Question 1

If the FOMC orders the sale of T-bills in the open market, then bank reserves are

Accepted Answer

A) decreased, but the money supply will remain unchanged. 
B) decreased, and a multiple contraction of the money supply will occur. 
C) increased, but the money supply will remain unchanged. 
D) increased, and a multiple expansion of the money supply will occur. 
A) decreased, but the money supply will remain unchanged. 
B) decreased, and a multiple contraction of the money supply will occur. 
C) increased, but the money supply will remain unchanged. 
D) increased, and a multiple expansion of the money supply will occur.

Question 2

If the Fed decides to buy T-bills, it increases the demand for T-bills.How will this affect the price of T-bills and the interest rate?

Accepted Answer

A) T-bill prices fall and interest rates fall. 
B) T-bill prices rise and interest rates rise. 
C) T-bill prices rise and interest rates fall. 
D) T-bill prices fall and interest rates rise. 
A) T-bill prices fall and interest rates fall. 
B) T-bill prices rise and interest rates rise. 
C) T-bill prices rise and interest rates fall. 
D) T-bill prices fall and interest rates rise.

Question 3

Which of the following phrases would be used to describe an income amount?

Accepted Answer

A) Per year 
B) Per month 
C) Per week 
D) All of the above are correct. 
A) Per year 
B) Per month 
C) Per week 
D) All of the above are correct.

Question 4

Higher interest rates lead to lower investment spending.

Accepted Answer

A) True 
 B)False

Question 5

The Fed's purchase and sale of government securities is known as

Accepted Answer

A) margin operations. 
B) open-market operations. 
C) bank reserve operations. 
D) cash management operations. 
A) margin operations. 
B) open-market operations. 
C) bank reserve operations. 
D) cash management operations.

Question 6

The principal objective of the Federal Reserve System is to

Accepted Answer

A) circulate coins and paper Federal Reserve Notes. 
B) subsidize the income of member banks. 
C) help stabilize the economy through monetary policy. 
D) make profits to remit to the Treasury Department. 
A) circulate coins and paper Federal Reserve Notes. 
B) subsidize the income of member banks. 
C) help stabilize the economy through monetary policy. 
D) make profits to remit to the Treasury Department.

Question 7

The Fed's principal objective is to

Accepted Answer

A) make profits to pay into the U.S.Treasury. 
B) collect tax revenues. 
C) supervise the business decisions of banks. 
D) manage the money supply and interest rates. 
A) make profits to pay into the U.S.Treasury. 
B) collect tax revenues. 
C) supervise the business decisions of banks. 
D) manage the money supply and interest rates.

Question 8

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

Accepted Answer

A) Reducing reserve requirements 
B) Selling government bonds 
C) Increasing the discount rate 
D) Increasing interest on reserves 
A) Reducing reserve requirements 
B) Selling government bonds 
C) Increasing the discount rate 
D) Increasing interest on reserves

Question 9

During the stock market crash of October 1987, the Fed

Accepted Answer

A) raised the discount rate. 
B) raised reserve requirements. 
C) increased lending to member banks. 
D) sold government securities. 
A) raised the discount rate. 
B) raised reserve requirements. 
C) increased lending to member banks. 
D) sold government securities.

Question 10

Member banks of the Federal Reserve System

Accepted Answer

A) advise the Fed on monetary policy. 
B) are immune from the effects of monetary policy. 
C) vote on members of the Board of Governors. 
D) have little control over the system they "own." 
A) advise the Fed on monetary policy. 
B) are immune from the effects of monetary policy. 
C) vote on members of the Board of Governors. 
D) have little control over the system they "own."

Question 11

The actual control of the Federal Reserve System resides in the

Accepted Answer

A) Congress of the United States. 
B) member banks. 
C) Senate Banking Committee. 
D) Board of Governors. 
A) Congress of the United States. 
B) member banks. 
C) Senate Banking Committee. 
D) Board of Governors.

