Question 1

Explain the impact of Fed open- market purchases of government bonds on the money supply.

Accepted Answer

The Fed's purchase of government bonds f

Question 2

Recall Application 2, "Rising Interest Rates During an Economic Recovery," to answer the following questions:
-According to the application, a recovering economy (and hence, a higher income) is usually associated with higher interest rates because:

Accepted Answer

A)  higher incomes cause a lower supply of money. 
B)  higher incomes cause a higher demand for money. 
C)  higher incomes cause a lower demand for money. 
D)  higher incomes cause a higher supply of money. 
A)  higher incomes cause a lower supply of money. 
B)  higher incomes cause a higher demand for money. 
C)  higher incomes cause a lower demand for money. 
D)  higher incomes cause a higher supply of money.

Question 3

If the quantity of money demanded is greater than the quantity of money supplied, then the interest rate will:

Accepted Answer

A)  fall. 
B)  remain constant. 
C)  equal zero. 
D)  rise. 
A)  fall. 
B)  remain constant. 
C)  equal zero. 
D)  rise.

Question 4

Which of the following sequence of events follows an expansionary monetary policy?

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 5

Recall Application 1, "Beyond Purchasing Treasury Securities," to answer the following questions:
-According to the application, which of the following was a way for the Fed to channel more funds to banks to encourage bank lending?

Accepted Answer

A)  The Fed held mortgage backed securities. 
B)  The Fed guaranteed all the loans that the banks made to large corporations. 
C)  The Fed owned all the banks. 
D)  All of the above are correct. 
A)  The Fed held mortgage backed securities. 
B)  The Fed guaranteed all the loans that the banks made to large corporations. 
C)  The Fed owned all the banks. 
D)  All of the above are correct.

Question 6

Which of the following represents an action by the Federal Reserve that is designed to increase the money supply?

Accepted Answer

A)  a decrease in the required reserve ratio 
B)  selling government bonds in the open market 
C)  an increase in the discount rate 
D)  a decrease in federal tax rates 
A)  a decrease in the required reserve ratio 
B)  selling government bonds in the open market 
C)  an increase in the discount rate 
D)  a decrease in federal tax rates

Question 7

Which of the following is not a tool available to the Fed to change the supply of money?

Accepted Answer

A)  the required reserve ratio 
B)  the discount rate 
C)  the open market operations 
D)  the federal funds rate 
A)  the required reserve ratio 
B)  the discount rate 
C)  the open market operations 
D)  the federal funds rate

Question 8

Explain how an open market sale will affect bond prices.

Accepted Answer

If the Fed sells bon

Question 9

If the Fed wishes to increase long- term investment spending, it must:

Accepted Answer

A)  cut the current short- term interest rate. 
B)  convince the public that the expected future short- term rates would be low. 
C)  raise the short- term interest rates but lower the expected short- term future rates. 
D)  A and B are correct. 
A)  cut the current short- term interest rate. 
B)  convince the public that the expected future short- term rates would be low. 
C)  raise the short- term interest rates but lower the expected short- term future rates. 
D)  A and B are correct.

Question 10

When you pay your groceries with money because the supermarket does not accept stocks and certificates of deposits (CDs), then the reason why you are holding money is the:

Accepted Answer

A)  speculative demand for money. 
B)  transactions demand for money. 
C)  liquidity demand for money. 
D)  All of the above are correct. 
A)  speculative demand for money. 
B)  transactions demand for money. 
C)  liquidity demand for money. 
D)  All of the above are correct.

Question 11

Recall Application 3, "The Effectiveness of Committees," to answer the following questions:
-According to the application, experiments show that decisions made by committees:

Accepted Answer

A)  are more accurate and just as quick as decisions made by individuals. 
B)  are less accurate but just as quick as decisions made by individuals. 
C)  are less accurate and slower than decisions made by individuals. 
D)  are more accurate but slower than decisions made by individuals. 
A)  are more accurate and just as quick as decisions made by individuals. 
B)  are less accurate but just as quick as decisions made by individuals. 
C)  are less accurate and slower than decisions made by individuals. 
D)  are more accurate but slower than decisions made by individuals.

