Question 1

An increase in the market interest rate will increase the size of the money multiplier since

Accepted Answer

A) the reserve-deposit ratio will decrease 
B) the currency-deposit ratio will increase 
C) the demand for money will decrease 
D) banks will earn more interest on their existing assets 
E) banks will get more interest on the deposits they hold at the Fed 
A) the reserve-deposit ratio will decrease 
B) the currency-deposit ratio will increase 
C) the demand for money will decrease 
D) banks will earn more interest on their existing assets 
E) banks will get more interest on the deposits they hold at the Fed

Question 2

Which are the three channels by which the Federal Reserve can reduce money supply?

Accepted Answer

A) buy government securities, lower reserve requirements, and lower the discount rate 
B) buy government securities, raise reserve requirements, and raise the discount rate 
C) buy government securities, lower reserve requirements, and raise the discount rate 
D) sell government securities, raise reserve requirements, and raise the discount rate 
E) sell government securities, lower reserve requirements, and raise the discount rate 
A) buy government securities, lower reserve requirements, and lower the discount rate 
B) buy government securities, raise reserve requirements, and raise the discount rate 
C) buy government securities, lower reserve requirements, and raise the discount rate 
D) sell government securities, raise reserve requirements, and raise the discount rate 
E) sell government securities, lower reserve requirements, and raise the discount rate

Question 3

The stock of high-powered money is reduced when

Accepted Answer

A) the Fed buys foreign currency in the foreign exchange market 
B) the Fed lends to member banks 
C) the Treasury deposits funds in its account at the Fed 
D) the Fed buys government securities from the public 
E) all of the above 
A) the Fed buys foreign currency in the foreign exchange market 
B) the Fed lends to member banks 
C) the Treasury deposits funds in its account at the Fed 
D) the Fed buys government securities from the public 
E) all of the above

Question 4

If the Fed imposed a 100% reserve requirement, it would imply that

Accepted Answer

A) the Fed had no control over money supply 
B)  the Fed would no longer be able to conduct any open market operations 
C)  the money multiplier would be equal to one 
D) the money multiplier would be equal to zero 
E) banks would become completely obsolete 
A) the Fed had no control over money supply 
B)  the Fed would no longer be able to conduct any open market operations 
C)  the money multiplier would be equal to one 
D) the money multiplier would be equal to zero 
E) banks would become completely obsolete

Question 5

Difficulties for the Fed in conducting successful monetary policy arise from the fact that

Accepted Answer

A) the Fed has no good control over the primary credit rate (the discount rate) 
B) the Fed often has to follow orders from the Treasury department 
C) changes in some of the variables that are important to monetary policy (e.g., velocity) cannot always be accurately anticipated 
D) FOMC has to vote on policy changes before they are implemented 
E) both C and D 
A) the Fed has no good control over the primary credit rate (the discount rate) 
B) the Fed often has to follow orders from the Treasury department 
C) changes in some of the variables that are important to monetary policy (e.g., velocity) cannot always be accurately anticipated 
D) FOMC has to vote on policy changes before they are implemented 
E) both C and D

Question 6

The effect of an increase in government spending on aggregate demand is greatest if the government finances it by

Accepted Answer

A) increasing taxes 
B) borrowing from the domestic public 
C) borrowing indirectly from the Fed 
D) selling Treasury bills to banks 
E) issuing long-term government bonds 
A) increasing taxes 
B) borrowing from the domestic public 
C) borrowing indirectly from the Fed 
D) selling Treasury bills to banks 
E) issuing long-term government bonds

Question 7

If the currency-deposit ratio is 20%, the reserve-deposit ratio is 10% and the stock of high-powered money is H = 400, money supply is

Accepted Answer

A) 1,000 
B) 1,200 
C) 1,600 
D) 2,000 
E) 4,000 
A) 1,000 
B) 1,200 
C) 1,600 
D) 2,000 
E) 4,000

Question 8

Which of the following is NOT an instrument of the Fed for controlling money supply?

