Question 1

Higher price levels will eventually lead to lower interest rates as people reduce their demand for money.

Accepted Answer

A) True 
 B)False

Question 2

Critics of Fed independence argue that

Accepted Answer

A)  monetary policy and fiscal policy are necessarily inconsistent. 
B)  political control ensures low rates of inflation. 
C)  monetary policy run by specialists is inherently inflationary. 
D)  unelected officials are undemocratic. 
A)  monetary policy and fiscal policy are necessarily inconsistent. 
B)  political control ensures low rates of inflation. 
C)  monetary policy run by specialists is inherently inflationary. 
D)  unelected officials are undemocratic.

Question 3

The discount rate is the rate that the

Accepted Answer

A)  Treasury pays on savings bonds. 
B)  Fed charges member banks. 
C)  Fed charges on government securities. 
D)  Fed charges the Treasury for sales of securities. 
A)  Treasury pays on savings bonds. 
B)  Fed charges member banks. 
C)  Fed charges on government securities. 
D)  Fed charges the Treasury for sales of securities.

Question 4

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 5

The Fed carries out monetary policy chiefly by influencing the demand for reserves schedule.

Accepted Answer

A) True 
 B)False

Question 6

When the Fed sells a government security to the public,how does it usually receive payment for the security?

Accepted Answer

A)  by accepting checks on bank accounts 
B)  by drawing money out of circulation 
C)  by decreasing member bank profits not distributed by the Fed 
D)  by decreasing reserves in bank accounts at the Fed 
A)  by accepting checks on bank accounts 
B)  by drawing money out of circulation 
C)  by decreasing member bank profits not distributed by the Fed 
D)  by decreasing reserves in bank accounts at the Fed

Question 7

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 8

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 9

The inflationary effect of an expansionary monetary policy depends on the slope of the aggregate supply curve.

Accepted Answer

A) True 
 B)False

Question 10

Income is to money as

Accepted Answer

A)  short story is to novel. 
B)  video is to digital photo. 
C)  song is to symphony. 
D)  entree is to dessert. 
A)  short story is to novel. 
B)  video is to digital photo. 
C)  song is to symphony. 
D)  entree is to dessert.

Question 11

An increase in the interest rate is associated with an increase in bond prices.

Accepted Answer

A) True 
 B)False

Question 12

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 13

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 14

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 15

Explain the linkages in the causal chain when the Fed conducts a contractionary monetary policy.What will be the ultimate effect on GDP?

Accepted Answer

Contractionary monetary policy will requ

Question 16

The reason that the Fed does not actively use discount rate policy to control the money supply is because the Fed

Accepted Answer

A)  acts when a majority of member banks agree on policy and the banks rarely agree. 
B)  earns interest on discounting and cannot afford to lose the revenue. 
C)  does not know how banks will respond to discount rate changes. 
D)  has been directed by Congress to set the discount rate at a permanent level. 
A)  acts when a majority of member banks agree on policy and the banks rarely agree. 
B)  earns interest on discounting and cannot afford to lose the revenue. 
C)  does not know how banks will respond to discount rate changes. 
D)  has been directed by Congress to set the discount rate at a permanent level.

Question 17

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 18

Explain the relationship between interest rates and (1)investments in housing,and (2)business investments.

Accepted Answer

As the interest cost of a home mortgage

Question 19

Each Federal Reserve district bank is a corporation owned by

Accepted Answer

A)  the member banks in the district. 
B)  the people of the United States. 
C)  the U.S. Department of the Treasury. 
D)  federal securities owners. 
A)  the member banks in the district. 
B)  the people of the United States. 
C)  the U.S. Department of the Treasury. 
D)  federal securities owners.

Question 20

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.

Higher price levels will eventually lead to lower interest rates as people reduce their demand for money.

Critics of Fed independence argue that

The discount rate is the rate that the

Banks will hold additional excess reserves when

The Fed carries out monetary policy chiefly by influencing the demand for reserves schedule.

When the Fed sells a government security to the public,how does it usually receive payment for the security?

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

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

The inflationary effect of an expansionary monetary policy depends on the slope of the aggregate supply curve.

Income is to money as

An increase in the interest rate is associated with an increase in bond prices.

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

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

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?

Explain the linkages in the causal chain when the Fed conducts a contractionary monetary policy.What will be the ultimate effect on GDP?

The reason that the Fed does not actively use discount rate policy to control the money supply is because the Fed

The central bank of the United States is known as the

Explain the relationship between interest rates and (1)investments in housing,and (2)business investments.

Each Federal Reserve district bank is a corporation owned by

The reserves supply schedule has a positive slope because

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

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Exam 13: Monetary Policy: Conventional and Unconventional

Higher price levels will eventually lead to lower interest rates as people reduce their demand for money.

Critics of Fed independence argue that

The discount rate is the rate that the

Banks will hold additional excess reserves when

The Fed carries out monetary policy chiefly by influencing the demand for reserves schedule.

When the Fed sells a government security to the public,how does it usually receive payment for the security?

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

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

The inflationary effect of an expansionary monetary policy depends on the slope of the aggregate supply curve.

Income is to money as

An increase in the interest rate is associated with an increase in bond prices.

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

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

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?

Explain the linkages in the causal chain when the Fed conducts a contractionary monetary policy.What will be the ultimate effect on GDP?

The reason that the Fed does not actively use discount rate policy to control the money supply is because the Fed

The central bank of the United States is known as the

Explain the relationship between interest rates and (1)investments in housing,and (2)business investments.

Each Federal Reserve district bank is a corporation owned by

The reserves supply schedule has a positive slope because

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

Filters