Question 1

Open-market operations affect the supply of reserves.

Accepted Answer

A) True 
 B)False

Question 2

The main reason why the aggregate demand curve slopes downward is that higher prices increases the demand for bank deposits, and hence for bank reserves.

Accepted Answer

A) True 
 B)False

Question 3

The immediate impetus for the establishment of the Federal Reserve System came from

Accepted Answer

A)  severe outbreaks of inflation in the early 1900s. 
B)  four severe banking panics between 1873 and 1907. 
C)  the discovery of gold in Alaska. 
D)  the desire to copy the founding of the Bank of England. 
A)  severe outbreaks of inflation in the early 1900s. 
B)  four severe banking panics between 1873 and 1907. 
C)  the discovery of gold in Alaska. 
D)  the desire to copy the founding of the Bank of England.

Question 4

If the Fed increases the discount rate, what happens to the money supply?

Accepted Answer

A)  Increases 
B)  Decreases 
C)  Stays the same 
D)  None of these 
A)  Increases 
B)  Decreases 
C)  Stays the same 
D)  None of these

Question 5

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 6

The amount of inflation caused by expansionary monetary policy depends on the slope of the aggregate supply curve.

Accepted Answer

A) True 
 B)False

Question 7

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 8

If the Fed raises the discount rate, what will be the effect on the money supply?

Accepted Answer

A)  It will decrease the money supply. 
B)  It will increase the money supply. 
C)  No change in the money supply 
D)  Not enough data to give an answer 
A)  It will decrease the money supply. 
B)  It will increase the money supply. 
C)  No change in the money supply 
D)  Not enough data to give an answer

Question 9

If interest rates increase, what is most likely to happen to the total expenditure schedule?

Accepted Answer

A)  It will increase because G increases. 
B)  It will decrease because I decreases. 
C)  It will decrease because (X - IM) decreases. 
D)  It will increase because I increases. 
A)  It will increase because G increases. 
B)  It will decrease because I decreases. 
C)  It will decrease because (X - IM) decreases. 
D)  It will increase because I increases.

Question 10

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 11

Some examples of unconventional monetary policies include massive lending to banks, or even to firms that are nor banks, and open-market purchases of securities other than Treasury bills.

Accepted Answer

A) True 
 B)False

Question 12

Why does the Fed have imperfect control over the money supply?

Accepted Answer

A)  Because the Fed does not know how much reserves will change when it buys or sells securities. 
B)  Because of unpredictable changes in the public's desire to hold cash and banks' desires to hold reserves. 
C)  Because of unpredictable changes in reserve requirements. 
D)  Because of the secrecy of FOMC meetings, which lead to policy surprises. 
A)  Because the Fed does not know how much reserves will change when it buys or sells securities. 
B)  Because of unpredictable changes in the public's desire to hold cash and banks' desires to hold reserves. 
C)  Because of unpredictable changes in reserve requirements. 
D)  Because of the secrecy of FOMC meetings, which lead to policy surprises.

Question 13

When interest rates decrease, banks will normally

Accepted Answer

A)  increase lending, but decrease deposits and the money supply. 
B)  increase lending, deposits, and the money supply. 
C)  decrease lending, but increase deposits and the money supply. 
D)  decrease lending, deposits, and the money supply. 
A)  increase lending, but decrease deposits and the money supply. 
B)  increase lending, deposits, and the money supply. 
C)  decrease lending, but increase deposits and the money supply. 
D)  decrease lending, deposits, and the money supply.

Question 14

Bank lending and deposits tend to change as interest rates change. Can the Fed counteract this tendency?

Accepted Answer

A)  Yes, through its ability to affect the money supply. 
B)  Yes, through its ability to change tax levels. 
C)  No, the Fed is forbidden by the Constitution from intervening in the economy. 
D)  No, the Fed almost always follows a passive monetary policy. 
A)  Yes, through its ability to affect the money supply. 
B)  Yes, through its ability to change tax levels. 
C)  No, the Fed is forbidden by the Constitution from intervening in the economy. 
D)  No, the Fed almost always follows a passive monetary policy.

Question 15

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 16

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 17

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 18

The United States was among the first of the modern industrial nations to establish a central banking system.

Accepted Answer

A) True 
 B)False

Question 19

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 20

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

Exam 29: Monetary Policy: Conventional and Unconventional

Open-market operations affect the supply of reserves.

The main reason why the aggregate demand curve slopes downward is that higher prices increases the demand for bank deposits, and hence for bank reserves.

The immediate impetus for the establishment of the Federal Reserve System came from

If the Fed increases the discount rate, what happens to the money supply?

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

The amount of inflation caused by expansionary monetary policy depends on the slope of the aggregate supply curve.

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

If the Fed raises the discount rate, what will be the effect on the money supply?

If interest rates increase, what is most likely to happen to the total expenditure schedule?

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

Some examples of unconventional monetary policies include massive lending to banks, or even to firms that are nor banks, and open-market purchases of securities other than Treasury bills.

Why does the Fed have imperfect control over the money supply?

When interest rates decrease, banks will normally

Bank lending and deposits tend to change as interest rates change. Can the Fed counteract this tendency?

Does the Fed have good control over the money supply?

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

The president has influence on Federal Reserve policy because

The United States was among the first of the modern industrial nations to establish a central banking system.

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

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?

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

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 Us Economy

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