Question 1

The money supply contracts when the Fed

Accepted Answer

A) replaces old worn-out notes and bills. 
B) borrows from the Treasury. 
C) sells government securities. 
D) purchases stocks from corporate businesses. 
A) replaces old worn-out notes and bills. 
B) borrows from the Treasury. 
C) sells government securities. 
D) purchases stocks from corporate businesses.

Question 2

The opportunity cost of holding excess reserves will be lower at an 8 percent federal funds rate in comparison to a 10 percent federal funds rate.

Accepted Answer

A) True 
 B)False

Question 3

The correct chain of causation illustrating the changes caused by monetary policy is

Accepted Answer

A) money, interest rates, C + I + G + (X − IM), I. 
B) money, interest rates, I, C + I + G + (X − IM). 
C) C + I + G + (X − IM), I, interest rates, money. 
D) I, C + I + G + (X − IM), money, interest rates. 
A) money, interest rates, C + I + G + (X − IM), I. 
B) money, interest rates, I, C + I + G + (X − IM). 
C) C + I + G + (X − IM), I, interest rates, money. 
D) I, C + I + G + (X − IM), money, interest rates.

Question 4

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 5

Describe the origins of the Fed and the arguments about the independence of the Fed.

Accepted Answer

The Fed was established in 1914 as a res

Question 6

Income is measured as

Accepted Answer

A) average cash holdings per time period. 
B) change in cash holdings per time period. 
C) some amount per time period. 
D) some amount at a point in time. 
A) average cash holdings per time period. 
B) change in cash holdings per time period. 
C) some amount per time period. 
D) some amount at a point in time.

Question 7

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

Accepted Answer

When risky business prospects make comme

Question 8

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 9

The Fed relies on open market operations, which work

Accepted Answer

A) with the Treasury in creating money to finance bonds. 
B) through major stock exchanges to influence bond prices. 
C) directly through the nonbank public to change their assets. 
D) through the banking system by affecting their reserves. 
A) with the Treasury in creating money to finance bonds. 
B) through major stock exchanges to influence bond prices. 
C) directly through the nonbank public to change their assets. 
D) through the banking system by affecting their reserves.

Question 10

At the time of its founding, which tool was thought to be the most useful for the Fed?

Accepted Answer

A) changing the reserve requirement 
B) altering deposit interest rates 
C) lending to banks 
D) open market operations 
A) changing the reserve requirement 
B) altering deposit interest rates 
C) lending to banks 
D) open market operations

Question 11

The original goal of the Fed's founders was to prevent the

Accepted Answer

A) supply of money from increasing too rapidly. 
B) supply of money from decreasing during downturns. 
C) possibility of hyperinflation. 
D) possibility of interest rates falling too rapidly. 
A) supply of money from increasing too rapidly. 
B) supply of money from decreasing during downturns. 
C) possibility of hyperinflation. 
D) possibility of interest rates falling too rapidly.

Question 12

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

Accepted Answer

A) will always be coordinated with fiscal policy. 
B) is not subject to democratic control as other policies are. 
C) will never offset fiscal policy. 
D) cannot be changed once it has been instituted. 
A) will always be coordinated with fiscal policy. 
B) is not subject to democratic control as other policies are. 
C) will never offset fiscal policy. 
D) cannot be changed once it has been instituted.

Question 13

The Fed conducts an open market sale of Treasury bills of $5 million.If the required reserve ratio is 0.20, what change in the money supply can be expected using the oversimplified money multiplier?

Accepted Answer

A) $25 million 
B) $5 million 
C) 0 
D) −$5 million 
E) −$25 million 
A) $25 million 
B) $5 million 
C) 0 
D) −$5 million 
E) −$25 million

Question 14

If interest rates increase, what will happen to the demand for reserves?

Accepted Answer

A) It will shift outward. 
B) It will shift inward. 
C) Nothing, the economy will move to a new quantity demanded. 
D) It depends on what happens to prices. 
A) It will shift outward. 
B) It will shift inward. 
C) Nothing, the economy will move to a new quantity demanded. 
D) It depends on what happens to prices.

Question 15

If the Fed lends to member banks, what happens to reserves and the money supply?

Accepted Answer

A) Reserves increase and the money supply decreases. 
B) Both increase. 
C) Reserves decrease and the money supply increases. 
D) Both decrease. 
A) Reserves increase and the money supply decreases. 
B) Both increase. 
C) Reserves decrease and the money supply increases. 
D) Both decrease.

Question 16

The Federal Reserve System is a(n)

Accepted Answer

A) corporation owned by its member banks. 
B) independent branch of the U.S.government. 
C) corporation owned by the government and member banks. 
D) agency created by presidential executive order. 
A) corporation owned by its member banks. 
B) independent branch of the U.S.government. 
C) corporation owned by the government and member banks. 
D) agency created by presidential executive order.

Question 17

The money supply can be increased by decreasing the required reserve ratio.

Accepted Answer

A) True 
 B)False

Question 18

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 19

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 20

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.

Exam 30: Monetary Policy: Conventional and Unconventional

The money supply contracts when the Fed

The opportunity cost of holding excess reserves will be lower at an 8 percent federal funds rate in comparison to a 10 percent federal funds rate.

The correct chain of causation illustrating the changes caused by monetary policy is

Each Federal Reserve district bank is a corporation owned by

Describe the origins of the Fed and the arguments about the independence of the Fed.

Income is measured as

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

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

The Fed relies on open market operations, which work

At the time of its founding, which tool was thought to be the most useful for the Fed?

The original goal of the Fed's founders was to prevent the

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

The Fed conducts an open market sale of Treasury bills of $5 million.If the required reserve ratio is 0.20, what change in the money supply can be expected using the oversimplified money multiplier?

If interest rates increase, what will happen to the demand for reserves?

If the Fed lends to member banks, what happens to reserves and the money supply?

The Federal Reserve System is a(n)

The money supply can be increased by decreasing the required reserve ratio.

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

The central bank of the United States is known as the

The discount rate is the rate that the

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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