Question 1

The Federal Open Market Committee consists of

Accepted Answer

A) the president and the Board of Governors. 
B) Congresspeople, Senators, and the Board of Governors. 
C) the Secretary of the Treasury and the Board of Governors. 
D) the Board of Governors and five district bank presidents. 
A) the president and the Board of Governors. 
B) Congresspeople, Senators, and the Board of Governors. 
C) the Secretary of the Treasury and the Board of Governors. 
D) the Board of Governors and five district bank presidents.

Question 2

The Fed conducts an open market purchase of Treasury bills of $10 million.If the required reserve ratio is 0.10, what change in the money supply can be expected using the oversimplified money multiplier?

Accepted Answer

A) $100 million 
B) $10 million 
C) 0 
D) −$10 million 
E) −$100 million 
A) $100 million 
B) $10 million 
C) 0 
D) −$10 million 
E) −$100 million

Question 3

An increase in the money supply should cause the expenditure schedule to shift upward.

Accepted Answer

A) True 
 B)False

Question 4

Stock prices fell throughout much of 2007 and 2008 and many investors decided to switch their funds into the bond market.What only about 30 percent of surveyed investors knew was that as bond prices rise, interest rates

Accepted Answer

A) fall in reaction to the increased demand for bonds. 
B) fall in reaction to the decreased demand for bonds. 
C) rise in reaction to the increased demand for bonds. 
D) rise in reaction to the decreased demand for bonds. 
A) fall in reaction to the increased demand for bonds. 
B) fall in reaction to the decreased demand for bonds. 
C) rise in reaction to the increased demand for bonds. 
D) rise in reaction to the decreased demand for bonds.

Question 5

Bank lending and deposits tend to change as interest rates change.Can the Fed counteract this tendency?

Accepted Answer

A) Yes, through its ability to affect the money supply. 
B) Yes, through its ability to change tax levels. 
C) No, the Fed is forbidden by the Constitution from intervening in the economy. 
D) No, the Fed almost always follows a passive monetary policy. 
A) Yes, through its ability to affect the money supply. 
B) Yes, through its ability to change tax levels. 
C) No, the Fed is forbidden by the Constitution from intervening in the economy. 
D) No, the Fed almost always follows a passive monetary policy.

Question 6

A system that requires banks to keep 100 percent reserves

Accepted Answer

A) would reduce the Fed's ability to control the money supply. 
B) would undermine the effectiveness of reserve requirement changes. 
C) would increase the Fed's ability to control the money supply. 
D) could be implemented with little change in bank policy. 
A) would reduce the Fed's ability to control the money supply. 
B) would undermine the effectiveness of reserve requirement changes. 
C) would increase the Fed's ability to control the money supply. 
D) could be implemented with little change in bank policy.

Question 7

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 8

What determines the magnitude of the changes in price level when central bank takes monetary policy measures that leads to a change in the aggregate demand?

Accepted Answer

A) Changes in the money supply 
B) Slope of the aggregate supply curve 
C) Rate of change of interest rate 
D) Total money supply in the economy 
A) Changes in the money supply 
B) Slope of the aggregate supply curve 
C) Rate of change of interest rate 
D) Total money supply in the economy

Question 9

The principal objective of the Federal Reserve System is to

Accepted Answer

A) circulate coins and paper Federal Reserve Notes. 
B) subsidize the income of member banks. 
C) help stabilize the economy through monetary policy. 
D) make profits to remit to the Treasury Department. 
A) circulate coins and paper Federal Reserve Notes. 
B) subsidize the income of member banks. 
C) help stabilize the economy through monetary policy. 
D) make profits to remit to the Treasury Department.

Question 10

Who is considered to be the most powerful person in the economic world by many observers?

Accepted Answer

A) Federal Reserve Chair 
B) EU Central Bank President 
C) Director-General of the WTO 
D) World Bank President 
A) Federal Reserve Chair 
B) EU Central Bank President 
C) Director-General of the WTO 
D) World Bank President

Question 11

Money supply is to income as

Accepted Answer

A) real is to ideal. 
B) stock is to flow. 
C) real is to nominal. 
D) flow is to stock. 
A) real is to ideal. 
B) stock is to flow. 
C) real is to nominal. 
D) flow is to stock.

