Question 1

Because an increase in the nominal interest rate raises the opportunity costs of holding money, the money demand curve:

Accepted Answer

A) shifts to the right. 
B) shifts to the left. 
C) slopes upward. 
D) slopes downwarD.

Question 2

Based on the information in the table, we can conclude that, in 1932, each of the following events occurred except:

Accepted Answer

A) The public increased the amount of currency it held. 
B) Banks were keeping more of their deposits in reserves, and making fewer loans. 
C) The Federal Reserve conducted open-market sales of U.S.government bonds. 
D) The Federal Reserve injected reserves into the banking system.

Question 3

The money demand curve relates ______ to the ________.

Accepted Answer

A) the aggregate quantity of money demanded; aggregate demand 
B) aggregate demand; nominal interest rate 
C) the aggregate quantity of money demanded; price level 
D) the aggregate quantity of money demanded; nominal interest rate

Question 4

Financial markets pay close attention to changes in the federal funds rate because these changes:

Accepted Answer

A) directly affect a large volume of loans. 
B) indicate the Fed's plans for monetary policy. 
C) indicate commercial bank lending policies. 
D) directly affect the interest payments on the national debt.

Question 5

Any target value of the nominal interest rate chosen by the Federal Reserve implies a specific value for ______.

Accepted Answer

A) potential output 
B) the money supply 
C) government purchases 
D) the budget deficit

Question 6

In Macroland, currency held by the public is 2,000 econs, bank reserves are 300 econs, and the desired (and current) reserve/deposit ratio is 15 percent.If commercial banks borrow 100 econs in reserves from the Central Bank through discount window lending, then the money supply in Macroland will ______, assuming that the public does not wish to change the amount of currency it holds.

Accepted Answer

A) increase to 3,133 econs 
B) increase to 4,100 econs 
C) increase to 4,667 econs 
D) decrease to 1,900 econs

Question 7

The interest rate that commercial banks charge each other for very short-term loans is called the:

Accepted Answer

A) prime rate. 
B) federal funds rate. 
C) Federal Reserve discount rate. 
D) commercial paper rate.

Question 8

The ______ is the interest rate commercial banks pay to the Fed; the ______ is the interest rate commercial banks charge each other for short-term loans.

Accepted Answer

A) federal funds rate; discount rate 
B) discount rate; federal funds rate 
C) nominal interest rate; real interest rate 
D) nominal interest rate; prime rate of interest

Question 9

During the Christmas shopping season, the demand for money increases significantly.To offset the increase in money demand, the Fed must ______ the money supply, which will put ______ pressure on nominal interest rates.

Accepted Answer

A) increase; downward 
B) increase; upward 
C) decrease; downward 
D) decrease; upward

Question 10

The benefit of holding money is _______, while the opportunity cost of holding money is _______.

Accepted Answer

A) the nominal interest rate; the fees charged by banks 
B) the nominal interest rate; its usefulness in carrying out transactions 
C) increased income; lost purchasing power 
D) its usefulness in carrying out transactions; the nominal interest rate

Question 11

Prior to January 2000, the demand for money increased as people anticipated Y2K problems.If the Fed had taken no action to offset this increase in money demand, then nominal interest rates would have:

Accepted Answer

A) increased. 
B) decreased. 
C) remained constant. 
D) fallen below real interest rates.

Question 12

The Federal Reserve consists of ______ regional banks, ______ governors on the Board of Governors, and ______ voting members of the Federal Open Market Committee.

Accepted Answer

A) 7; 12; 12 
B) 12; 7; 12 
C) 12; 7; 19 
D) 14; 7; 21

Question 13

To close a recessionary gap, the Fed ______ interest rates which ______ planned aggregate spending and ______ short-run equilibrium output.

Accepted Answer

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

Question 14

One of the serious drawbacks of the deposit insurance system in the United States is that:

Accepted Answer

A) bank failures continue to occur regularly. 
B) the system took away the Federal Reserve's ability to conduct open-market operations. 
C) the system took away the Federal Reserve's ability to change reserve requirements. 
D) if insured intermediaries make many bad loans, the taxpayers may be responsible for covering the losses.

Question 15

Which of the following would be expected to decrease the demand for money in the U.S.?

Accepted Answer

A) Grocery stores begin to accept credit cards in payment. 
B) The economy enters a boom period. 
C) Political instability increases dramatically in developing nations. 
D) Households fear increasing computer glitches will severely limit their ability to use ATMs.

Question 16

If commercial banks are maintaining a 5 percent reserve/deposit ratio and the Fed lowers the required reserve ratio to 3 percent, then banks may ______ their loans and deposits, and the money supply may _____.

Accepted Answer

A) increase; increase 
B) increase; decrease 
C) decrease; increase 
D) decrease; decrease

Question 17

A higher real interest rate ______ saving and ______ consumption spending.

Accepted Answer

A) increases; increases 
B) increases; decreases 
C) does not change; does not change 
D) decreases; increases

Question 18

In an economy where planned aggregate spending is given by PAE = 5,500 + 0.6Y - 20,000r, the interest rate is currently 2 percent (0.02).If potential output equals 8,000, the central bank must ______ the interest rate to close the ______ gap.

Accepted Answer

A) lower; expansionary 
B) lower; recessionary 
C) raise; recessionary 
D) raise; expansionary

Question 19

The money demand curve will shift to the right if:

Accepted Answer

A) the nominal interest rate increases. 
B) the nominal interest rate decreases. 
C) the price level increases. 
D) the price level decreases.

