Question 1

Banks can obtain funds to make loans by borrowing reserves from other banks through the federal funds market.

Accepted Answer

A) True 
 B)False

Question 2

The most commonly used tool in monetary policy is

Accepted Answer

A)  changes in required reserve ratios. 
B)  changes in the discount rate. 
C)  open market operations. 
D)  express lending transactions. 
A)  changes in required reserve ratios. 
B)  changes in the discount rate. 
C)  open market operations. 
D)  express lending transactions.

Question 3

Recall the Application about the effectiveness of committees in making decisions about monetary policy to answer the following question(s). Former Fed vice-chairman Alan Blinder developed an experiment to see whether individuals or groups make better decisions, and who makes them more rapidly. The experiment tested how quickly individuals and groups could distinguish changes in underlying trends from random events, such as if a one-month unemployment rate increase was a temporary aberration or the possible beginning of a recession, and their decisions as to changing monetary policy as a reaction to the events.
-Recall the Application. If the Federal Reserve was making a decision on changing interest rates

Accepted Answer

A)  the chairman, acting alone, would typically make a better decision than the Board of Governors. 
B)  the Board of Governors would typically make a better decision than the chairman acting on his own. 
C)  the Board of Governors would typically make an equally good decision as would the chairman acting on his own. 
D)  neither the Board of Governors nor the chairman, acting alone, would tend to make accurate predictions. 
A)  the chairman, acting alone, would typically make a better decision than the Board of Governors. 
B)  the Board of Governors would typically make a better decision than the chairman acting on his own. 
C)  the Board of Governors would typically make an equally good decision as would the chairman acting on his own. 
D)  neither the Board of Governors nor the chairman, acting alone, would tend to make accurate predictions.

Question 4

An increase in the price level in the economy leads to

Accepted Answer

A)  a leftward shift in the demand for money curve. 
B)  a rightward shift in the demand for money curve. 
C)  a leftward movement along the demand for money curve. 
D)  a rightward movement along the demand for money curve. 
A)  a leftward shift in the demand for money curve. 
B)  a rightward shift in the demand for money curve. 
C)  a leftward movement along the demand for money curve. 
D)  a rightward movement along the demand for money curve.

Question 5

Generally, when the Federal Reserve lowers interest rates, investment spending ________ and GDP ________.

Accepted Answer

A)  increases; decreases 
B)  increases; increases 
C)  decreases; decreases 
D)  decreases; increases 
A)  increases; decreases 
B)  increases; increases 
C)  decreases; decreases 
D)  decreases; increases

Question 6

An open market purchase by the Fed

Accepted Answer

A)  increases investment and increases output. 
B)  increases investment and decreases output. 
C)  decreases investment and increases output. 
D)  decreases investment and decreases output. 
A)  increases investment and increases output. 
B)  increases investment and decreases output. 
C)  decreases investment and increases output. 
D)  decreases investment and decreases output.

Question 7

The Federal Reserve influences the level of interest rates in the short run by changing the

Accepted Answer

A)  demand for money through open market operations. 
B)  demand for money through changes in reserve requirements. 
C)  supply of money through open market operations. 
D)  supply of money through changes in stock market operations. 
A)  demand for money through open market operations. 
B)  demand for money through changes in reserve requirements. 
C)  supply of money through open market operations. 
D)  supply of money through changes in stock market operations.

Question 8

An open market ________ by the Fed decreases interest rates and ________ investment.

Accepted Answer

A)  purchase; increases 
B)  purchase; decreases 
C)  sale; increases 
D)  sale; decreases 
A)  purchase; increases 
B)  purchase; decreases 
C)  sale; increases 
D)  sale; decreases

Question 9

An increase in the reserve requirement will lead to increased net exports.

Accepted Answer

A) True 
 B)False

Question 10

What impact would the Fed's raising the interest rate have on any inflationary pressure in the economy?

