Question 1

How are Treasury bond prices affected when the interest rate falls?

Accepted Answer

A)  The purchaser of the bond needs to spend less money to obtain a given number of dollars of interest per year, so the price of the bond must decrease. 
B)  The purchaser of the bond needs to spend more money to obtain a given number of dollars of interest per year, so the price of the bond must increase. 
C)  The purchaser of the bond needs to spend more money to obtain a given number of dollars of interest per year, so the price of the bond must decrease. 
D)  The purchaser of the bond needs to spend less money to obtain a given number of dollars of interest per year, so the price of the bond must increase. 
A)  The purchaser of the bond needs to spend less money to obtain a given number of dollars of interest per year, so the price of the bond must decrease. 
B)  The purchaser of the bond needs to spend more money to obtain a given number of dollars of interest per year, so the price of the bond must increase. 
C)  The purchaser of the bond needs to spend more money to obtain a given number of dollars of interest per year, so the price of the bond must decrease. 
D)  The purchaser of the bond needs to spend less money to obtain a given number of dollars of interest per year, so the price of the bond must increase.

Question 2

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

Accepted Answer

A)  Reducing reserve requirements 
B)  Selling government bonds 
C)  Decreasing the discount rate 
D)  None of these 
A)  Reducing reserve requirements 
B)  Selling government bonds 
C)  Decreasing the discount rate 
D)  None of these

Question 3

The Fed is institutionally independent. A major advantage of this is that monetary policy

Accepted Answer

A)  is subject to regular congressional scrutiny. 
B)  will often offset fiscal policy. 
C)  is not controlled by politicians. 
D)  is usually coordinated with fiscal policy. 
A)  is subject to regular congressional scrutiny. 
B)  will often offset fiscal policy. 
C)  is not controlled by politicians. 
D)  is usually coordinated with fiscal policy.

Question 4

Investment spending is sensitive to interest rates.

Accepted Answer

A) True 
 B)False

Question 5

If the Fed raises the reserve requirement on deposits from 15 percent to 20 percent, what would happen to the money supply?

Accepted Answer

A)  It would decrease. 
B)  It would increase. 
C)  It would remain unchanged. 
D)  It depends on the value of interest rates. 
A)  It would decrease. 
B)  It would increase. 
C)  It would remain unchanged. 
D)  It depends on the value of interest rates.

Question 6

The creation of new bank reserves could lead to a multiple increase in the money supply.

Accepted Answer

A) True 
 B)False

Question 7

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 8

Assume that the banking system has $200 billion in reserves. There are no excess reserves in the system. If the reserve requirement is decreased from 10 percent to 8 percent, what will happen to the level of excess reserves in the system?

Accepted Answer

A)  There will be a deficiency of $40 billion in reserves. 
B)  There will be a deficiency of $20 billion in reserves. 
C)  There will be $20 billion in excess reserves. 
D)  There will be $40 billion in excess reserves. 
A)  There will be a deficiency of $40 billion in reserves. 
B)  There will be a deficiency of $20 billion in reserves. 
C)  There will be $20 billion in excess reserves. 
D)  There will be $40 billion in excess reserves.

Question 9

The reserves supply schedule has a positive slope because

Accepted Answer

A)  the Fed lowers the discount rate as interest rates rise. 
B)  the Fed makes more money available at higher interest rates. 
C)  as interest rates rise, banks will find loans more profitable. 
D)  as interest rates rise, people will demand more loans. 
A)  the Fed lowers the discount rate as interest rates rise. 
B)  the Fed makes more money available at higher interest rates. 
C)  as interest rates rise, banks will find loans more profitable. 
D)  as interest rates rise, people will demand more loans.

Question 10

In reality, commercial banks function most like ____ of the district Federal Reserve Banks.

Accepted Answer

A)  stockholders 
B)  regulators 
C)  customers 
D)  competitors 
A)  stockholders 
B)  regulators 
C)  customers 
D)  competitors

Question 11

Explain the concept of "lender of last resort." What is discount rate?

Accepted Answer

When risky business prospects make comme

Question 12

The central bank in the United States is known as the Federal Reserve System.

Accepted Answer

A) True 
 B)False

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

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 15

If the Fed's open-market operations expand the money supply, one can expect

Accepted Answer

A)  a decrease in excess reserves. 
B)  bond prices to rise. 
C)  interest rates to rise. 
D)  open-market sales of T-bills. 
A)  a decrease in excess reserves. 
B)  bond prices to rise. 
C)  interest rates to rise. 
D)  open-market sales of T-bills.

Question 16

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 17

Discount rate is the interest rate on the loans that the Fed makes to banks.

Accepted Answer

A) True 
 B)False

Question 18

If the Federal Reserve Bank wants to lower the supply of money, it sells government bonds from its portfolio to the public in the nation's bond markets.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A)  It will increase the money supply. 
B)  It will increase bank reserves. 
C)  It will decrease the money supply. 
D)  It will have no effect on the money supply. 
A)  It will increase the money supply. 
B)  It will increase bank reserves. 
C)  It will decrease the money supply. 
D)  It will have no effect on the money supply.

Question 20

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.

Exam 29: Monetary Policy: Conventional and Unconventional

How are Treasury bond prices affected when the interest rate falls?

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

The Fed is institutionally independent. A major advantage of this is that monetary policy

Investment spending is sensitive to interest rates.

If the Fed raises the reserve requirement on deposits from 15 percent to 20 percent, what would happen to the money supply?

The creation of new bank reserves could lead to a multiple increase in the money supply.

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

Assume that the banking system has $200 billion in reserves. There are no excess reserves in the system. If the reserve requirement is decreased from 10 percent to 8 percent, what will happen to the level of excess reserves in the system?

The reserves supply schedule has a positive slope because

In reality, commercial banks function most like ____ of the district Federal Reserve Banks.

Explain the concept of "lender of last resort." What is discount rate?

The central bank in the United States is known as the Federal Reserve System.

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

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

If the Fed's open-market operations expand the money supply, one can expect

The actual control of the Federal Reserve System resides in the

Discount rate is the interest rate on the loans that the Fed makes to banks.

If the Federal Reserve Bank wants to lower the supply of money, it sells government bonds from its portfolio to the public in the nation's bond markets.

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

The Federal Reserve Board of Governors

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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