Question 1

Income is measured as

Accepted Answer

A) average cash holdings per time period. 
B) change in cash holdings per time period. 
C) some amount per time period. 
D) some amount at a point in time. 
A) average cash holdings per time period. 
B) change in cash holdings per time period. 
C) some amount per time period. 
D) some amount at a point in time.

Question 2

Describe the origins of the Fed and the arguments about the independence of the Fed.

Accepted Answer

The Fed was established in 1914 as a res

Question 3

Part of the reason that people confuse money and income is because

Accepted Answer

A) money is tangible, but income is intangible. 
B) money serves as the unit of account. 
C) money is abstract, but income is concrete. 
D) income is almost impossible to measure. 
A) money is tangible, but income is intangible. 
B) money serves as the unit of account. 
C) money is abstract, but income is concrete. 
D) income is almost impossible to measure.

Question 4

The Fed relies on open-market operations, which work

Accepted Answer

A) with the Treasury in creating money to finance bonds. 
B) through major stock exchanges to influence bond prices. 
C) directly through the nonbank public to change their assets. 
D) through the banking system by affecting their reserves. 
A) with the Treasury in creating money to finance bonds. 
B) through major stock exchanges to influence bond prices. 
C) directly through the nonbank public to change their assets. 
D) through the banking system by affecting their reserves.

Question 5

The monetary policies carried out by the Fed

Accepted Answer

A) must be ratified by Congress. 
B) must be consistent with fiscal policies passed by Congress. 
C) are sometimes inconsistent with fiscal policy. 
D) must be approved by the president. 
A) must be ratified by Congress. 
B) must be consistent with fiscal policies passed by Congress. 
C) are sometimes inconsistent with fiscal policy. 
D) must be approved by the president.

Question 6

The Federal Reserve Board of Governors

Accepted Answer

A) serves at the pleasure of the president similar to other cabinet positions. 
B) reports directly to Congress and is controlled by Congress. 
C) consists of 12 members, one from each district bank. 
D) is structurally independent of the executive and legislative branches of the federal government. 
A) serves at the pleasure of the president similar to other cabinet positions. 
B) reports directly to Congress and is controlled by Congress. 
C) consists of 12 members, one from each district bank. 
D) is structurally independent of the executive and legislative branches of the federal government.

Question 7

Figure 29-1
​  
-In Figure 29-1, which panel shows the effect of inflation 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 8

If the Fed decides to sell T-bills, it increases the supply of 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 9

Why is the Chair of the Fed Reserve considered by many to be the most powerful person in the economic world?

Accepted Answer

People in financial markets around the w

Question 10

Which of the following has proved to be spectacularly false, at least recently?

Accepted Answer

A) As an expansion proceeds, people will hold no more cash. 
B) As an expansion proceeds, banks will hold no more excess reserves. 
C) The oversimplified money multiplier formula is predicated on two critical assumptions. 
D) All of the above are false. 
A) As an expansion proceeds, people will hold no more cash. 
B) As an expansion proceeds, banks will hold no more excess reserves. 
C) The oversimplified money multiplier formula is predicated on two critical assumptions. 
D) All of the above are false.

Question 11

Which of the following phrases indicates that income is being spoken of?

Accepted Answer

A) Tuesday, at 12:30 p.m. 
B) July 14, 1948 
C) From January 1 to March 30 
D) Yesterday afternoon 
A) Tuesday, at 12:30 p.m. 
B) July 14, 1948 
C) From January 1 to March 30 
D) Yesterday afternoon

Question 12

In practice, money supply and short-term interest rates are determined by the

Accepted Answer

A) Treasury and Commerce departments. 
B) Federal Open Market Committee. 
C) Board of Governors. 
D) House and Senate. 
A) Treasury and Commerce departments. 
B) Federal Open Market Committee. 
C) Board of Governors. 
D) House and Senate.

Question 13

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

Accepted Answer

A) Sell government bonds, decrease reserve requirements, decrease the discount rate. 
B) Sell government bonds, increase reserve requirements, increase the discount rate. 
C) Buy government bonds, increase reserve requirements, decrease the discount rate. 
D) Buy government bonds, decrease reserve requirements, decrease the discount rate. 
A) Sell government bonds, decrease reserve requirements, decrease the discount rate. 
B) Sell government bonds, increase reserve requirements, increase the discount rate. 
C) Buy government bonds, increase reserve requirements, decrease the discount rate. 
D) Buy government bonds, decrease reserve requirements, decrease the discount rate.

Question 14

Does the Fed have good control over the money supply?

Accepted Answer

A) Yes, open-market operations generate exact changes in bank lending. 
B) Yes, reserve requirements create new loans. 
C) No, because of difficulties estimating the reserve ratio. 
D) No, because of difficulties estimating the size of the excess reserves and cash holdings by the public. 
A) Yes, open-market operations generate exact changes in bank lending. 
B) Yes, reserve requirements create new loans. 
C) No, because of difficulties estimating the reserve ratio. 
D) No, because of difficulties estimating the size of the excess reserves and cash holdings by the public.

Question 15

The central bank of the United States is known as the

Accepted Answer

A) Internal Revenue Service. 
B) Federal Reserve System. 
C) Federal Deposit Insurance Corporation. 
D) Department of Commerce. 
A) Internal Revenue Service. 
B) Federal Reserve System. 
C) Federal Deposit Insurance Corporation. 
D) Department of Commerce.

Question 16

If the Fed sells $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

Risk premiums rise sharply in a financial crisis.

Accepted Answer

A) True 
 B)False

Question 18

There is a positive relationship between the quantity of reserves supplied and the federal funds rate.

Accepted Answer

A) True 
 B)False

Question 19

If the FOMC orders a purchase of government securities from member banks, where does the FOMC get the money to pay for the securities?

Accepted Answer

A) It creates money to pay for the securities by adding the purchase amount to the banks' reserves. 
B) It pays for the securities with new Federal Reserve notes. 
C) It borrows the necessary funds from the Treasury. 
D) It auctions off part of the securities it already owns. 
A) It creates money to pay for the securities by adding the purchase amount to the banks' reserves. 
B) It pays for the securities with new Federal Reserve notes. 
C) It borrows the necessary funds from the Treasury. 
D) It auctions off part of the securities it already owns.

Question 20

Risky borrowers pay higher interest rates than safer borrowers, in order to persuade lenders to accept the higher risk of default.

Accepted Answer

A) True 
 B)False

Exam 29: Monetary Policy: Conventional and Unconventional

Income is measured as

Describe the origins of the Fed and the arguments about the independence of the Fed.

Part of the reason that people confuse money and income is because

The Fed relies on open-market operations, which work

The monetary policies carried out by the Fed

The Federal Reserve Board of Governors

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

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

Why is the Chair of the Fed Reserve considered by many to be the most powerful person in the economic world?

Which of the following has proved to be spectacularly false, at least recently?

Which of the following phrases indicates that income is being spoken of?

In practice, money supply and short-term interest rates are determined by the

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

Does the Fed have good control over the money supply?

The central bank of the United States is known as the

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

Risk premiums rise sharply in a financial crisis.

There is a positive relationship between the quantity of reserves supplied and the federal funds rate.

If the FOMC orders a purchase of government securities from member banks, where does the FOMC get the money to pay for the securities?

Risky borrowers pay higher interest rates than safer borrowers, in order to persuade lenders to accept the higher risk of default.

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 inflation on the interest rate?