Question 12

If the Fed buys a T-bill from an individual rather than from a bank, the effect on the money supply is

Accepted Answer

A) smaller because there is no multiplier process. 
B) larger because of the multiplier process. 
C) the same. 
D) impossible to predict without knowing the value of the multiplier. 
A) smaller because there is no multiplier process. 
B) larger because of the multiplier process. 
C) the same. 
D) impossible to predict without knowing the value of the multiplier.

Question 13

Which one of the following policies might the Fed initiate if it wanted to increase the money supply?

Accepted Answer

A) Sell government securities 
B) Increase the reserve requirement 
C) Increase the discount rate 
D) Decrease the reserve requirement 
A) Sell government securities 
B) Increase the reserve requirement 
C) Increase the discount rate 
D) Decrease the reserve requirement

Question 14

Money is a concept that has a certain value at a point in time.

Accepted Answer

A) True 
 B)False

Question 15

If the Fed lends to member banks, what happens to reserves and the money supply?

Accepted Answer

A) Reserves increase and the money supply decreases. 
B) Both increase. 
C) Reserves decrease and the money supply increases. 
D) Both decrease. 
A) Reserves increase and the money supply decreases. 
B) Both increase. 
C) Reserves decrease and the money supply increases. 
D) Both decrease.

Question 16

Interest rates declined in 2007.What happened to bond prices during this time?

Accepted Answer

A) They were unchanged. 
B) They increased. 
C) They decreased. 
D) Not enough data to answer. 
A) They were unchanged. 
B) They increased. 
C) They decreased. 
D) Not enough data to answer.

Question 17

The Federal Open Market Committee consists of

Accepted Answer

A) the president and the Board of Governors. 
B) Congress people, Senators, and the Board of Governors. 
C) the Secretary of the Treasury and the Board of Governors. 
D) the Board of Governors and five district bank presidents. 
A) the president and the Board of Governors. 
B) Congress people, Senators, and the Board of Governors. 
C) the Secretary of the Treasury and the Board of Governors. 
D) the Board of Governors and five district bank presidents.

Question 18

Investment spending is lower when interest rates are higher.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) It will increase the money supply. 
B) It will increase the checking account balance of the individual. 
C) It will have no effect on the money supply. 
D) It will decrease the money supply. 
A) It will increase the money supply. 
B) It will increase the checking account balance of the individual. 
C) It will have no effect on the money supply. 
D) It will decrease the money supply.

Question 20

The Federal Reserve System is

Accepted Answer

A) controlled by the Department of the Treasury. 
B) the central bank for the United States. 
C) completely similar to the Bank of England. 
D) All of the above are correct. 
A) controlled by the Department of the Treasury. 
B) the central bank for the United States. 
C) completely similar to the Bank of England. 
D) All of the above are correct.

Exam 29: Monetary Policy: Conventional and Unconventional

If the FOMC orders the sale of T-bills in the open market, then bank reserves are

If the Fed decides to buy T-bills, it increases the demand for T-bills.How will this affect the price of T-bills and the interest rate?

Which of the following phrases would be used to describe an income amount?

Higher interest rates lead to lower investment spending.

The Fed's purchase and sale of government securities is known as

The principal objective of the Federal Reserve System is to

The Fed's principal objective is to

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

During the stock market crash of October 1987, the Fed

Member banks of the Federal Reserve System

The actual control of the Federal Reserve System resides in the

If the Fed buys a T-bill from an individual rather than from a bank, the effect on the money supply is

Which one of the following policies might the Fed initiate if it wanted to increase the money supply?

Money is a concept that has a certain value at a point in time.

If the Fed lends to member banks, what happens to reserves and the money supply?

Interest rates declined in 2007.What happened to bond prices during this time?

The Federal Open Market Committee consists of

Investment spending is lower when interest rates are higher.

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

The Federal Reserve System is

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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