Accepted Answer

A) the excess reserve ratio 
B) the required reserve ratio 
C) changes in the discount rate (the primary credit rate) 
D) open market operations 
E) both A and D 
A) the excess reserve ratio 
B) the required reserve ratio 
C) changes in the discount rate (the primary credit rate) 
D) open market operations 
E) both A and D

Question 9

The size of the money multiplier

Accepted Answer

A) cannot be influenced by actions of the Fed 
B) declines with a decrease in high-powered money 
C) declines as the currency-deposit ratio decreases 
D) increases as the reserve-deposit ratio decreases 
E) increases as the reserve requirement is increased 
A) cannot be influenced by actions of the Fed 
B) declines with a decrease in high-powered money 
C) declines as the currency-deposit ratio decreases 
D) increases as the reserve-deposit ratio decreases 
E) increases as the reserve requirement is increased

Question 10

If most disturbances in our economy are coming from the expenditure sector, the Fed should

Accepted Answer

A) buy government securities whenever interest rates go up to keep income stable 
B) sell government securities whenever interest rates go up to keep interest rates stable 
C) follow money supply targets rather than interest rate targets 
D) follow interest rate targets rather than money supply targets 
E) change reserve requirements more frequently 
A) buy government securities whenever interest rates go up to keep income stable 
B) sell government securities whenever interest rates go up to keep interest rates stable 
C) follow money supply targets rather than interest rate targets 
D) follow interest rate targets rather than money supply targets 
E) change reserve requirements more frequently

Question 11

Assume money supply is $1,200 billion, bank deposits are $800 billion, and the reserve-deposit ratio is 10%.By how much is money supply likely to change if the Fed conducts an open market sale valued at $40 million?

Accepted Answer

A) -$100 billion 
B) -$60 billion 
C) +$40 billion 
D) +$60 billion 
E)  +$100 billion 
A) -$100 billion 
B) -$60 billion 
C) +$40 billion 
D) +$60 billion 
E)  +$100 billion

Question 12

When the central bank intervenes in the foreign exchange market by purchasing foreign currency, it also routinely engages in open market sales of government securities.Why?

Accepted Answer

A) it has to sell securities to acquire the necessary funds 
B) to avoid a recession that may be caused by the reduction in money supply resulting from the purchase of foreign currency 
C) it wants to isolate the domestic economy from foreign competition 
D) to increase the profitability of its portfolio 
E) to prevent its intervention in the foreign exchange market from having a direct effect upon the domestic money supply 
A) it has to sell securities to acquire the necessary funds 
B) to avoid a recession that may be caused by the reduction in money supply resulting from the purchase of foreign currency 
C) it wants to isolate the domestic economy from foreign competition 
D) to increase the profitability of its portfolio 
E) to prevent its intervention in the foreign exchange market from having a direct effect upon the domestic money supply

Question 13

Which of the following is an intermediate target of the Fed?

Accepted Answer

A) high-powered money 
B) bank reserves 
C) the federal funds rate 
D) money supply 
E) price stability 
A) high-powered money 
B) bank reserves 
C) the federal funds rate 
D) money supply 
E) price stability

Question 14

Which of the following occurred in the U.S.between 2006 and 2013?

Accepted Answer

A) required bank reserves increased from $42.77 billion to $111.42 billion 
B) excess bank reserves increased from $1.82 billion to $1,519.46 billion 
C) the monetary base increased from $801.96 billion to $2,740.90 billion 
D) all of the above 
E) none of the above 
A) required bank reserves increased from $42.77 billion to $111.42 billion 
B) excess bank reserves increased from $1.82 billion to $1,519.46 billion 
C) the monetary base increased from $801.96 billion to $2,740.90 billion 
D) all of the above 
E) none of the above

Question 15

If the Fed decreases the reserve requirement,

Accepted Answer

A) market interest rates will go up 
B) national income is likely to decrease at least in the short run 
C) the Fed is probably trying to fight inflation 
D) bank profits are likely to increase 
E) all of the above 
A) market interest rates will go up 
B) national income is likely to decrease at least in the short run 
C) the Fed is probably trying to fight inflation 
D) bank profits are likely to increase 
E) all of the above

Question 16

Between 1990 and 1992, the Fed conducted monetary policy almost entirely with reference to interest rates since