Question 20

A reserve requirement set by the Federal Reserve is the:

Accepted Answer

A) minimum ratio of reserves to bank deposits that commercial banks are allowed to maintain. 
B) maximum ratio of reserves to bank deposits that commercial banks are allowed to maintain. 
C) minimum amount of currency banks must hold in their vaults. 
D) maximum amount of currency banks are allowed to hold in their vaults.

Exam 12: Monetary Policy and the Federal Reserve

Because an increase in the nominal interest rate raises the opportunity costs of holding money, the money demand curve:

Based on the information in the table, we can conclude that, in 1932, each of the following events occurred except:

The money demand curve relates to the __.

Financial markets pay close attention to changes in the federal funds rate because these changes:

Any target value of the nominal interest rate chosen by the Federal Reserve implies a specific value for ______.

The interest rate that commercial banks charge each other for very short-term loans is called the:

The is the interest rate commercial banks pay to the Fed; the is the interest rate commercial banks charge each other for short-term loans.

During the Christmas shopping season, the demand for money increases significantly.To offset the increase in money demand, the Fed must the money supply, which will put pressure on nominal interest rates.

The benefit of holding money is _, while the opportunity cost of holding money is _.

Prior to January 2000, the demand for money increased as people anticipated Y2K problems.If the Fed had taken no action to offset this increase in money demand, then nominal interest rates would have:

The Federal Reserve consists of regional banks, governors on the Board of Governors, and __ voting members of the Federal Open Market Committee.

To close a recessionary gap, the Fed interest rates which planned aggregate spending and __ short-run equilibrium output.

One of the serious drawbacks of the deposit insurance system in the United States is that:

Which of the following would be expected to decrease the demand for money in the U.S.?

If commercial banks are maintaining a 5 percent reserve/deposit ratio and the Fed lowers the required reserve ratio to 3 percent, then banks may __ their loans and deposits, and the money supply may _.

A higher real interest rate saving and consumption spending.

In an economy where planned aggregate spending is given by PAE = 5,500 + 0.6Y - 20,000r, the interest rate is currently 2 percent (0.02) .If potential output equals 8,000, the central bank must the interest rate to close the gap.

The money demand curve will shift to the right if:

A reserve requirement set by the Federal Reserve is the:

Exam 12: Monetary Policy and the Federal Reserve

Because an increase in the nominal interest rate raises the opportunity costs of holding money, the money demand curve:

Based on the information in the table, we can conclude that, in 1932, each of the following events occurred except:

The money demand curve relates ______ to the ________.

Financial markets pay close attention to changes in the federal funds rate because these changes:

Any target value of the nominal interest rate chosen by the Federal Reserve implies a specific value for ______.

The interest rate that commercial banks charge each other for very short-term loans is called the:

The ______ is the interest rate commercial banks pay to the Fed; the ______ is the interest rate commercial banks charge each other for short-term loans.

During the Christmas shopping season, the demand for money increases significantly.To offset the increase in money demand, the Fed must ______ the money supply, which will put ______ pressure on nominal interest rates.

The benefit of holding money is _______, while the opportunity cost of holding money is _______.

Prior to January 2000, the demand for money increased as people anticipated Y2K problems.If the Fed had taken no action to offset this increase in money demand, then nominal interest rates would have:

The Federal Reserve consists of ______ regional banks, ______ governors on the Board of Governors, and ______ voting members of the Federal Open Market Committee.

To close a recessionary gap, the Fed ______ interest rates which ______ planned aggregate spending and ______ short-run equilibrium output.

One of the serious drawbacks of the deposit insurance system in the United States is that:

Which of the following would be expected to decrease the demand for money in the U.S.?

If commercial banks are maintaining a 5 percent reserve/deposit ratio and the Fed lowers the required reserve ratio to 3 percent, then banks may ______ their loans and deposits, and the money supply may _____.

A higher real interest rate ______ saving and ______ consumption spending.

In an economy where planned aggregate spending is given by PAE = 5,500 + 0.6Y - 20,000r, the interest rate is currently 2 percent (0.02) .If potential output equals 8,000, the central bank must ______ the interest rate to close the ______ gap.

The money demand curve will shift to the right if:

A reserve requirement set by the Federal Reserve is the:

The money demand curve relates to the __.

The is the interest rate commercial banks pay to the Fed; the is the interest rate commercial banks charge each other for short-term loans.

During the Christmas shopping season, the demand for money increases significantly.To offset the increase in money demand, the Fed must the money supply, which will put pressure on nominal interest rates.

The benefit of holding money is _, while the opportunity cost of holding money is _.

The Federal Reserve consists of regional banks, governors on the Board of Governors, and __ voting members of the Federal Open Market Committee.

To close a recessionary gap, the Fed interest rates which planned aggregate spending and __ short-run equilibrium output.

If commercial banks are maintaining a 5 percent reserve/deposit ratio and the Fed lowers the required reserve ratio to 3 percent, then banks may __ their loans and deposits, and the money supply may _.

A higher real interest rate saving and consumption spending.

In an economy where planned aggregate spending is given by PAE = 5,500 + 0.6Y - 20,000r, the interest rate is currently 2 percent (0.02) .If potential output equals 8,000, the central bank must the interest rate to close the gap.