushes down interest rates 
D) None of these. 
A) Lowers T-bill prices and raises interest rates. 
B) Drives up T-bill prices and pushes down interest rates. 
C) Lowers T-bill prices and pushes down interest rates 
D) None of these.

Question 11

In making policies about the nation's money supply, the Federal Reserve Board

Accepted Answer

A) operates as an independent entity. 
B) must consult each member bank. 
C) must consult with Congress. 
D) must coordinate all activity with the White House. 
A) operates as an independent entity. 
B) must consult each member bank. 
C) must consult with Congress. 
D) must coordinate all activity with the White House.

Question 12

The Federal Reserve System was established by Congress in 1914

Accepted Answer

A) as a result of a breakthrough in economic theory. 
B) against significant opposition from the banking sector. 
C) because of the need for a central bank. 
D) as the world's first central bank. 
A) as a result of a breakthrough in economic theory. 
B) against significant opposition from the banking sector. 
C) because of the need for a central bank. 
D) as the world's first central bank.

Question 13

Although a corporation that is owned by its member banks, the Federal Reserve System

Accepted Answer

A) reports directly to the president in an annual report. 
B) is quite independent of them, and they receive almost none of the Fed's profits. 
C) is administered by Congress and all its profits are distributed to the member banks. 
D) turns all its profits over to the state governments of each district bank. 
A) reports directly to the president in an annual report. 
B) is quite independent of them, and they receive almost none of the Fed's profits. 
C) is administered by Congress and all its profits are distributed to the member banks. 
D) turns all its profits over to the state governments of each district bank.

Question 14

What will happen to the demand for reserves if real GDP increases?

Accepted Answer

A) It will shift outward. 
B) It will shift inward. 
C) It will remain unchanged. 
D) It depends on what happens to interest rates. 
A) It will shift outward. 
B) It will shift inward. 
C) It will remain unchanged. 
D) It depends on what happens to interest rates.

Question 15

If the Fed buys a T-bill from a commercial bank, how will it pay for the T-bill?

Accepted Answer

A) It will give the bank new reserves. 
B) It will write the bank a check. 
C) It will transfer cash to the bank's vault. 
D) It will take reserves from another bank. 
A) It will give the bank new reserves. 
B) It will write the bank a check. 
C) It will transfer cash to the bank's vault. 
D) It will take reserves from another bank.

Question 16

The Federal Reserve System was established

Accepted Answer

A) at the request of farmers to keep down interest rates. 
B) because Americans believe in centralization of authority. 
C) after four severe bank panics between 1873 and 1907. 
D) as part of the Treasury Department. 
A) at the request of farmers to keep down interest rates. 
B) because Americans believe in centralization of authority. 
C) after four severe bank panics between 1873 and 1907. 
D) as part of the Treasury Department.

Question 17

When bond prices fall, interest rates rise.

Accepted Answer

A) True 
 B)False

Question 18

Each Federal Reserve district bank is a corporation owned by

Accepted Answer

A) the member banks in the district. 
B) the people of the United States. 
C) the U.S.Department of the Treasury. 
D) federal securities owners. 
A) the member banks in the district. 
B) the people of the United States. 
C) the U.S.Department of the Treasury. 
D) federal securities owners.

Question 19

If the Fed raises the reserve requirement on deposits from 15 percent to 20 percent, what would happen to the money supply?

Accepted Answer

A) It would decrease. 
B) It would increase. 
C) It would remain unchanged. 
D) It depends on the value of interest rates. 
A) It would decrease. 
B) It would increase. 
C) It would remain unchanged. 
D) It depends on the value of interest rates.

Question 20

Part of the controversy about Fed independence include(s)

Accepted Answer

A) the goal to bring all macroeconomic policy under the direct control of the president. 
B) the appropriate role of the Fed in policy making. 
C) how to make the Fed more powerful than other central banks. 
D) All of the above are correct. 
A) the goal to bring all macroeconomic policy under the direct control of the president. 
B) the appropriate role of the Fed in policy making. 
C) how to make the Fed more powerful than other central banks. 
D) All of the above are correct.

Exam 29: Monetary Policy: Conventional and Unconventional

If the Fed sells a T-bill to a commercial bank, how will this affect the money supply?

Explain the relationship between interest rates and (1) investments in housing, and (2) business investments.

The Fed is unlike other central banks in that it

Open-market operations generally involve the purchase and sales of

Which of the following will increase interest rates in the short run?

Which of the following observations is true?

Income is to money as

Suppose that the Fed purchases a $1,000 government bond from you.If you deposit the entire $1,000 in your bank, what is the total potential change in the money supply as a result of the Fed's action if reserve requirements are 10 percent?

The Fed does not have perfect control over the money supply in the short run.

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

In making policies about the nation's money supply, the Federal Reserve Board

The Federal Reserve System was established by Congress in 1914

Although a corporation that is owned by its member banks, the Federal Reserve System

What will happen to the demand for reserves if real GDP increases?

If the Fed buys a T-bill from a commercial bank, how will it pay for the T-bill?

The Federal Reserve System was established

When bond prices fall, interest rates rise.

Each Federal Reserve district bank is a corporation owned by

If the Fed raises the reserve requirement on deposits from 15 percent to 20 percent, what would happen to the money supply?

Part of the controversy about Fed independence include(s)

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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