Deck 29: Monetary Policy: Conventional and Unconventional

Question 1

Money and income are used interchangeably by noneconomists but mean different things.

Answer 1

True

Question 2

If the Federal Reserve Bank wants to lower the supply of money, it sells government bonds from its portfolio to the public in the nation's bond markets.

Answer 2

True

Question 3

The central bank in the United States is known as the Federal Reserve System.

Answer 3

True

Question 4

Open-market operations affect the supply of reserves.

Question 5

Open-market operations is the purchase and sale of U.S. government bonds by the Federal Reserve Bank.

Question 6

If the Federal Reserve wants to increase the supply of money, it creates dollars and uses them to purchase government bonds from the public in the nation's bond markets.

Question 7

Open-market operations are easy for the Federal Reserve to conduct and are therefore the tool of monetary policy that the Federal Reserve uses most often.

Question 8

The Fed's founders viewed the Fed as a means of maintaining the money supply during economic contractions and as a lender of last resort.

Question 9

Money is a concept that has a certain value at a point in time.

Question 10

Central bank independence refers to the central bank's ability to make decisions without political interference.

Question 11

If the Fed purchases $100,000 of government bonds, and the reserve requirement is 20 percent, the maximum increase in the money supply is $ 500,000.

Question 12

The Federal Reserve System can be described as a bank for bankers.

Question 13

The Federal Reserve Open Market Committee includes the seven members of the Board of Governors, presidents of 5 of the 12 district banks, and the Secretary of the Treasury.

Question 14

The Federal Reserve Bank was modeled after the European Central Bank.

Question 15

The federal funds rate is the short-term interest rate that banks charge one another for loans.

Question 16

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

Question 17

Unconventional monetary policies include massive lending to banks and open-market purchases of assets other than Treasury bills.

Question 18

When someone asks how much money you made this year, they are using the term "money" correctly.

Question 19

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

Question 20

The United States was among the first of the modern industrial nations to establish a central banking system.

Question 21

When the bond prices rise, interest rates fall.

Question 22

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

Question 23

Higher interest rates lead to lower investment spending.

Question 24

The Fed does not have perfect control over the money supply in the short run.

Question 25

The main reason why the aggregate demand curve slopes downward is that higher prices increases the demand for bank deposits, and hence for bank reserves.

Question 26

The main purpose of expansionary monetary policy is to reduce interest rates.

Question 27

Open-market operations refer to the purchase and sales of stocks listed on the New York Stock Exchange.

Question 28

There is a positive relationship between the quantity of reserves supplied and the federal funds rate.

Question 29

Risky borrowers pay higher interest rates than safer borrowers, in order to persuade lenders to accept the higher risk of default.

Question 30

If there is 100 percent reserve banking, the money supply is unaffected by the proportion of the dollars that the public chooses to hold as currency versus deposits.

Question 31

Once the federal funds rate hits zero, a central bank seeking to stimulate its economy further must turn to unconventional monetary policies.

Question 32

Higher interest rates cause investment spending to fall and pull down aggregate demand via the multiplier mechanism.

Question 33

Risk premiums rise sharply in a financial crisis.

Question 34

At higher interest rates, banks will want to hold more reserves.

Question 35

Some examples of unconventional monetary policies include massive lending to banks, or even to firms that are nor banks, and open-market purchases of securities other than Treasury bills.

Question 36

Discount rate is the interest rate on the loans that the Fed makes to banks.

Question 37

The creation of new bank reserves could lead to a multiple increase in the money supply.

Question 38

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

Question 39

When bond prices fall, interest rates rise.

Question 40

Little inflation will occur if the aggregate supply curve is flat.

Question 41

Generally, most of the world's industrial countries believe that central banks should be independent of their governments.

Question 42

Which of the following phrases would be used to describe an income amount?

A) Per year
B) Per month
C) Per week
D) All of the above are correct.

Question 43

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

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

Question 44

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

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

Question 45

The amount of inflation caused by expansionary monetary policy depends on the slope of the aggregate supply curve.

Question 46

Quantitative easing refers to open-market purchases of assets other than Treasury bills.

Question 47

Money supply is to income as

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

Question 48

The Federal Reserve System functions as America's

A) tax collector.
B) stock and bond market.
C) savings bank.
D) central bank.

Question 49

Investment spending is lower when interest rates are higher.

Question 50

The central bank of the United States is known as the

A) Internal Revenue Service.
B) Federal Reserve System.
C) Federal Deposit Insurance Corporation.
D) Department of Commerce.

Question 51

The principal difference between income and money is that income is a ____ and money is a ____.

