Question 1

Which of the following is most sensitive to monetary policy?

Accepted Answer

A) Government expenditure 
B) Consumption spending 
C) Utility spending 
D) Investment spending 
A) Government expenditure 
B) Consumption spending 
C) Utility spending 
D) Investment spending

Question 2

Which of the following phrases indicates that income is being spoken of?

Accepted Answer

A) Tuesday, at 12:30 p.m. 
B) July 14, 1948 
C) from January 1 to March 30 
D) yesterday afternoon 
A) Tuesday, at 12:30 p.m. 
B) July 14, 1948 
C) from January 1 to March 30 
D) yesterday afternoon

Question 3

Discount rate policy is most often

Accepted Answer

A) lowered when market rates rise. 
B) used to actively control the money supply. 
C) the Fed's primary tool of monetary control. 
D) passively changed by the Fed to follow market rates. 
A) lowered when market rates rise. 
B) used to actively control the money supply. 
C) the Fed's primary tool of monetary control. 
D) passively changed by the Fed to follow market rates.

Question 4

The reserve demand schedule is drawn on a graph that has the quantity of reserves on the horizontal axis and

Accepted Answer

A) the price level is on the vertical axis. 
B) the federal funds rate is on the vertical axis. 
C) the price of bonds is on the vertical axis. 
D) income is on the vertical axis. 
A) the price level is on the vertical axis. 
B) the federal funds rate is on the vertical axis. 
C) the price of bonds is on the vertical axis. 
D) income is on the vertical axis.

Question 5

If the Fed reduces 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 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

When the Fed purchases government securities from a commercial bank, the bank

Accepted Answer

A) loses its ability to make loans. 
B) automatically becomes poorer. 
C) loses equity in the Fed. 
D) receives reserves that can be loaned out. 
A) loses its ability to make loans. 
B) automatically becomes poorer. 
C) loses equity in the Fed. 
D) receives reserves that can be loaned out.

Question 8

If the Fed reduces the required reserve ratio,

Accepted Answer

A) excess reserves will increase. 
B) excess reserves will decrease. 
C) total reserves will increase. 
D) total reserves will decrease. 
A) excess reserves will increase. 
B) excess reserves will decrease. 
C) total reserves will increase. 
D) total reserves will decrease.

Question 9

How does an open market purchase by the Fed affect the level of bank reserves and the interest rate?
 Illustrate the interest rate effect by drawing the appropriate graph.

Accepted Answer

When the Fed buys government securities

Question 10

Which of the following were not actions taken by the Federal Reserve in order to stimulate the economy during the recession of 2007-2009?

Accepted Answer

A) decreasing the discount rate 
B) suspending trading on the major stock exchanges 
C) massive lending to banks 
D) open market purchases of assets other than Treasury bills 
A) decreasing the discount rate 
B) suspending trading on the major stock exchanges 
C) massive lending to banks 
D) open market purchases of assets other than Treasury bills

Question 11

The main purpose of expansionary monetary policy is to

Accepted Answer

A) expand Treasury borrowing. 
B) increase reserve requirements. 
C) insure deposits. 
D) reduce interest rates. 
A) expand Treasury borrowing. 
B) increase reserve requirements. 
C) insure deposits. 
D) reduce interest rates.

Question 12

When the Federal Reserve System was first established, its founders intended the Fed to

Accepted Answer

A) assist the Treasury in collecting taxes. 
B) be primarily responsible for government regulations. 
C) pursue an active monetary policy to stabilize the economy. 
D) provide protection against financial panics by acting as the lender of last resort. 
A) assist the Treasury in collecting taxes. 
B) be primarily responsible for government regulations. 
C) pursue an active monetary policy to stabilize the economy. 
D) provide protection against financial panics by acting as the lender of last resort.

Question 13

Monetary policy is the system of actions taken by the Fed to influence the money supply.

Accepted Answer

A) True 
 B)False

Question 14

If the Fed decreases the discount rate, 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 15

If the Fed decides to sell T-bills, it increases the supply of 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 16

Which of the following will lower interest rates in the short run?

Accepted Answer

A) an increase in reserve requirements 
B) open market sales by the Fed 
C) a decrease in real GDP 
D) an increase in the price level 
A) an increase in reserve requirements 
B) open market sales by the Fed 
C) a decrease in real GDP 
D) an increase in the price level

Question 17

The Fed's purchase and sale of government securities is known as

Accepted Answer

A) margin operations. 
B) open market operations. 
C) bank reserve operations. 
D) cash management operations. 
A) margin operations. 
B) open market operations. 
C) bank reserve operations. 
D) cash management operations.

Question 18

Part of the controversy about Fed independence include(s)

Accepted Answer

A) the goal to bring all macroeconomic policy under the direct control of the president. 
B) the appropriate role of the Fed in policy making. 
C) how to make the Fed more powerful than other central banks. 
D) All of the above are correct. 
A) the goal to bring all macroeconomic policy under the direct control of the president. 
B) the appropriate role of the Fed in policy making. 
C) how to make the Fed more powerful than other central banks. 
D) All of the above are correct.

Question 19

The Fed frequently uses the discount rate and the required reserve ratio as instruments of monetary policy.

Accepted Answer

A) True 
 B)False

Question 20

Proponents of Fed independence maintain that

Accepted Answer

A) independence helps ensure low unemployment rates. 
B) money is too important to be left to the bankers. 
C) independence permits objective decisions not based on politics. 
D) only the Federal Reserve knows how to act wisely. 
A) independence helps ensure low unemployment rates. 
B) money is too important to be left to the bankers. 
C) independence permits objective decisions not based on politics. 
D) only the Federal Reserve knows how to act wisely.

Exam 30: Monetary Policy: Conventional and Unconventional

Which of the following is most sensitive to monetary policy?

Which of the following phrases indicates that income is being spoken of?

Discount rate policy is most often

The reserve demand schedule is drawn on a graph that has the quantity of reserves on the horizontal axis and

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

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

When the Fed purchases government securities from a commercial bank, the bank

If the Fed reduces the required reserve ratio,

How does an open market purchase by the Fed affect the level of bank reserves and the interest rate? Illustrate the interest rate effect by drawing the appropriate graph.

Which of the following were not actions taken by the Federal Reserve in order to stimulate the economy during the recession of 2007-2009?

The main purpose of expansionary monetary policy is to

When the Federal Reserve System was first established, its founders intended the Fed to

Monetary policy is the system of actions taken by the Fed to influence the money supply.

If the Fed decreases the discount rate, what happens to reserves and the money supply?

If the Fed decides to sell T-bills, it increases the supply of T-bills.How will this affect the price of T-bills and the interest rate?

Which of the following will lower interest rates in the short run?

The Fed's purchase and sale of government securities is known as

Part of the controversy about Fed independence include(s)

The Fed frequently uses the discount rate and the required reserve ratio as instruments of monetary policy.

Proponents of Fed independence maintain that

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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