Question 12

If the price level rises, what will happen to the demand for reserves?

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 13

If the Fed raises the discount rate, what will be the effect on the money supply?

Accepted Answer

A) It will decrease the money supply. 
B) It will increase the money supply. 
C) No change in the money supply. 
D) Not enough data to give an answer. 
A) It will decrease the money supply. 
B) It will increase the money supply. 
C) No change in the money supply. 
D) Not enough data to give an answer.

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

What is the federal funds rate?
 What are the main determinants of the federal funds rate?

Accepted Answer

The federal funds rate is the interest r

Question 16

The Federal Reserve System is

Accepted Answer

A) controlled by the Department of the Treasury. 
B) the central bank for the United States. 
C) completely similar to the Bank of England. 
D) All of the above are correct. 
A) controlled by the Department of the Treasury. 
B) the central bank for the United States. 
C) completely similar to the Bank of England. 
D) All of the above are correct.

Question 17

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 18

The quantity of reserves demanded decreases as the federal funds rate rises because

Accepted Answer

A) people want more liquid assets as the federal funds rate rises. 
B) the price of bonds rise as the federal funds rate rises. 
C) the opportunity cost of holding excess reserves increases as the federal funds rate rises. 
D) people want more money to invest as the federal funds rate rises. 
A) people want more liquid assets as the federal funds rate rises. 
B) the price of bonds rise as the federal funds rate rises. 
C) the opportunity cost of holding excess reserves increases as the federal funds rate rises. 
D) people want more money to invest as the federal funds rate rises.

Question 19

Under what conditions will the inflationary impact of an expansionary monetary policy be the largest?

Accepted Answer

A) When equilibrium real GDP is at potential real GDP. 
B) When there is a recessionary gap. 
C) When unemployment rates are high and there is substantial excess industrial capacity. 
D) When real GDP is falling and the price level is decreasing. 
A) When equilibrium real GDP is at potential real GDP. 
B) When there is a recessionary gap. 
C) When unemployment rates are high and there is substantial excess industrial capacity. 
D) When real GDP is falling and the price level is decreasing.

Question 20

The Federal Reserve System was established

Accepted Answer

A) at the request of farmers to keep down interest rates. 
B) because Americans believe in centralization of authority. 
C) after four severe bank panics between 1873 and 1907. 
D) as part of the Treasury Department. 
A) at the request of farmers to keep down interest rates. 
B) because Americans believe in centralization of authority. 
C) after four severe bank panics between 1873 and 1907. 
D) as part of the Treasury Department.

Exam 30: Monetary Policy: Conventional and Unconventional

The Federal Open Market Committee consists of

The Fed conducts an open market purchase of Treasury bills of $10 million.If the required reserve ratio is 0.10, what change in the money supply can be expected using the oversimplified money multiplier?

An increase in the money supply should cause the expenditure schedule to shift upward.

Stock prices fell throughout much of 2007 and 2008 and many investors decided to switch their funds into the bond market.What only about 30 percent of surveyed investors knew was that as bond prices rise, interest rates

Bank lending and deposits tend to change as interest rates change.Can the Fed counteract this tendency?

A system that requires banks to keep 100 percent reserves

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

What determines the magnitude of the changes in price level when central bank takes monetary policy measures that leads to a change in the aggregate demand?

The principal objective of the Federal Reserve System is to

Who is considered to be the most powerful person in the economic world by many observers?

Money supply is to income as

If the price level rises, what will happen to the demand for reserves?

If the Fed raises the discount rate, what will be the effect on the money supply?

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

What is the federal funds rate? What are the main determinants of the federal funds rate?

The Federal Reserve System is

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

The quantity of reserves demanded decreases as the federal funds rate rises because

Under what conditions will the inflationary impact of an expansionary monetary policy be the largest?

The Federal Reserve System was established

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

Filters