Question 1

When the bond prices rise, interest rates fall.

Accepted Answer

A) True 
 B)False

Question 2

The Federal Reserve Bank was modeled after the European Central Bank.

Accepted Answer

A) True 
 B)False

Question 3

In the Keynesian causal chain, changes in GDP cause changes in the level of interest rates.

Accepted Answer

A) True 
 B)False

Question 4

Central bank independence refers to the central bank's ability to make decisions without political interference.

Accepted Answer

A) True 
 B)False

Question 5

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 6

If the Federal Reserve wants to increase the supply of money, it creates dollars and uses them to purchase government bonds from the public in the nation's bond markets.

Accepted Answer

A) True 
 B)False

Question 7

Proponents of Fed independence maintain that

Accepted Answer

A)  independence helps ensure low unemployment rates. 
B)  money is too important to be left to the bankers. 
C)  independence permits objective decisions not based on politics. 
D)  only the Federal Reserve knows how to act wisely. 
A)  independence helps ensure low unemployment rates. 
B)  money is too important to be left to the bankers. 
C)  independence permits objective decisions not based on politics. 
D)  only the Federal Reserve knows how to act wisely.

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

An open-market sale of Treasury bills by the Fed not only reduces the money supply but also

Accepted Answer

A)  Lowers T-bill prices and raises interest rates. 
B)  Drives up T-bill prices and pushes down interest rates. 
C)  Lowers T-bill prices and pushes down interest rates 
D)  None of these. 
A)  Lowers T-bill prices and raises interest rates. 
B)  Drives up T-bill prices and pushes down interest rates. 
C)  Lowers T-bill prices and pushes down interest rates 
D)  None of these.

Question 10

The Fed conducts an open-market purchase of Treasury bills of $10 million. If the required reserve ratio is 0.10, what change in the money supply can be expected using the oversimplified money multiplier?

Accepted Answer

A)  $100 million 
B)  $10 million 
C)  0 
D)  −$10 million 
E)  −$100 million 
A)  $100 million 
B)  $10 million 
C)  0 
D)  −$10 million 
E)  −$100 million

Question 11

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 12

Higher interest rates cause investment spending to fall and pull down aggregate demand via the multiplier mechanism.

Accepted Answer

A) True 
 B)False

Question 13

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 14

Although a corporation that is owned by its member banks, the Federal Reserve System

Accepted Answer

A)  reports directly to the president in an annual report. 
B)  is quite independent of them, and they receive almost none of the Fed's profits. 
C)  is administered by Congress and all its profits are distributed to the member banks. 
D)  turns all its profits over to the state governments of each district bank. 
A)  reports directly to the president in an annual report. 
B)  is quite independent of them, and they receive almost none of the Fed's profits. 
C)  is administered by Congress and all its profits are distributed to the member banks. 
D)  turns all its profits over to the state governments of each district bank.

Question 15

If the Fed increases the required reserve ratio, how will this affect excess reserves and the money supply?

Accepted Answer

A)  Both will increase. 
B)  Excess reserves increase and the money supply decreases. 
C)  Both will decrease. 
D)  Excess reserves decrease and the money supply increases. 
A)  Both will increase. 
B)  Excess reserves increase and the money supply decreases. 
C)  Both will decrease. 
D)  Excess reserves decrease and the money supply increases.

Question 16

Members of the Board of Governors of the Fed are

Accepted Answer

A)  elected to two-year terms by the Electoral College. 
B)  appointed by the president for four-year terms and confirmed by the Congress. 
C)  appointed by the president for 14-year terms and confirmed by the Senate. 
D)  appointed by the president for 14-year terms and confirmed by the Supreme Court. 
A)  elected to two-year terms by the Electoral College. 
B)  appointed by the president for four-year terms and confirmed by the Congress. 
C)  appointed by the president for 14-year terms and confirmed by the Senate. 
D)  appointed by the president for 14-year terms and confirmed by the Supreme Court.

Question 17

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 18

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 19

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 20

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.

Exam 29: Monetary Policy: Conventional and Unconventional

When the bond prices rise, interest rates fall.

The Federal Reserve Bank was modeled after the European Central Bank.

In the Keynesian causal chain, changes in GDP cause changes in the level of interest rates.

Central bank independence refers to the central bank's ability to make decisions without political interference.

Member banks of the Federal Reserve System

If the Federal Reserve wants to increase the supply of money, it creates dollars and uses them to purchase government bonds from the public in the nation's bond markets.

Proponents of Fed independence maintain that

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

An open-market sale of Treasury bills by the Fed not only reduces the money supply but also

The Fed conducts an open-market purchase of Treasury bills of $10 million. If the required reserve ratio is 0.10, what change in the money supply can be expected using the oversimplified money multiplier?

Open-market operations have their initial effect on bank

Higher interest rates cause investment spending to fall and pull down aggregate demand via the multiplier mechanism.

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

Although a corporation that is owned by its member banks, the Federal Reserve System

If the Fed increases the required reserve ratio, how will this affect excess reserves and the money supply?

Members of the Board of Governors of the Fed are

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

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 is correct?

If banks choose to hold excess reserves

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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