Question 12

Figure 14.5
-Refer to Figure 14.5. If the money supply decreases from

Accepted Answer

A)  the market interest rate will fall to 6%.   
B)  the money market will return to equilibrium only if the money supply is decreased to its original level. 
C)  the market interest rate will increase to 10%. 
D)  money demand must increase for the money market to return to equilibrium. 
A)  the market interest rate will fall to 6%.   
B)  the money market will return to equilibrium only if the money supply is decreased to its original level. 
C)  the market interest rate will increase to 10%. 
D)  money demand must increase for the money market to return to equilibrium.

Question 13

When the interest rate rises, bond prices:

Accepted Answer

A)  rise. 
B)  fall. 
C)  are unchanged because the interest rate paid on a bond is fixed. 
D)  will either increase or decrease depending on the type of bond. 
A)  rise. 
B)  fall. 
C)  are unchanged because the interest rate paid on a bond is fixed. 
D)  will either increase or decrease depending on the type of bond.

Question 14

The price of bonds and the interest rate are:

Accepted Answer

A)  positively related. 
B)  negatively related. 
C)  sometimes positively related and other times negatively related, depending on the bond payments. 
D)  There is no relationship between the interest rate and the price of bonds. 
A)  positively related. 
B)  negatively related. 
C)  sometimes positively related and other times negatively related, depending on the bond payments. 
D)  There is no relationship between the interest rate and the price of bonds.

Question 15

An open- market sale of government bonds by the Fed results in  _______ in bank reserves and _______ in the supply of money.

Accepted Answer

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

Question 16

Excess demand in the money market causes:

Accepted Answer

A)  a decrease in the equilibrium interest rate. 
B)  an increase in the quantity demanded of money. 
C)  a decrease in the money supply. 
D)  an increase in the equilibrium interest rate. 
A)  a decrease in the equilibrium interest rate. 
B)  an increase in the quantity demanded of money. 
C)  a decrease in the money supply. 
D)  an increase in the equilibrium interest rate.

Question 17

Recall Application 1, "Beyond Purchasing Treasury Securities," to answer the following questions:
-According to the application, how did the Fed conduct monetary policy prior to 2008?

Accepted Answer

A)  The Fed only held U.S. Treasury securities as its assets. 
B)  The Fed bought securities directly from individuals. 
C)  The Fed took directives regarding monetary policy directly from the U.S. president only. 
D)  The Fed allowed the fed funds rate to go below zero. 
A)  The Fed only held U.S. Treasury securities as its assets. 
B)  The Fed bought securities directly from individuals. 
C)  The Fed took directives regarding monetary policy directly from the U.S. president only. 
D)  The Fed allowed the fed funds rate to go below zero.

Question 18

Summarize the effects of a decrease in the money supply on the rate of interest, investment spending, and real GDP.

Accepted Answer

The effects of a decrease in the money s

Question 19

When the interest rate increases, the

Accepted Answer

A)  demand for money increases. 
B)  the demand for money decreases. 
C)  the quantity demanded of money increases. 
D)  the quantity demanded of money decreases. 
A)  demand for money increases. 
B)  the demand for money decreases. 
C)  the quantity demanded of money increases. 
D)  the quantity demanded of money decreases.

Question 20

Most econometric models predict that an interest rate cut will take at least _______ before most of its effects are felt.

Accepted Answer

A)  5 months 
B)  2 years 
C)  3 quarters 
D)  5 years 
A)  5 months 
B)  2 years 
C)  3 quarters 
D)  5 years

Explain the impact of Fed open- market purchases of government bonds on the money supply.

