Question 1

Management of the money supply is the role of the Federal Reserve.

Accepted Answer

A) True 
 B)False  True

Question 2

Inflation tends to foster efficiency.

Accepted Answer

A) True 
 B)False  False

Question 3

Incomes policy attempts to slow inflation by:

Accepted Answer

A)  mandatory wage-price controls 
B)  controlling the rate of growth in incomes 
C)  restraining growth in the money supply 
D)  indexing wages, rents, contracts, and taxes for inflation 
A)  mandatory wage-price controls 
B)  controlling the rate of growth in incomes 
C)  restraining growth in the money supply 
D)  indexing wages, rents, contracts, and taxes for inflation B

Question 4

If the simple money multiplier is 2, the reserve requirement must be:

Accepted Answer

A)  50 percent 
B)  5 percent 
C)  zero 
D)  unknown based upon the information provided 
A)  50 percent 
B)  5 percent 
C)  zero 
D)  unknown based upon the information provided

Question 5

Use a diagram of aggregate supply and aggregate demand to show the case of demand-pull inflation.

Accepted Answer

Demand-pull inflation occurs when the ag

Question 6

If the Fed were to use all the currently operational tools of monetary policy to pursue an easy-money policy, it would:

Accepted Answer

A)  lower reserve requirements, lower the discount rate, buy securities in the open market, lower interest rates on required and excess reserve balances, make fewer term deposits available 
B)  raise reserve requirements, raise the discount rate, sell securities in the open market, increase interest rates on required and excess reserve balances, make more term deposits available 
C)  buy a huge volume of commercial paper 
D)  setup another "Maiden Lane" special purpose vehicle to conceal the Fed's balloning balance sheet 
E)  put the regional Federal Reserve Banks up for sale 
A)  lower reserve requirements, lower the discount rate, buy securities in the open market, lower interest rates on required and excess reserve balances, make fewer term deposits available 
B)  raise reserve requirements, raise the discount rate, sell securities in the open market, increase interest rates on required and excess reserve balances, make more term deposits available 
C)  buy a huge volume of commercial paper 
D)  setup another "Maiden Lane" special purpose vehicle to conceal the Fed's balloning balance sheet 
E)  put the regional Federal Reserve Banks up for sale

Question 7

Which of the following formulas should be used to calculate the inflation rate between 2010 and 2009?

Accepted Answer

A)  $\frac { \text { CPI } 2010 - \text { CPI } 2009 } { \text { CPI } 2010 } \times 100$ 
B)  $\frac { \text { CPI } 2010 } { \text { CPI 2010-CPI 2009 } } \times 100$ 
C)  $\frac { \text { CPI } 2010 - \text { CPI } 2009 } { \text { CPI } 2009 } \times 100$ 
D)  $\frac { \text { CPI } 2010 - \text { CPI } 2009 } { \text { CPI base period} } \times 100$ 
A)  $\frac { \text { CPI } 2010 - \text { CPI } 2009 } { \text { CPI } 2010 } \times 100$ 
B)  $\frac { \text { CPI } 2010 } { \text { CPI 2010-CPI 2009 } } \times 100$ 
C)  $\frac { \text { CPI } 2010 - \text { CPI } 2009 } { \text { CPI } 2009 } \times 100$ 
D)  $\frac { \text { CPI } 2010 - \text { CPI } 2009 } { \text { CPI base period} } \times 100$

Question 8

Trace the following transactions with the use of T-accounts:
a. $100,000 is deposited in Hemlock Community Bank, where the reserve requirement is 3 percent.
b. The bank lends a small business all its excess reserves through a loan-created demand deposit.
c. Excess reserves are paid out to cover the loan.

Accepted Answer

The answer of Trace the following transactions with the use...

Question 9

Inflation raises nominal interest rates.

Accepted Answer

A) True 
 B)False

Question 10

A bank's required reserves are not available for lending and other investment purposes.

Accepted Answer

A) True 
 B)False

Question 11

The consumer price index is a weighted average of prices for a market basket of various consumer goods and services.

Accepted Answer

A) True 
 B)False

Question 12

Inflation betters the balance of trade.

Accepted Answer

A) True 
 B)False

Question 13

If the reserve requirement is 25 percent, the simple money multiplier is:

Accepted Answer

A)  1.25 
B)  2 
C)  4 
D)  .75 
A)  1.25 
B)  2 
C)  4 
D)  .75

Question 14

If the reserve requirement is 10 percent and the banking system has excess reserves of $9,000, the maximum amount of new deposits that can be created is:

Accepted Answer

A)  $9,000 
B)  $90,000 
C)  $900 
D)  $900,000 
A)  $9,000 
B)  $90,000 
C)  $900 
D)  $900,000

Question 15

If monetary authorities apply a "Taylor rule":

Accepted Answer

A)  short-term interest rates are manipulated to meet a long-run inflation target that is consistent with full employment 
B)  an unchanging rate of growth in the money supply would be adopted 
C)  a series of monetary shocks are delivered to the economy to either speed it up or slow it down 
D)  the Federal Open Market Committee would as a rule always consult with economist John Taylor before implementing changes to monetary policy 
E)  monetary policy would have to accommodate federal deficits as a rule 
A)  short-term interest rates are manipulated to meet a long-run inflation target that is consistent with full employment 
B)  an unchanging rate of growth in the money supply would be adopted 
C)  a series of monetary shocks are delivered to the economy to either speed it up or slow it down 
D)  the Federal Open Market Committee would as a rule always consult with economist John Taylor before implementing changes to monetary policy 
E)  monetary policy would have to accommodate federal deficits as a rule

Question 16

The First Federal Bank has demand deposit liabilities of $400,000, cash reserves of $75,000, loans of $225,000, and government securities of $100,000. The reserve requirement is 12 percent.
a. Show the bank's balance sheet.
b. Show the bank's balance sheet after the Fed buys $25,000 of securities from the bank.
c. After completion of the transaction in part b, how much excess reserves does the bank have? By how much did they increase?

