Question 1

An example of a tool used by the Fed that decreases the money supply is:

Accepted Answer

A)  a decrease in the prime lending rate. 
B)  an increase in the required reserve ratio. 
C)  the Fed buying government bonds in the open market. 
D)  a decrease in the discount rate. 
A)  a decrease in the prime lending rate. 
B)  an increase in the required reserve ratio. 
C)  the Fed buying government bonds in the open market. 
D)  a decrease in the discount rate.

Question 2

Suppose investment becomes more responsive to changes in the interest rate. What effect will this have on the effectiveness of monetary policy? Specifically, what will happen to the output given an increase in the money supply?

Accepted Answer

The effectiveness of monetary policy wil

Question 3

At lower interest rates,:

Accepted Answer

A)  bonds are more attractive than money. 
B)  there is a direct relationship between the interest rate and the quantity of money demanded. 
C)  people make a larger sacrifice in interest foregone for each dollar of money they hold. 
D)  people hold larger money balances. 
A)  bonds are more attractive than money. 
B)  there is a direct relationship between the interest rate and the quantity of money demanded. 
C)  people make a larger sacrifice in interest foregone for each dollar of money they hold. 
D)  people hold larger money balances.

Question 4

Which of the following is true when the US dollar depreciates against the euro?

Accepted Answer

A)  It takes fewer euros to buy the dollar. 
B)  It takes more dollars to buy the euro. 
C)  It becomes more expensive for Americans to buy goods from Germany. 
D)  All of the above are correct. 
A)  It takes fewer euros to buy the dollar. 
B)  It takes more dollars to buy the euro. 
C)  It becomes more expensive for Americans to buy goods from Germany. 
D)  All of the above are correct.

Question 5

When real interest rates are high, people want to take advantage of the high return on bonds, so they choose to hold less money.

Accepted Answer

A) True 
 B)False

Question 6

Investment spending:

Accepted Answer

A)  is inversely related to the money supply. 
B)  decreases as the interest rate increases. 
C)  is independent of either the interest rate or money supply. 
D)  increases as the interest rate increases. 
A)  is inversely related to the money supply. 
B)  decreases as the interest rate increases. 
C)  is independent of either the interest rate or money supply. 
D)  increases as the interest rate increases.

Question 7

Assume that total deposits in the banking system are $200 million. If the required reserve ratio is increased, then the money supply will:

Accepted Answer

A)  increase. 
B)  decrease. 
C)  not change because there was no change in deposits. 
D)  not change because the required reserve ratio has no impact on the money supply. 
A)  increase. 
B)  decrease. 
C)  not change because there was no change in deposits. 
D)  not change because the required reserve ratio has no impact on the money supply.

Question 8

If the Fed increases the money supply, it is trying to stimulate the economy.

Accepted Answer

A) True 
 B)False

Question 9

In a graph where the interest rate is on the y- axis and the quantity of money is on the x- axis, a money supply curve that is independent of the interest rate is drawn as:

Accepted Answer

A)  a 45 degree line from the origin. 
B)  an upward sloping line. 
C)  a vertical line. 
D)  a horizontal line. 
A)  a 45 degree line from the origin. 
B)  an upward sloping line. 
C)  a vertical line. 
D)  a horizontal line.

Question 10

Which basic principle of economics best explains why the demand for money is negatively related to the nominal interest rate?

Accepted Answer

A)  the principle of diminishing returns 
B)  the principle of voluntary exchange 
C)  the principle of opportunity cost 
D)  the marginal principle 
A)  the principle of diminishing returns 
B)  the principle of voluntary exchange 
C)  the principle of opportunity cost 
D)  the marginal principle

Question 11

Explain how the U.S. recession in 2007- 2009 affected the demand for money. Be sure to specify which demand for money decreases.

Accepted Answer

When an economy experiences a recession,

Question 12

Assume the money market is initially in equilibrium. Now, suppose the Fed sells government bonds. Graphically illustrate and explain what effect this Fed open- market sale of bonds will have on the money market.

Accepted Answer

The Fed sale of government bonds will ca

Question 13

Explain why investors would choose to hold on to money for investment purposes when money gives out a zero rate of return.

Accepted Answer

In the short run, the return for stocks

Question 14

The discount rate is:

Accepted Answer

A)  the rate banks charge each other when they borrow reserves from each other. 
B)  the rate banks pay on checking accounts. 
C)  the rate the Fed charges banks when they borrow reserves from the Fed. 
D)  the rate banks charge their best customers. 
A)  the rate banks charge each other when they borrow reserves from each other. 
B)  the rate banks pay on checking accounts. 
C)  the rate the Fed charges banks when they borrow reserves from the Fed. 
D)  the rate banks charge their best customers.

Question 15

Recall Application 3, "The Effectiveness of Committees," to answer the following questions:
-According to the application, research by Alan Blinder showed that the actual process of having meetings and discussions appears to have:

Accepted Answer

A)  improved the performance individuals in the committee. 
B)  improved the overall performance of the leader in the committee. 
C)  worsened the overall performance of the committee. 
D)  improved the overall performance of the committee. 
A)  improved the performance individuals in the committee. 
B)  improved the overall performance of the leader in the committee. 
C)  worsened the overall performance of the committee. 
D)  improved the overall performance of the committee.

