Question 1

Some form of financial distress can become a full-blown recession if risk lead to ____ interest rates and ____ aggregate demand.

Accepted Answer

A) higher; increased 
B) higher; decreased 
C) lower; increased 
D) lower; decreased 
A) higher; increased 
B) higher; decreased 
C) lower; increased 
D) lower; decreased

Question 2

Once the federal funds rate hits zero, a central bank seeking to stimulate its economy further must turn to unconventional monetary policies.

Accepted Answer

A) True 
 B)False

Question 3

Figure 29-1
​  
-In Figure 29-1, which panel shows the effect of a Fed open-market sale 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 4

Explain the linkages in the causal chain when the Fed conducts a contractionary monetary policy.What will be the ultimate effect on GDP?

Accepted Answer

Contractionary monetary policy will requ

Question 5

Open-market operations affect the supply of reserves.

Accepted Answer

A) True 
 B)False

Question 6

A decrease in the reserve requirements causes

Accepted Answer

A) reserves to rise. 
B) reserves to remain the same. 
C) the money multiplier to rise. 
D) the money multiplier to fall. 
A) reserves to rise. 
B) reserves to remain the same. 
C) the money multiplier to rise. 
D) the money multiplier to fall.

Question 7

Open-market operations is the purchase and sale of U.S.government bonds by the Federal Reserve Bank.

Accepted Answer

A) True 
 B)False

Question 8

Stock prices fell throughout much of 2007 and 2008 and many investors decided to switch their funds into the bond market.What only about 30 percent of surveyed investors knew was that as bond prices rise, interest rates

Accepted Answer

A) fall in reaction to the increased demand for bonds. 
B) fall in reaction to the decreased demand for bonds. 
C) rise in reaction to the increased demand for bonds. 
D) rise in reaction to the decreased demand for bonds. 
A) fall in reaction to the increased demand for bonds. 
B) fall in reaction to the decreased demand for bonds. 
C) rise in reaction to the increased demand for bonds. 
D) rise in reaction to the decreased demand for bonds.

Question 9

Which of the following would indicate that the dollar amount being analyzed is money?

Accepted Answer

A) M1 money stock of $1.4 trillion at the end of 2010 
B) Microsoft profits of $500 billion in 2010 
C) The first quarter of 2002 
D) Nominal GDP in 2010 of $14.7 trillion 
A) M1 money stock of $1.4 trillion at the end of 2010 
B) Microsoft profits of $500 billion in 2010 
C) The first quarter of 2002 
D) Nominal GDP in 2010 of $14.7 trillion

Question 10

If the Fed's open-market operations expand the money supply, one can expect

Accepted Answer

A) a decrease in excess reserves. 
B) bond prices to rise. 
C) interest rates to rise. 
D) open-market sales of T-bills. 
A) a decrease in excess reserves. 
B) bond prices to rise. 
C) interest rates to rise. 
D) open-market sales of T-bills.

Question 11

Table 29-1
Effects of an open-market transaction on the balance sheets of banks and the fed (in millions of dollars)   ​
-After the transaction in Table 29-1 is completed, what happens to actual reserves, required reserves, and excess reserves? Assume the required reserve ratio is 25 percent.

Accepted Answer

A) Actual reserves increase by $10 million, required reserves increase $2.5 million, and excess reserves increase by $7.5 million. 
B) Actual reserves decrease by $10 million, required reserves decrease $2.5 million, and excess reserves decrease by $7.5 million. 
C) Actual reserves increase by $10 million, required reserves are unchanged, and excess reserves increase by $10 million. 
D) Actual reserves decrease by $10 million, required reserves decrease by $10 million, and excess reserves are unchanged. 
A) Actual reserves increase by $10 million, required reserves increase $2.5 million, and excess reserves increase by $7.5 million. 
B) Actual reserves decrease by $10 million, required reserves decrease $2.5 million, and excess reserves decrease by $7.5 million. 
C) Actual reserves increase by $10 million, required reserves are unchanged, and excess reserves increase by $10 million. 
D) Actual reserves decrease by $10 million, required reserves decrease by $10 million, and excess reserves are unchanged.

Question 12

Which of the following is most sensitive to monetary policy?

Accepted Answer

A) Government expenditure 
B) Consumption spending 
C) Utility spending 
D) Investment spending 
A) Government expenditure 
B) Consumption spending 
C) Utility spending 
D) Investment spending

Question 13

What is the federal funds rate? What are the main determinants of the federal funds rate?

Accepted Answer

The federal funds rate is the interest r

Question 14

Open-market operations have their initial effect on bank

Accepted Answer

A) lending. 
B) reserves. 
C) profits. 
D) revenues. 
A) lending. 
B) reserves. 
C) profits. 
D) revenues.