Accepted Answer

The answer of The First Federal Bank has demand deposit...

Question 17

Core inflation excludes volatile components such a food and energy.

Accepted Answer

A) True 
 B)False

Question 18

During periods of inflation some prices may be rising while others remain the same or decline.

Accepted Answer

A) True 
 B)False

Question 19

The personal consumption expenditures index is favored by economists as a measure of price level and inflation because it captures the entirety of consumption spending.

Accepted Answer

A) True 
 B)False

Question 20

Anticipated inflation:

Accepted Answer

A)  makes people feel good about the future 
B)  lowers nominal interest rates 
C)  leaves economic behavior unchanged 
D)  raises nominal interest rates 
A)  makes people feel good about the future 
B)  lowers nominal interest rates 
C)  leaves economic behavior unchanged 
D)  raises nominal interest rates

Management of the money supply is the role of the Federal Reserve.

Inflation tends to foster efficiency.

Incomes policy attempts to slow inflation by:

If the simple money multiplier is 2, the reserve requirement must be:

Use a diagram of aggregate supply and aggregate demand to show the case of demand-pull inflation.

If the Fed were to use all the currently operational tools of monetary policy to pursue an easy-money policy, it would:

Which of the following formulas should be used to calculate the inflation rate between 2010 and 2009?

Inflation raises nominal interest rates.

A bank's required reserves are not available for lending and other investment purposes.

The consumer price index is a weighted average of prices for a market basket of various consumer goods and services.

Inflation betters the balance of trade.

If the reserve requirement is 25 percent, the simple money multiplier is:

If the reserve requirement is 10 percent and the banking system has excess reserves of $9,000, the maximum amount of new deposits that can be created is:

If monetary authorities apply a "Taylor rule":

Core inflation excludes volatile components such a food and energy.

During periods of inflation some prices may be rising while others remain the same or decline.

The personal consumption expenditures index is favored by economists as a measure of price level and inflation because it captures the entirety of consumption spending.

Anticipated inflation:

Toward a Twenty-First Century Economic Agenda: Goals and Possibilities

The Market Economy: Pure and Simple

Government in the Economy: The Limits of Intervention

The Historical Foundation of American Economic Institutions and Ideas

When Firms Act As Pricemakers: Competition Versus Monopoly

The Economics of Externalities and the Environment

Health-Care Issues

Factor Markets: Pricing and Productivity

The Distribution of Income: Dividing the Economic Pie

Government Expenditures and Taxation

Accounting for Economic Fluctuations: Aggregate Demand and Aggregate Supply Analysis

Maintaining a Rising Level of Output: The Importance of Economic Growth

Employment and Unemployment: Who Is Out of Work and Why

The Federal Debt and Deficit Crisis: The Limits of Fiscal Policy

America in the World: International Trade

America in the World: International Finance

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Exam 15: Keeping Inflation Under Control: The Limits of Monetary Policy

Management of the money supply is the role of the Federal Reserve.

Inflation tends to foster efficiency.

Incomes policy attempts to slow inflation by:

If the simple money multiplier is 2, the reserve requirement must be:

Use a diagram of aggregate supply and aggregate demand to show the case of demand-pull inflation.

If the Fed were to use all the currently operational tools of monetary policy to pursue an easy-money policy, it would:

Which of the following formulas should be used to calculate the inflation rate between 2010 and 2009?

Inflation raises nominal interest rates.

A bank's required reserves are not available for lending and other investment purposes.

The consumer price index is a weighted average of prices for a market basket of various consumer goods and services.

Inflation betters the balance of trade.

If the reserve requirement is 25 percent, the simple money multiplier is:

If the reserve requirement is 10 percent and the banking system has excess reserves of $9,000, the maximum amount of new deposits that can be created is:

If monetary authorities apply a "Taylor rule":

Core inflation excludes volatile components such a food and energy.

During periods of inflation some prices may be rising while others remain the same or decline.

The personal consumption expenditures index is favored by economists as a measure of price level and inflation because it captures the entirety of consumption spending.

Anticipated inflation:

Toward a Twenty-First Century Economic Agenda: Goals and Possibilities

The Market Economy: Pure and Simple

Government in the Economy: The Limits of Intervention

The Historical Foundation of American Economic Institutions and Ideas

When Firms Act As Pricemakers: Competition Versus Monopoly

The Economics of Externalities and the Environment

Health-Care Issues

Factor Markets: Pricing and Productivity

The Distribution of Income: Dividing the Economic Pie

Government Expenditures and Taxation

Accounting for Economic Fluctuations: Aggregate Demand and Aggregate Supply Analysis

Maintaining a Rising Level of Output: The Importance of Economic Growth

Employment and Unemployment: Who Is Out of Work and Why

The Federal Debt and Deficit Crisis: The Limits of Fiscal Policy

America in the World: International Trade

America in the World: International Finance

Filters