Accepted Answer

A)  An increase in interest rates decreases the money demand, which could slow increases in the price level. 
B)  An increase in interest rates increases the money supply, which could cause the price level to increase. 
C)  An increase in interest rates decreases the exchange rate, which causes net exports to rise, generating inflation. 
D)  An increase in interest rates increases real GDP, which creates inflation in an economy. 
A)  An increase in interest rates decreases the money demand, which could slow increases in the price level. 
B)  An increase in interest rates increases the money supply, which could cause the price level to increase. 
C)  An increase in interest rates decreases the exchange rate, which causes net exports to rise, generating inflation. 
D)  An increase in interest rates increases real GDP, which creates inflation in an economy.

Question 11

Spending on consumer durables decreases as the interest rate increases.

Accepted Answer

A) True 
 B)False

Question 12

From time to time, the Federal Reserve buys back government bonds from the private sector through a process called

Accepted Answer

A)  bond recall procedures. 
B)  open market purchases. 
C)  backflip bond investments. 
D)  voluntary redemption procedures. 
A)  bond recall procedures. 
B)  open market purchases. 
C)  backflip bond investments. 
D)  voluntary redemption procedures.

Question 13

The transaction demand for money comes mostly from the fact that

Accepted Answer

A)  money is a store of value. 
B)  money is a medium of exchange. 
C)  money is a unit of account. 
D)  money has low opportunity cost. 
A)  money is a store of value. 
B)  money is a medium of exchange. 
C)  money is a unit of account. 
D)  money has low opportunity cost.

Question 14

What impact does the Fed's raising the interest rate have on the money supply and on the price level?

Accepted Answer

A)  An increase in interest rates raises the money supply and eventually reduces prices. 
B)  An increase in interest rates reduces the money demand which will slow the growth in prices. 
C)  An increase in interest rates lowers the money supply and raises the money demand, which will neutralize price increases. 
D)  An increase in interest rates will increase investment spending and GDP, which will lower prices. 
A)  An increase in interest rates raises the money supply and eventually reduces prices. 
B)  An increase in interest rates reduces the money demand which will slow the growth in prices. 
C)  An increase in interest rates lowers the money supply and raises the money demand, which will neutralize price increases. 
D)  An increase in interest rates will increase investment spending and GDP, which will lower prices.

Question 15

Suppose that the interest rate available to you on a long-term bond is 4 percent. If you hold $1,000 of your wealth in currency instead of in the form of a bond, the annual opportunity cost is

Accepted Answer

A)  $0.04. 
B)  $4. 
C)  $40. 
D)  $400. 
A)  $0.04. 
B)  $4. 
C)  $40. 
D)  $400.

Question 16

To decrease the money supply using the reserve requirements, what would the Fed typically do?

Accepted Answer

A)  raise the reserve requirement for banks 
B)  reduce the reserve requirement for banks 
C)  make each bank voluntarily set its own reserve levels 
D)  let each bank get less currency from the Treasury 
A)  raise the reserve requirement for banks 
B)  reduce the reserve requirement for banks 
C)  make each bank voluntarily set its own reserve levels 
D)  let each bank get less currency from the Treasury

Question 17

How would the Fed's reduction of the reserve ratio requirement affect the money supply?

Accepted Answer

Since banks would rather loan

Question 18

The outside lags related to monetary policy tend to be quite long.

Accepted Answer

A) True 
 B)False

Question 19

If the quantity of money demanded exceeds the quantity of money supplied, then the

Accepted Answer

A)  equilibrium interest rate stays the same. 
B)  equilibrium interest rate will increase. 
C)  equilibrium interest rate will decrease. 
D)  effect on the equilibrium interest rate is indeterminate. 
A)  equilibrium interest rate stays the same. 
B)  equilibrium interest rate will increase. 
C)  equilibrium interest rate will decrease. 
D)  effect on the equilibrium interest rate is indeterminate.