Question 16

The outside lag associated with economic policy represents:

Accepted Answer

A)  the time needed for the Federal Reserve Board to meet. 
B)  the time that it takes for a newly implemented policy to take effect. 
C)  the time that is necessary to recognize and implement policy. 
D)  the time it takes for the policy makers to admit that a policy is not working. 
A)  the time needed for the Federal Reserve Board to meet. 
B)  the time that it takes for a newly implemented policy to take effect. 
C)  the time that is necessary to recognize and implement policy. 
D)  the time it takes for the policy makers to admit that a policy is not working.

Question 17

If the Fed wishes to increase the money supply, it should buy government bonds.

Accepted Answer

A) True 
 B)False

Question 18

If interest rates increase, people will choose to hold:

Accepted Answer

A)  less bonds and more cash. 
B)  more bonds and less cash. 
C)  less bonds and less cash. 
D)  more bonds and more cash. 
A)  less bonds and more cash. 
B)  more bonds and less cash. 
C)  less bonds and less cash. 
D)  more bonds and more cash.

Question 19

Explain why bond prices decrease when the economy is in a boom.

Accepted Answer

When the economy is in a boom, the deman

Question 20

Though a powerful tool, the reserve requirement is seldomly used by the Fed to control the money supply because:

Accepted Answer

A)  it causes significant disruptions in the banking system. 
B)  using the reserve requirement can be inflationary. 
C)  it is very difficult for the Fed to monitor the reserve requirement. 
D)  it takes a long time for the policy to be implemented. 
A)  it causes significant disruptions in the banking system. 
B)  using the reserve requirement can be inflationary. 
C)  it is very difficult for the Fed to monitor the reserve requirement. 
D)  it takes a long time for the policy to be implemented.

An example of a tool used by the Fed that decreases the money supply is:

Suppose investment becomes more responsive to changes in the interest rate. What effect will this have on the effectiveness of monetary policy? Specifically, what will happen to the output given an increase in the money supply?

At lower interest rates,:

Which of the following is true when the US dollar depreciates against the euro?

When real interest rates are high, people want to take advantage of the high return on bonds, so they choose to hold less money.

Investment spending:

Assume that total deposits in the banking system are $200 million. If the required reserve ratio is increased, then the money supply will:

If the Fed increases the money supply, it is trying to stimulate the economy.

In a graph where the interest rate is on the y- axis and the quantity of money is on the x- axis, a money supply curve that is independent of the interest rate is drawn as:

Which basic principle of economics best explains why the demand for money is negatively related to the nominal interest rate?

Explain how the U.S. recession in 2007- 2009 affected the demand for money. Be sure to specify which demand for money decreases.

Assume the money market is initially in equilibrium. Now, suppose the Fed sells government bonds. Graphically illustrate and explain what effect this Fed open- market sale of bonds will have on the money market.

Explain why investors would choose to hold on to money for investment purposes when money gives out a zero rate of return.

The discount rate is:

Recall Application 3, "The Effectiveness of Committees," to answer the following questions: -According to the application, research by Alan Blinder showed that the actual process of having meetings and discussions appears to have:

The outside lag associated with economic policy represents:

If the Fed wishes to increase the money supply, it should buy government bonds.

If interest rates increase, people will choose to hold:

Explain why bond prices decrease when the economy is in a boom.

Though a powerful tool, the reserve requirement is seldomly used by the Fed to control the money supply because:

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

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Exam 14: The Federal Reserve and Monetary Policy

An example of a tool used by the Fed that decreases the money supply is:

Suppose investment becomes more responsive to changes in the interest rate. What effect will this have on the effectiveness of monetary policy? Specifically, what will happen to the output given an increase in the money supply?

At lower interest rates,:

Which of the following is true when the US dollar depreciates against the euro?

When real interest rates are high, people want to take advantage of the high return on bonds, so they choose to hold less money.

Investment spending:

Assume that total deposits in the banking system are $200 million. If the required reserve ratio is increased, then the money supply will:

If the Fed increases the money supply, it is trying to stimulate the economy.

In a graph where the interest rate is on the y- axis and the quantity of money is on the x- axis, a money supply curve that is independent of the interest rate is drawn as:

Which basic principle of economics best explains why the demand for money is negatively related to the nominal interest rate?

Explain how the U.S. recession in 2007- 2009 affected the demand for money. Be sure to specify which demand for money decreases.

Assume the money market is initially in equilibrium. Now, suppose the Fed sells government bonds. Graphically illustrate and explain what effect this Fed open- market sale of bonds will have on the money market.

Explain why investors would choose to hold on to money for investment purposes when money gives out a zero rate of return.

The discount rate is:

Recall Application 3, "The Effectiveness of Committees," to answer the following questions: -According to the application, research by Alan Blinder showed that the actual process of having meetings and discussions appears to have:

The outside lag associated with economic policy represents:

If the Fed wishes to increase the money supply, it should buy government bonds.

If interest rates increase, people will choose to hold:

Explain why bond prices decrease when the economy is in a boom.

Though a powerful tool, the reserve requirement is seldomly used by the Fed to control the money supply because:

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