A) schedule; curve
B) point; line
C) stock; flow
D) flow; stock

Question 52

Investment spending is sensitive to interest rates.

Question 53

The current chair of the Federal Reserve System is

A) Tim Geithner.
B) Hillary Clinton.
C) Ben Bernanke.
D) Alan Greenspan.
E) Jerome Powell.

Question 54

Which of the following would indicate that the dollar amount being analyzed is money?

A) M1 money stock of $1.4 trillion at the end of 2010
B) Microsoft profits of $500 billion in 2010
C) The first quarter of 2002
D) Nominal GDP in 2010 of $14.7 trillion

Question 55

Are money and income the same thing?

A) No, money is measured at a point in time and income is measured for a period of time.
B) No, money is measured for a period of time and income is measured at a point in time.
C) Yes, they are just measured in different ways.
D) Yes, the only difference is real versus nominal.

Question 56

In the Keynesian causal chain, changes in GDP cause changes in the level of interest rates.

Question 57

The Fed's principal objective is to

A) make profits to pay into the U.S. Treasury.
B) collect tax revenues.
C) supervise the business decisions of banks.
D) manage the money supply and interest rates.

Question 58

Income is measured as

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 59

Part of the reason that people confuse money and income is because

A) money is tangible, but income is intangible.
B) money serves as the unit of account.
C) money is abstract, but income is concrete.
D) income is almost impossible to measure.

Question 60

People are often heard saying, "She makes good money." An economic interpretation of this statement would be that

A) she has an honest job.
B) she makes money that is not counterfeit.
C) she has a high income.
D) there is little inflation.

Question 61

The actual control of the Federal Reserve System resides in the

A) Congress of the United States.
B) member banks.
C) Senate Banking Committee.
D) Board of Governors.

Question 62

Which of the following observations is true?

A) State governments are the shareholders of the Fed.
B) The Fed chairman is appointed for a ten-year term.
C) FOMC decisions largely determine short-term interest rates.
D) Member banks proportionately share all of Federal Reserve's profits.

Question 63

The Federal Reserve System was established by Congress in 1914

A) as a result of a breakthrough in economic theory.
B) against significant opposition from the banking sector.
C) because of the need for a central bank.
D) as the world's first central bank.

Question 64

The Federal Open Market Committee consists of

A) the president and the Board of Governors.
B) Congress people, 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 65

The main reason the United States established a central bank was

A) a desire for a strong centralized financial authority.
B) to follow the conclusions of economic theory.
C) severe inflation after the Civil War.
D) disastrous experiences with financial panics.

Question 66

The monetary policies carried out by the Fed

A) must be ratified by Congress.
B) must be consistent with fiscal policies passed by Congress.
C) are sometimes inconsistent with fiscal policy.
D) must be approved by the president.

Question 67

The Federal Open Market Committee meets

A) once a month.
B) eight times a year.
C) four times a year.
D) semi-annually.

Question 68

The Federal Reserve System is

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 69

Income is to money as

A) short story is to novel.
B) video is to digital photo.
C) song is to symphony.
D) entree is to dessert.

Question 70

The immediate impetus for the establishment of the Federal Reserve System came from

A) severe outbreaks of inflation in the early 1900s.
B) four severe banking panics between 1873 and 1907.
C) the discovery of gold in Alaska.
D) the desire to copy the founding of the Bank of England.

Question 71

In reality, commercial banks function most like ____ of the district Federal Reserve Banks.

A) stockholders
B) regulators
C) customers
D) competitors

Question 72

The Fed is unlike other central banks in that it

A) has 12 branches.
B) is completely centralized.
C) has no real powers.
D) also has control over fiscal policy.

Question 73

Members of the Board of Governors of the Federal Reserve System are

A) elected by member banks to serve four-year terms.
B) appointed by Congress for 14-year terms.
C) appointed by the president for 14-year terms.
D) appointed by the Supreme Court for lifetime terms.

Question 74

Technically, the Federal Reserve district banks are corporations whose stockholders are the

A) state governments in each district.
B) citizens of the United States.
C) Departments of Treasury and Commerce.
D) member banks.

Question 75

Members of the Board of Governors of the Fed are

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 76

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

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 77

Which of the following is an income number?

A) M1
B) M2
C) GDP
D) Cash

Question 78

The Federal Reserve System was established

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.

Question 79

In making policies about the nation's money supply, the Federal Reserve Board

A) operates as an independent entity.
B) must consult each member bank.
C) must consult with Congress.
D) must coordinate all activity with the White House.

Question 80

The president has influence on Federal Reserve policy because

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.