Question 1

The Federal Reserve System functions as America's

Accepted Answer

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

Question 2

The money supply contracts when the Fed

Accepted Answer

A)   replaces old worn-out notes and bills.
B)   borrows from the Treasury.
C)   sells government securities.
D)   purchases stocks from corporate businesses.E) B) and C)
F) A) and B)

Question 3

Which of the following policy actions by the Federal Reserve is likely to increase the money supply?

Accepted Answer

A)   Sell government bonds, decrease reserve requirements, decrease the discount rate.
B)   Sell government bonds, increase reserve requirements, increase the discount rate.
C)   Buy government bonds, increase reserve requirements, decrease the discount rate.
D)   Buy government bonds, decrease reserve requirements, decrease the discount rate.E) B) and D)
F) All of the above

Question 4

Which of the following observations is true?

Accepted Answer

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.E) B) and D)
F) All of the above

Question 5

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

Accepted Answer

A)   An decrease in reserve requirements
B)   Open-market sales by the Fed
C)   A decrease in real GDP
D)   A decrease in the price levelE) All of the above
F) C) and D)

Question 6

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.E) B) and C)
F) All of the above

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.E) B) and C)
F) All of the above

Question 8

Which of the following is an income number?

Accepted Answer

A)   M1
B)   M2
C)   GDP
D)   CashE) A) and C)
F) None of the above

Question 9

The Federal Open Market Committee meets

Accepted Answer

A)   once a month.
B)   eight times a year.
C)   four times a year.
D)   semi-annually.E) B) and D)
F) None of the above

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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 economyE) None of the above
F) All of the above

Question 12

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.

Accepted Answer

A) True 
 B)False

Question 13

If the Fed buys a U.S. Treasury bill from a member of the public, the banking system has

Accepted Answer

A)   less reserves and the money supply tends to fall.
B)   more reserves and the money supply tends to fall.
C)   less reserves and the money supply tends to grow.
D)   more reserves and the money supply tends to grow.E) B) and C)
F) A) and C)

Question 14

Define the following terms and explain their importance to the study of macroeconomics. 
a. Central bank 
b. Federal Open Market Committee 
c. Supply of money 
d. Monetary policy

Accepted Answer

a. A central bank is a government instit...

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

The reason that the Fed does not actively use discount rate policy to control the money supply is because the Fed

Accepted Answer

A)   acts when a majority of member banks agree on policy and the banks rarely agree.
B)   earns interest on discounting and cannot afford to lose the revenue.
C)   does not know how banks will respond to discount rate changes.
D)   has been directed by Congress to set the discount rate at a permanent level.E) A) and D)
F) B) and C)

Question 17

Required reserves are a fixed percentage of their

Accepted Answer

A)   deposits.
B)   loans.
C)   government bonds.
D)   none of these.E) A) and C)
F) A) and D)

Question 18

Why does the economy's aggregate demand curve have a negative slope?

Accepted Answer

At higher price levels, the quantity of ...

Question 19

Why do economists insist on emphasizing the difference between money and income? Why is this difference important in macroeconomics?

Accepted Answer

Money is a stock variable that has a val...

Question 20

When the Fed wants to expand the money supply, it

Accepted Answer

A)   buys government securities.
B)   sells government securities.
C)   buys common stock.
D)   sells common stock.E) B) and C)
F) A) and B)

Exam 29: Monetary Policy: Conventional and Unconventional

Which of the following is an income number?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Why do economists insist on emphasizing the difference between money and income? Why is this difference important in macroeconomics?

Correct AnswerverifiedMoney is a stock variable that has a val...View AnswerShow Answer

The money supply contracts when the Fed

Correct AnswerverifiedShow Answer

The Federal Open Market Committee meets

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the Fed buys a U.S. Treasury bill from a member of the public, the banking system has

Correct AnswerverifiedShow Answer

Required reserves are a fixed percentage of their

Correct AnswerverifiedShow Answer

When the Fed wants to expand the money supply, it

Correct AnswerverifiedShow Answer

Define the following terms and explain their importance to the study of macroeconomics. a. Central bank b. Federal Open Market Committee c. Supply of money d. Monetary policy

Correct Answerverifieda. A central bank is a government instit...View AnswerShow Answer

Which of the following observations is true?

Correct AnswerverifiedShow Answer

The Federal Reserve System functions as America's

Correct AnswerverifiedShow Answer

The reason that the Fed does not actively use discount rate policy to control the money supply is because the Fed

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following policy actions by the Federal Reserve is likely to increase the money supply?

Correct AnswerverifiedShow Answer

Why does the economy's aggregate demand curve have a negative slope?

Correct AnswerverifiedAt higher price levels, the quantity of ...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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Money is a stock variable that has a val...
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a. A central bank is a government instit...
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At higher price levels, the quantity of ...
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