Question 20

A decrease in the price level in the economy leads to

Accepted Answer

A)  a leftward shift in the demand for money curve. 
B)  a rightward shift in the demand for money curve. 
C)  a leftward movement along the demand for money curve. 
D)  a rightward movement along the demand for money curve. 
A)  a leftward shift in the demand for money curve. 
B)  a rightward shift in the demand for money curve. 
C)  a leftward movement along the demand for money curve. 
D)  a rightward movement along the demand for money curve.

Banks can obtain funds to make loans by borrowing reserves from other banks through the federal funds market.

The most commonly used tool in monetary policy is

An increase in the price level in the economy leads to

Generally, when the Federal Reserve lowers interest rates, investment spending and GDP .

An open market purchase by the Fed

The Federal Reserve influences the level of interest rates in the short run by changing the

An open market by the Fed decreases interest rates and investment.

An increase in the reserve requirement will lead to increased net exports.

What impact would the Fed's raising the interest rate have on any inflationary pressure in the economy?

Spending on consumer durables decreases as the interest rate increases.

From time to time, the Federal Reserve buys back government bonds from the private sector through a process called

The transaction demand for money comes mostly from the fact that

What impact does the Fed's raising the interest rate have on the money supply and on the price level?

Suppose that the interest rate available to you on a long-term bond is 4 percent. If you hold $1,000 of your wealth in currency instead of in the form of a bond, the annual opportunity cost is

To decrease the money supply using the reserve requirements, what would the Fed typically do?

How would the Fed's reduction of the reserve ratio requirement affect the money supply?

The outside lags related to monetary policy tend to be quite long.

If the quantity of money demanded exceeds the quantity of money supplied, then the

A decrease in the price level in the economy leads to

Introduction: What Is Economics

The Key Principles of Economics

Demand, Supply, and Market Equilibrium

Elasticity: A Measure of Responsiveness

Production Technology and Cost

Perfect Competition

Monopoly and Price Discrimination

Market Entry, Monopolistic Competition, and Oligopoly

Imperfect Information, External Benefits, and External Costs

The Labor Market and the Distribution of Income

Measuring a Nations Production and Income

Unemployment and Inflation

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

Money and the Banking System

International Trade and Finance

Filters

Exam 17: Monetary Policy and Inflation

Banks can obtain funds to make loans by borrowing reserves from other banks through the federal funds market.

The most commonly used tool in monetary policy is

An increase in the price level in the economy leads to

Generally, when the Federal Reserve lowers interest rates, investment spending ________ and GDP ________.

An open market purchase by the Fed

The Federal Reserve influences the level of interest rates in the short run by changing the

An open market ________ by the Fed decreases interest rates and ________ investment.

An increase in the reserve requirement will lead to increased net exports.

What impact would the Fed's raising the interest rate have on any inflationary pressure in the economy?

Spending on consumer durables decreases as the interest rate increases.

From time to time, the Federal Reserve buys back government bonds from the private sector through a process called

The transaction demand for money comes mostly from the fact that

What impact does the Fed's raising the interest rate have on the money supply and on the price level?

Suppose that the interest rate available to you on a long-term bond is 4 percent. If you hold $1,000 of your wealth in currency instead of in the form of a bond, the annual opportunity cost is

To decrease the money supply using the reserve requirements, what would the Fed typically do?

How would the Fed's reduction of the reserve ratio requirement affect the money supply?

The outside lags related to monetary policy tend to be quite long.

If the quantity of money demanded exceeds the quantity of money supplied, then the

A decrease in the price level in the economy leads to

Introduction: What Is Economics

The Key Principles of Economics

Demand, Supply, and Market Equilibrium

Elasticity: A Measure of Responsiveness

Production Technology and Cost

Perfect Competition

Monopoly and Price Discrimination

Market Entry, Monopolistic Competition, and Oligopoly

Imperfect Information, External Benefits, and External Costs

The Labor Market and the Distribution of Income

Measuring a Nations Production and Income

Unemployment and Inflation

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

Money and the Banking System

International Trade and Finance

Filters

Generally, when the Federal Reserve lowers interest rates, investment spending and GDP .

An open market by the Fed decreases interest rates and investment.