Question 1

Banks will hold additional excess reserves when

Accepted Answer

A)  loans to customers look safe and interest rates are high. 
B)  they anticipate a bank audit. 
C)  loans to customers look risky and interest rates are low. 
D)  the economy is booming and there is a large demand for loans. 
A)  loans to customers look safe and interest rates are high. 
B)  they anticipate a bank audit. 
C)  loans to customers look risky and interest rates are low. 
D)  the economy is booming and there is a large demand for loans.

Question 2

If the Fed buys $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 3

Money supply is to income as

Accepted Answer

A)  real is to ideal. 
B)  stock is to flow. 
C)  real is to nominal. 
D)  flow is to stock. 
A)  real is to ideal. 
B)  stock is to flow. 
C)  real is to nominal. 
D)  flow is to stock.

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is the most frequently used tool of monetary policy?

Accepted Answer

A)  Changing the discount rate 
B)  Changing reserve requirements 
C)  Open-market operations 
D)  Interest rate changes 
A)  Changing the discount rate 
B)  Changing reserve requirements 
C)  Open-market operations 
D)  Interest rate changes

Question 6

____ is the rate that applies when banks borrow and lend reserves to one another.

Accepted Answer

A)  The repo rate 
B)  The discount rate 
C)  The coupon rate 
D)  The federal fund rate 
A)  The repo rate 
B)  The discount rate 
C)  The coupon rate 
D)  The federal fund rate

Question 7

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 8

How does an open-market purchase by the Fed affect the level of bank reserves and the interest rate? Illustrate the interest rate effect by drawing the appropriate graph.

Accepted Answer

When the Fed buys government securities

Question 9

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 10

Under what conditions will the inflationary impact of an expansionary monetary policy be the largest?

Accepted Answer

A)  When equilibrium real GDP is at potential real GDP. 
B)  When there is a recessionary gap. 
C)  When unemployment rates are high and there is substantial excess industrial capacity. 
D)  When real GDP is falling and the price level is decreasing. 
A)  When equilibrium real GDP is at potential real GDP. 
B)  When there is a recessionary gap. 
C)  When unemployment rates are high and there is substantial excess industrial capacity. 
D)  When real GDP is falling and the price level is decreasing.

Question 11

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 12

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 13

Open-market operations are easy for the Federal Reserve to conduct and are therefore the tool of monetary policy that the Federal Reserve uses most often.

Accepted Answer

A) True 
 B)False

Question 14

The main reason the United States established a central bank was

Accepted Answer

A)  a desire for a strong centralized financial authority. 
B)  to follow the conclusions of economic theory. 
C)  severe inflation after the Civil War. 
D)  disastrous experiences with financial panics. 
A)  a desire for a strong centralized financial authority. 
B)  to follow the conclusions of economic theory. 
C)  severe inflation after the Civil War. 
D)  disastrous experiences with financial panics.

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

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 17

The Fed's tools of monetary policy are

Accepted Answer

A)  government expenditures, interest rates, and taxation. 
B)  open-market operations, lending to banks, reserve requirements, and paying interest on reserves. 
C)  the money supply, government purchases, and taxation. 
D)  none of these. 
A)  government expenditures, interest rates, and taxation. 
B)  open-market operations, lending to banks, reserve requirements, and paying interest on reserves. 
C)  the money supply, government purchases, and taxation. 
D)  none of these.

Question 18

In 1998, Japan decided to make the Bank of Japan, its central bank,

Accepted Answer

A)  more independent. 
B)  more concerned with fighting inflation. 
C)  subject to direct control by the Japanese prime minister. 
D)  subject to direct control by the Diet, the Japanese parliament. 
A)  more independent. 
B)  more concerned with fighting inflation. 
C)  subject to direct control by the Japanese prime minister. 
D)  subject to direct control by the Diet, the Japanese parliament.

Question 19

The Federal Reserve Open Market Committee includes the seven members of the Board of Governors, presidents of 5 of the 12 district banks, and the Secretary of the Treasury.

Accepted Answer

A) True 
 B)False

Question 20

Generally, most of the world's industrial countries believe that central banks should be independent of their governments.

Accepted Answer

A) True 
 B)False

Exam 29: Monetary Policy: Conventional and Unconventional

Banks will hold additional excess reserves when

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

Money supply is to income as

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

Which of the following is the most frequently used tool of monetary policy?

____ is the rate that applies when banks borrow and lend reserves to one another.

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

How does an open-market purchase by the Fed affect the level of bank reserves and the interest rate? Illustrate the interest rate effect by drawing the appropriate graph.

The principal objective of the Federal Reserve System is to

Under what conditions will the inflationary impact of an expansionary monetary policy be the largest?

During the stock market crash of October 1987, the Fed

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

Open-market operations are easy for the Federal Reserve to conduct and are therefore the tool of monetary policy that the Federal Reserve uses most often.

The main reason the United States established a central bank was

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

Which of the following is most sensitive to monetary policy?

The Fed's tools of monetary policy are

In 1998, Japan decided to make the Bank of Japan, its central bank,

The Federal Reserve Open Market Committee includes the seven members of the Board of Governors, presidents of 5 of the 12 district banks, and the Secretary of the Treasury.

Generally, most of the world's industrial countries believe that central banks should be independent of their governments.

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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