Question 1

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 2

Contractionary monetary policy shifts the reserve supply schedule inward.

Accepted Answer

A) True 
 B)False

Question 3

The president has influence on Federal Reserve policy because

Accepted Answer

A) he can veto any Fed policy. 
B) he appoints the board members and the chair. 
C) he can fire the chair. 
D) he can replace board members at any time. 
A) he can veto any Fed policy. 
B) he appoints the board members and the chair. 
C) he can fire the chair. 
D) he can replace board members at any time.

Question 4

Figure 13-1
  
-In Figure 13-1, which panel shows the effect of inflation 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 5

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 6

The Fed can drive up interest rates by selling government securities and decreasing the money supply.

Accepted Answer

A) True 
 B)False

Question 7

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 8

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 9

An increase in the average price level will lead to a decrease in the demand for reserves.

Accepted Answer

A) True 
 B)False

Question 10

What will happen to the demand for reserves if real GDP increases?

Accepted Answer

A) It will shift outward. 
B) It will shift inward. 
C) It will remain unchanged. 
D) It depends on what happens to interest rates. 
A) It will shift outward. 
B) It will shift inward. 
C) It will remain unchanged. 
D) It depends on what happens to interest rates.

Question 11

If the Fed buys a T-bill from a commercial bank, how will it pay for the T-bill?

Accepted Answer

A) It will give the bank new reserves. 
B) It will write the bank a check. 
C) It will transfer cash to the bank's vault. 
D) It will take reserves from another bank. 
A) It will give the bank new reserves. 
B) It will write the bank a check. 
C) It will transfer cash to the bank's vault. 
D) It will take reserves from another bank.

Question 12

If interest rates increase, what is most likely to happen to the total expenditure schedule?

Accepted Answer

A) It will increase because G increases. 
B) It will decrease because I decreases. 
C) It will decrease because (X - IM) decreases. 
D) It will increase because I increases. 
A) It will increase because G increases. 
B) It will decrease because I decreases. 
C) It will decrease because (X - IM) decreases. 
D) It will increase because I increases.

Question 13

In 2007, as stock prices in general were falling, many investors began switching their funds into purchasing bonds.Surveys suggest that many of these investors did not understand the basic relationship between bond prices and interest rates.Using a numerical example, illustrate how an increase in the demand for bonds would affect the interest rate paid on bonds.

Accepted Answer

If there is an increase in the demand fo

Question 14

The tool most frequently relied on by the Fed is

Accepted Answer

A) interest rate changes. 
B) changing the money multiplier. 
C) changing the discount rate. 
D) open market operations. 
E) changing the reserve ratio. 
A) interest rate changes. 
B) changing the money multiplier. 
C) changing the discount rate. 
D) open market operations. 
E) changing the reserve ratio.

Question 15

If the Fed buys more bonds from the public, and increases the price it is willing to pay for the bonds, what will happen to interest rates?

Accepted Answer

A) They will rise. 
B) They will fall. 
C) They will remain unchanged. 
D) The relationship between bond prices and interest rates is unclear. 
A) They will rise. 
B) They will fall. 
C) They will remain unchanged. 
D) The relationship between bond prices and interest rates is unclear.

Question 16

The rate of interest that the Fed charges banks on loans is called the reserve rate.

Accepted Answer

A) True 
 B)False

Question 17

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 18

As the federal funds rate rises, the banks' opportunity cost of holding excess reserves falls.

Accepted Answer

A) True 
 B)False

Question 19

When interest rates increase, banks will normally

Accepted Answer

A) increase lending, but decrease deposits and the money supply. 
B) increase lending, deposits, and the money supply. 
C) decrease lending, but increase deposits and the money supply. 
D) decrease lending, deposits, and the money supply. 
A) increase lending, but decrease deposits and the money supply. 
B) increase lending, deposits, and the money supply. 
C) decrease lending, but increase deposits and the money supply. 
D) decrease lending, deposits, and the money supply.

Question 20

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.

Exam 30: Monetary Policy: Conventional and Unconventional

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

Contractionary monetary policy shifts the reserve supply schedule inward.

The president has influence on Federal Reserve policy because

Figure 13-1 -In Figure 13-1, which panel shows the effect of inflation on the interest rate?

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

The Fed can drive up interest rates by selling government securities and decreasing the money supply.

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

Members of the Board of Governors of the Fed are

An increase in the average price level will lead to a decrease in the demand for reserves.

What will happen to the demand for reserves if real GDP increases?

If the Fed buys a T-bill from a commercial bank, how will it pay for the T-bill?

If interest rates increase, what is most likely to happen to the total expenditure schedule?

The tool most frequently relied on by the Fed is

If the Fed buys more bonds from the public, and increases the price it is willing to pay for the bonds, what will happen to interest rates?

The rate of interest that the Fed charges banks on loans is called the reserve rate.

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?

As the federal funds rate rises, the banks' opportunity cost of holding excess reserves falls.

When interest rates increase, banks will normally

Which of the following is correct?

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: the Importance of Marginal Analysis

Securities: Business Finance and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets: the Price System

The Shortcomings of Free Markets

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

Is Useconomic Leadership Threatened

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

He 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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