Question 15

If the Fed sells a U.S.Treasury bill to a member of the public, the banking system has

Accepted Answer

A) less reserves and the money supply tends to fall. 
B) more reserves and the money supply tends to fall. 
C) less reserves and the money supply tends to grow. 
D) more reserves and the money supply tends to grow. 
A) less reserves and the money supply tends to fall. 
B) more reserves and the money supply tends to fall. 
C) less reserves and the money supply tends to grow. 
D) more reserves and the money supply tends to grow.

Question 16

If banks choose to hold excess reserves

Accepted Answer

A) Lending decreases, and the money supply decreases. 
B) Lending increases, and the money supply increases. 
C) Lending decreases, and the money supply increases. 
D) None of these. 
A) Lending decreases, and the money supply decreases. 
B) Lending increases, and the money supply increases. 
C) Lending decreases, and the money supply increases. 
D) None of these.

Question 17

Which of the following is correct?

Accepted Answer

A) The Fed has very good control over the money supply and bank reserves. 
B) The Fed has very poor control over the money supply and bank reserves. 
C) The Fed has very good control over bank reserves but not over the money supply. 
D) The Fed has very good control over the money supply but not over bank reserves. 
A) The Fed has very good control over the money supply and bank reserves. 
B) The Fed has very poor control over the money supply and bank reserves. 
C) The Fed has very good control over bank reserves but not over the money supply. 
D) The Fed has very good control over the money supply but not over bank reserves.

Question 18

Which of the following policies by the Federal Reserve is likely to decrease the money supply?

Accepted Answer

A) Reducing reserve requirements 
B) Selling government bonds 
C) Decreasing the discount rate 
D) None of these 
A) Reducing reserve requirements 
B) Selling government bonds 
C) Decreasing the discount rate 
D) None of these

Question 19

Critics of Fed independence argue that

Accepted Answer

A) monetary policy and fiscal policy are necessarily inconsistent. 
B) political control ensures low rates of inflation. 
C) monetary policy run by specialists is inherently inflationary. 
D) unelected officials are undemocratic. 
A) monetary policy and fiscal policy are necessarily inconsistent. 
B) political control ensures low rates of inflation. 
C) monetary policy run by specialists is inherently inflationary. 
D) unelected officials are undemocratic.

Question 20

Explain how interest rates and bond prices are related to one another.Why is this important for monetary policy?

Accepted Answer

Interest rates and bond prices are inver

Exam 29: Monetary Policy: Conventional and Unconventional

Some form of financial distress can become a full-blown recession if risk lead to ____ interest rates and ____ aggregate demand.

Once the federal funds rate hits zero, a central bank seeking to stimulate its economy further must turn to unconventional monetary policies.

Figure 29-1 ​ -In Figure 29-1, which panel shows the effect of a Fed open-market sale on the interest rate?

Explain the linkages in the causal chain when the Fed conducts a contractionary monetary policy.What will be the ultimate effect on GDP?

Open-market operations affect the supply of reserves.

A decrease in the reserve requirements causes

Open-market operations is the purchase and sale of U.S.government bonds by the Federal Reserve Bank.

Stock prices fell throughout much of 2007 and 2008 and many investors decided to switch their funds into the bond market.What only about 30 percent of surveyed investors knew was that as bond prices rise, interest rates

Which of the following would indicate that the dollar amount being analyzed is money?

If the Fed's open-market operations expand the money supply, one can expect

Table 29-1 Effects of an open-market transaction on the balance sheets of banks and the fed (in millions of dollars) ​ -After the transaction in Table 29-1 is completed, what happens to actual reserves, required reserves, and excess reserves? Assume the required reserve ratio is 25 percent.

Which of the following is most sensitive to monetary policy?

What is the federal funds rate? What are the main determinants of the federal funds rate?

Open-market operations have their initial effect on bank

If the Fed sells a U.S.Treasury bill to a member of the public, the banking system has

If banks choose to hold excess reserves

Which of the following is correct?

Which of the following policies by the Federal Reserve is likely to decrease the money supply?

Critics of Fed independence argue that

Explain how interest rates and bond prices are related to one another.Why is this important for monetary policy?

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

Some form of financial distress can become a full-blown recession if risk lead to interest rates and aggregate demand.

Figure 29-1 -In Figure 29-1, which panel shows the effect of a Fed open-market sale on the interest rate?

Table 29-1 Effects of an open-market transaction on the balance sheets of banks and the fed (in millions of dollars) -After the transaction in Table 29-1 is completed, what happens to actual reserves, required reserves, and excess reserves? Assume the required reserve ratio is 25 percent.