Question 1

A country's currency appreciates relative to a foreign currency if:

Accepted Answer

A)  the country's GDP increases faster than the foreign country's GDP. 
B)  the prices of goods in the home country increases faster than in the foreign country. 
C)  it takes more foreign currency to buy the home currency. 
D)  All of the above are correct. 
A)  the country's GDP increases faster than the foreign country's GDP. 
B)  the prices of goods in the home country increases faster than in the foreign country. 
C)  it takes more foreign currency to buy the home currency. 
D)  All of the above are correct.

Question 2

An excess demand for money drives interest rates down.

Accepted Answer

A) True 
 B)False

Question 3

Figure 14.4
-Refer to Figure 14.4. If the Fed wants to reduce the economy's market interest rate from 6 percent to 4 percent, and the reserve ratio is 10 percent, then it needs to _______.

Accepted Answer

A)  buy $20 in government bonds 
B)  buy $200 in government bonds 
C)  sell $200 in government bonds 
D)  sell $20 in government bonds 
A)  buy $20 in government bonds 
B)  buy $200 in government bonds 
C)  sell $200 in government bonds 
D)  sell $20 in government bonds

Question 4

The price of one country's currency in terms of another country's currency is called the:

Accepted Answer

A)  exchange rate. 
B)  balance of trade. 
C)  currency valuation. 
D)  terms of trade. 
A)  exchange rate. 
B)  balance of trade. 
C)  currency valuation. 
D)  terms of trade.

Question 5

When the economy is in a boom, the interest rates _______ and the bond prices _______.

Accepted Answer

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

Question 6

An appreciation of a country's currency is likely to:

Accepted Answer

A)  decrease exports but not change imports. 
B)  decrease exports and decrease imports. 
C)  increase its GDP. 
D)  decrease its GDP. 
A)  decrease exports but not change imports. 
B)  decrease exports and decrease imports. 
C)  increase its GDP. 
D)  decrease its GDP.

Question 7

A depreciation of the U.S. dollar will likely cause U.S. net exports to _______ and U.S. real GDP to _______.

Accepted Answer

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

Question 8

If the quantity of money demanded equals the quantity of money supplied, then the interest rate will:

Accepted Answer

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

Question 9

Which of the following is a tool used by the Fed to control the money supply?

Accepted Answer

A)  the reserve requirement 
B)  open market operations 
C)  the discount rate 
D)  All of the above are correct. 
A)  the reserve requirement 
B)  open market operations 
C)  the discount rate 
D)  All of the above are correct.

Question 10

Which of the following statements is true?

Accepted Answer

A)  The Fed only controls the short- term interest rates, not the long- term interest rates. 
B)  The Fed only controls the long- term interest rates, not the short- term interest rates. 
C)  The Fed has no control of the long- term or the short- term interest rates. 
D)  The Fed controls both the short- term and the long term interest rates. 
A)  The Fed only controls the short- term interest rates, not the long- term interest rates. 
B)  The Fed only controls the long- term interest rates, not the short- term interest rates. 
C)  The Fed has no control of the long- term or the short- term interest rates. 
D)  The Fed controls both the short- term and the long term interest rates.

Question 11

Which choice is true?

Accepted Answer

A)  A higher interest rate causes lower investment, higher demand, and higher real GDP. 
B)  A higher interest rate causes lower investment, lower demand, and lower real GDP. 
C)  A higher interest rate causes higher investment, lower demand, and lower real GDP. 
D)  A lower interest rate causes lower investment, higher demand, and higher real GDP. 
A)  A higher interest rate causes lower investment, higher demand, and higher real GDP. 
B)  A higher interest rate causes lower investment, lower demand, and lower real GDP. 
C)  A higher interest rate causes higher investment, lower demand, and lower real GDP. 
D)  A lower interest rate causes lower investment, higher demand, and higher real GDP.

Question 12

Figure 14.4
-Refer to Figure 14.4. If the Fed wants to raise the economy's market interest rate from 6 percent to 8 percent, it needs to _______.

Accepted Answer

A)  increase Md  
B)  keep Ms constant 
C)  sell government bonds 
D)  buy government bonds 
A)  increase Md  
B)  keep Ms constant 
C)  sell government bonds 
D)  buy government bonds

Question 13

If the Federal Reserve wants interest rates to decrease, it will buy government bonds.

Accepted Answer

A) True 
 B)False

Question 14

Recall Application 3, "The Effectiveness of Committees," to answer the following questions:
-According to the application, later research by Alan Blinder showed that:

Accepted Answer

A)  the wisdom of the leader magnifies the superiority of the decisions of the committee. 
B)  the wisdom of the leader magnifies the inferiority of the decisions of the committee. 
C)  the wisdom of the whole group contributes to the superiority of committee decisions than the wisdom of the leader alone. 
D)  the wisdom of the leader contributes to superiority of committee decisions than the average wisdom of the group. 
A)  the wisdom of the leader magnifies the superiority of the decisions of the committee. 
B)  the wisdom of the leader magnifies the inferiority of the decisions of the committee. 
C)  the wisdom of the whole group contributes to the superiority of committee decisions than the wisdom of the leader alone. 
D)  the wisdom of the leader contributes to superiority of committee decisions than the average wisdom of the group.