Recall Application 2, "Rising Interest Rates During an Economic Recovery," to answer the following questions: -According to the application, a recovering economy (and hence, a higher income) is usually associated with higher interest rates because:

If the quantity of money demanded is greater than the quantity of money supplied, then the interest rate will:

Which of the following sequence of events follows an expansionary monetary policy?

Recall Application 1, "Beyond Purchasing Treasury Securities," to answer the following questions: -According to the application, which of the following was a way for the Fed to channel more funds to banks to encourage bank lending?

Which of the following represents an action by the Federal Reserve that is designed to increase the money supply?

Which of the following is not a tool available to the Fed to change the supply of money?

Explain how an open market sale will affect bond prices.

If the Fed wishes to increase long- term investment spending, it must:

When you pay your groceries with money because the supermarket does not accept stocks and certificates of deposits (CDs), then the reason why you are holding money is the:

Recall Application 3, "The Effectiveness of Committees," to answer the following questions: -According to the application, experiments show that decisions made by committees:

Figure 14.5 -Refer to Figure 14.5. If the money supply decreases from

When the interest rate rises, bond prices:

The price of bonds and the interest rate are:

An open- market sale of government bonds by the Fed results in _ in bank reserves and _ in the supply of money.

Excess demand in the money market causes:

Recall Application 1, "Beyond Purchasing Treasury Securities," to answer the following questions: -According to the application, how did the Fed conduct monetary policy prior to 2008?

Summarize the effects of a decrease in the money supply on the rate of interest, investment spending, and real GDP.

When the interest rate increases, the

Most econometric models predict that an interest rate cut will take at least _______ before most of its effects are felt.

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nations Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Income-Expenditure Model

Investment and Financial Markets

Money and the Banking System

Modern Macroeconomics: From the Short Run to the Long Run

The Dynamics of Inflation and Unemployment

Macroeconomic Policy Debates

International Trade and Public Policy

The World of International Finance

Filters

Exam 14: The Federal Reserve and Monetary Policy

Explain the impact of Fed open- market purchases of government bonds on the money supply.

Recall Application 2, "Rising Interest Rates During an Economic Recovery," to answer the following questions: -According to the application, a recovering economy (and hence, a higher income) is usually associated with higher interest rates because:

If the quantity of money demanded is greater than the quantity of money supplied, then the interest rate will:

Which of the following sequence of events follows an expansionary monetary policy?

Recall Application 1, "Beyond Purchasing Treasury Securities," to answer the following questions: -According to the application, which of the following was a way for the Fed to channel more funds to banks to encourage bank lending?

Which of the following represents an action by the Federal Reserve that is designed to increase the money supply?

Which of the following is not a tool available to the Fed to change the supply of money?

Explain how an open market sale will affect bond prices.

If the Fed wishes to increase long- term investment spending, it must:

When you pay your groceries with money because the supermarket does not accept stocks and certificates of deposits (CDs), then the reason why you are holding money is the:

Recall Application 3, "The Effectiveness of Committees," to answer the following questions: -According to the application, experiments show that decisions made by committees:

Figure 14.5 -Refer to Figure 14.5. If the money supply decreases from

When the interest rate rises, bond prices:

The price of bonds and the interest rate are:

An open- market sale of government bonds by the Fed results in _______ in bank reserves and _______ in the supply of money.

Excess demand in the money market causes:

Recall Application 1, "Beyond Purchasing Treasury Securities," to answer the following questions: -According to the application, how did the Fed conduct monetary policy prior to 2008?

Summarize the effects of a decrease in the money supply on the rate of interest, investment spending, and real GDP.

When the interest rate increases, the

Most econometric models predict that an interest rate cut will take at least _______ before most of its effects are felt.

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nations Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Income-Expenditure Model

Investment and Financial Markets

Money and the Banking System

Modern Macroeconomics: From the Short Run to the Long Run

The Dynamics of Inflation and Unemployment

Macroeconomic Policy Debates

International Trade and Public Policy

The World of International Finance

Filters

An open- market sale of government bonds by the Fed results in _ in bank reserves and _ in the supply of money.