Accepted Answer

A) banks rationed credit 
B)  the economy grew at a very fast pace 
C) the growth rates of different monetary aggregates diverged widely 
D) the objective was to increase the profitability of banks 
E) the objective was to keep money supply stable 
A) banks rationed credit 
B)  the economy grew at a very fast pace 
C) the growth rates of different monetary aggregates diverged widely 
D) the objective was to increase the profitability of banks 
E) the objective was to keep money supply stable

Question 17

If money supply is M = 1,200, currency outstanding is Cu = 380, and the monetary base (high-powered money) is H = 480,

Accepted Answer

A) the money multiplier is 2.5 and bank deposits are D = 820 
B) the money multiplier is 2.5 and bank deposits are D = 720 
C) the money multiplier is 1.4 and bank deposits are D = 860 
D) the money multiplier is 1.4 and bank deposits are D = 820 
E) the money multiplier is 1.7 and bank deposits are D = 720 
A) the money multiplier is 2.5 and bank deposits are D = 820 
B) the money multiplier is 2.5 and bank deposits are D = 720 
C) the money multiplier is 1.4 and bank deposits are D = 860 
D) the money multiplier is 1.4 and bank deposits are D = 820 
E) the money multiplier is 1.7 and bank deposits are D = 720

Question 18

The size of the money multiplier is likely to increase

Accepted Answer

A) as market interest rates increase 
B) as market interest rates decrease 
C) as the Fed undertakes open market purchases 
D) as the Fed undertakes open market sales 
E) as the currency-deposit ratio increases 
A) as market interest rates increase 
B) as market interest rates decrease 
C) as the Fed undertakes open market purchases 
D) as the Fed undertakes open market sales 
E) as the currency-deposit ratio increases

Question 19

If most economic disturbances are the result of shifts in money demand, the Fed should

Accepted Answer

A) target money supply to regain economic stability 
B) sell government securities whenever interest rates increase 
C) conduct open market purchases whenever interest rates increase 
D) target the total amount of reserves available to the banking system 
E) none of the above 
A) target money supply to regain economic stability 
B) sell government securities whenever interest rates increase 
C) conduct open market purchases whenever interest rates increase 
D) target the total amount of reserves available to the banking system 
E) none of the above

Question 20

If the Fed wanted to keep income at the original level after a tax increase, it would need to

Accepted Answer

A) buy government securities in open market operations 
B) sell government securities in open market operations 
C) raise reserve requirements 
D) raise the primary credit rate (the discount rate) 
E) raise the currency-deposit ratio 
A) buy government securities in open market operations 
B) sell government securities in open market operations 
C) raise reserve requirements 
D) raise the primary credit rate (the discount rate) 
E) raise the currency-deposit ratio

Exam 17: The fed, money, and credit

An increase in the market interest rate will increase the size of the money multiplier since

Which are the three channels by which the Federal Reserve can reduce money supply?

The stock of high-powered money is reduced when

If the Fed imposed a 100% reserve requirement, it would imply that

Difficulties for the Fed in conducting successful monetary policy arise from the fact that

The effect of an increase in government spending on aggregate demand is greatest if the government finances it by

If the currency-deposit ratio is 20%, the reserve-deposit ratio is 10% and the stock of high-powered money is H = 400, money supply is

Which of the following is NOT an instrument of the Fed for controlling money supply?

The size of the money multiplier

If most disturbances in our economy are coming from the expenditure sector, the Fed should

Assume money supply is $1,200 billion, bank deposits are $800 billion, and the reserve-deposit ratio is 10%.By how much is money supply likely to change if the Fed conducts an open market sale valued at $40 million?

When the central bank intervenes in the foreign exchange market by purchasing foreign currency, it also routinely engages in open market sales of government securities.Why?

Which of the following is an intermediate target of the Fed?

Which of the following occurred in the U.S.between 2006 and 2013?

If the Fed decreases the reserve requirement,

Between 1990 and 1992, the Fed conducted monetary policy almost entirely with reference to interest rates since

If money supply is M = 1,200, currency outstanding is Cu = 380, and the monetary base (high-powered money) is H = 480,

The size of the money multiplier is likely to increase

If most economic disturbances are the result of shifts in money demand, the Fed should

If the Fed wanted to keep income at the original level after a tax increase, it would need to

Introduction

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