Question 15

Which of the following sequence of events would follow a decrease in the reserve requirement?

Accepted Answer

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

Question 16

Which of the following sequence of events would follow an open market purchase of bonds?

Accepted Answer

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

Question 17

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 drawn as a vertical line implies that:

Accepted Answer

A)  the interest rate is independent of the quantity of money. 
B)  the money market is in equilibrium. 
C)  the demand for money is independent of the interest rate. 
D)  the money supply is independent of the interest rate. 
A)  the interest rate is independent of the quantity of money. 
B)  the money market is in equilibrium. 
C)  the demand for money is independent of the interest rate. 
D)  the money supply is independent of the interest rate.

Question 18

An increase in U.S. interest rates, holding Canadian interest rates unchanged, will cause the U.S. dollar to appreciate against the Canadian dollar.

Accepted Answer

A) True 
 B)False

Question 19

Explain the trade- off between holding bonds and holding money. Why don't people keep all their assets in the forms that are the easiest to use for making transactions?

Accepted Answer

The opportunity cost of holding money is

Question 20

When the Fed lowers the required reserve ratio, the money supply _______ and banks' reserves _______.

Accepted Answer

A)  increases; remain constant 
B)  remains constant; decrease 
C)  decreases; decrease 
D)  increases; increase 
A)  increases; remain constant 
B)  remains constant; decrease 
C)  decreases; decrease 
D)  increases; increase

A country's currency appreciates relative to a foreign currency if:

An excess demand for money drives interest rates down.

Figure 14.4 -Refer to Figure 14.4. If the Fed wants to reduce the economy's market interest rate from 6 percent to 4 percent, and the reserve ratio is 10 percent, then it needs to _______.

The price of one country's currency in terms of another country's currency is called the:

When the economy is in a boom, the interest rates _ and the bond prices _.

An appreciation of a country's currency is likely to:

A depreciation of the U.S. dollar will likely cause U.S. net exports to _ and U.S. real GDP to _.

If the quantity of money demanded equals the quantity of money supplied, then the interest rate will:

Which of the following is a tool used by the Fed to control the money supply?

Which of the following statements is true?

Which choice is true?

Figure 14.4 -Refer to Figure 14.4. If the Fed wants to raise the economy's market interest rate from 6 percent to 8 percent, it needs to _______.

If the Federal Reserve wants interest rates to decrease, it will buy government bonds.

Recall Application 3, "The Effectiveness of Committees," to answer the following questions: -According to the application, later research by Alan Blinder showed that:

Which of the following sequence of events would follow a decrease in the reserve requirement?

Which of the following sequence of events would follow an open market purchase of bonds?

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 drawn as a vertical line implies that:

An increase in U.S. interest rates, holding Canadian interest rates unchanged, will cause the U.S. dollar to appreciate against the Canadian dollar.

Explain the trade- off between holding bonds and holding money. Why don't people keep all their assets in the forms that are the easiest to use for making transactions?

When the Fed lowers the required reserve ratio, the money supply _ and banks' reserves _.

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

A country's currency appreciates relative to a foreign currency if:

An excess demand for money drives interest rates down.

Figure 14.4 -Refer to Figure 14.4. If the Fed wants to reduce the economy's market interest rate from 6 percent to 4 percent, and the reserve ratio is 10 percent, then it needs to _______.

The price of one country's currency in terms of another country's currency is called the:

When the economy is in a boom, the interest rates _______ and the bond prices _______.

An appreciation of a country's currency is likely to:

A depreciation of the U.S. dollar will likely cause U.S. net exports to _______ and U.S. real GDP to _______.

If the quantity of money demanded equals the quantity of money supplied, then the interest rate will:

Which of the following is a tool used by the Fed to control the money supply?

Which of the following statements is true?

Which choice is true?

Figure 14.4 -Refer to Figure 14.4. If the Fed wants to raise the economy's market interest rate from 6 percent to 8 percent, it needs to _______.

If the Federal Reserve wants interest rates to decrease, it will buy government bonds.

Recall Application 3, "The Effectiveness of Committees," to answer the following questions: -According to the application, later research by Alan Blinder showed that:

Which of the following sequence of events would follow a decrease in the reserve requirement?

Which of the following sequence of events would follow an open market purchase of bonds?

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 drawn as a vertical line implies that:

An increase in U.S. interest rates, holding Canadian interest rates unchanged, will cause the U.S. dollar to appreciate against the Canadian dollar.

Explain the trade- off between holding bonds and holding money. Why don't people keep all their assets in the forms that are the easiest to use for making transactions?

When the Fed lowers the required reserve ratio, the money supply _______ and banks' reserves _______.

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

When the economy is in a boom, the interest rates _ and the bond prices _.

A depreciation of the U.S. dollar will likely cause U.S. net exports to _ and U.S. real GDP to _.

When the Fed lowers the required reserve ratio, the money supply _ and banks' reserves _.