Question 1

Most decisions about implementing monetary policy are made by the:

Accepted Answer

A) chairman of the Fed only. 
B) president. 
C) president and Congress. 
D) Federal Open Market Committee. 
A) chairman of the Fed only. 
B) president. 
C) president and Congress. 
D) Federal Open Market Committee.

Question 2

Explain the difference between the Fed's offensive and defensive actions as parts of its control over monetary policy.Give an example of each type of action.

Accepted Answer

Any attempt by the Fed to control the cu

Question 3

If real income increases by 4 percent and the price level increases by 3 percent, nominal income must:

Accepted Answer

A) increase by 7 percent. 
B) increase by 1 percent. 
C) decrease by 1 percent. 
D) decrease by 7 percent. 
A) increase by 7 percent. 
B) increase by 1 percent. 
C) decrease by 1 percent. 
D) decrease by 7 percent.

Question 4

Fed watchers are:

Accepted Answer

A) financial advisers for the government, telling them when raising taxes will raise revenue and when it won't. 
B) part of the Fed governor system and are given voting power on the FOMC. 
C) individuals or organizations whose sole occupation is to follow the Fed's FOMC. 
D) individuals or organizations whose sole occupation is to predict the future of the interest rates. 
A) financial advisers for the government, telling them when raising taxes will raise revenue and when it won't. 
B) part of the Fed governor system and are given voting power on the FOMC. 
C) individuals or organizations whose sole occupation is to follow the Fed's FOMC. 
D) individuals or organizations whose sole occupation is to predict the future of the interest rates.

Question 5

Suppose the reserve requirement is 20 percent and banks hold no excess reserves. A $1 billion purchase of government securities by the Fed will:

Accepted Answer

A) increase the potential amount of checkable deposits in the banking system by $5 billion. 
B) increase the potential amount of checkable deposits in the banking system by $1 billion. 
C) reduce the potential amount of checkable deposits in the banking system by $1 billion. 
D) reduce the potential amount of checkable deposits in the banking system by $5 billion. 
A) increase the potential amount of checkable deposits in the banking system by $5 billion. 
B) increase the potential amount of checkable deposits in the banking system by $1 billion. 
C) reduce the potential amount of checkable deposits in the banking system by $1 billion. 
D) reduce the potential amount of checkable deposits in the banking system by $5 billion.

Question 6

Unlike the practice in many other countries, in the United States:

Accepted Answer

A) only monetary policy is used to influence the economy, and fiscal policy is not allowed. 
B) only fiscal policy is used to influence the economy, and monetary policy is not allowed. 
C) the agency responsible for monetary policy is not directly controlled by the government. 
D) the agency responsible for fiscal policy is not directly controlled by the government. 
A) only monetary policy is used to influence the economy, and fiscal policy is not allowed. 
B) only fiscal policy is used to influence the economy, and monetary policy is not allowed. 
C) the agency responsible for monetary policy is not directly controlled by the government. 
D) the agency responsible for fiscal policy is not directly controlled by the government.

Question 7

The discount rate refers to the:

Accepted Answer

A) lower price large institutions pay for government bonds. 
B) rate of interest the Fed charges for loans to banks. 
C) rate of interest the Fed charges for loans to individuals. 
D) rate of interest the Fed charges for loans to government. 
A) lower price large institutions pay for government bonds. 
B) rate of interest the Fed charges for loans to banks. 
C) rate of interest the Fed charges for loans to individuals. 
D) rate of interest the Fed charges for loans to government.

Question 8

When the Fed increases the reserve requirement, it:

Accepted Answer

A) expands the money supply because banks have more available to lend. 
B) expands the money supply because banks have less available to lend. 
C) contracts the money supply because banks have more available to lend. 
D) contracts the money supply because banks have less available to lend. 
A) expands the money supply because banks have more available to lend. 
B) expands the money supply because banks have less available to lend. 
C) contracts the money supply because banks have more available to lend. 
D) contracts the money supply because banks have less available to lend.

Question 9

Monetary regimes

Accepted Answer

A) involve feedback rules. 
B) allow the greatest policy flexibility. 
C) follow the Taylor rule. 
D) are created to undermine expectations. 
A) involve feedback rules. 
B) allow the greatest policy flexibility. 
C) follow the Taylor rule. 
D) are created to undermine expectations.

Question 10

The Federal Reserve kept interest rates low from 2002 through 2016 because they:

Accepted Answer

A) wanted to reduce the value of the dollar and help domestic exporters. 
B) were worried about inflation creeping into the economy. 
C) wanted to avoid deflation and the resulting recession. 
D) wanted to follow the Taylor Rule. 
A) wanted to reduce the value of the dollar and help domestic exporters. 
B) were worried about inflation creeping into the economy. 
C) wanted to avoid deflation and the resulting recession. 
D) wanted to follow the Taylor Rule.

Question 11

What is the monetary base? What role does it play in macroeconomic policy?

Accepted Answer

The monetary base consists of vault cash

Question 12

Explain the difference between real and nominal interest rates.How are they related?

Accepted Answer

Nominal interest rates are the rates you

Question 13

The body that directly oversees the 12 regional Federal Reserve banks is the:

Accepted Answer

A) Federal Open Market Committee. 
B) Board of Governors. 
C) U.S. Congress. 
D) Federal Advisory Council. 
A) Federal Open Market Committee. 
B) Board of Governors. 
C) U.S. Congress. 
D) Federal Advisory Council.

Question 14

According to the AS/AD model, if the economy is in a recession and the Fed wants to increase output and employment, it should:

Accepted Answer

A) act to increase the money supply. 
B) act to decrease the money supply. 
C) raise interest rates. 
D) raise reserve requirements. 
A) act to increase the money supply. 
B) act to decrease the money supply. 
C) raise interest rates. 
D) raise reserve requirements.

Question 15

If the Fed wants to increase the money supply, it can:

Accepted Answer

A) buy bonds. 
B) sell bonds. 
C) pass a law that interest rates rise. 
D) pass a law that interest rates fall. 
A) buy bonds. 
B) sell bonds. 
C) pass a law that interest rates rise. 
D) pass a law that interest rates fall.

Question 16

Assume that the federal funds rate is at its target, 2 percent, output is about 1 percent beneath potential, and inflation is roughly 1.5 percent. If the Taylor rule is accurate, the Fed's desired rate of inflation at this time would be:

Accepted Answer

A) 1 percent. 
B) 2.5 percent. 
C) 3.5 percent. 
D) 5 percent. 
A) 1 percent. 
B) 2.5 percent. 
C) 3.5 percent. 
D) 5 percent.

Question 17

Suppose you are a borrower and you expect inflation to be 6 percent over the next year because inflation was 6 percent in the last year. If you do not want to pay more than 2 percent in real terms for any loan you take out, you will not borrow if the interest rate is greater than:

Accepted Answer

A) 2 percent. 
B) 6 percent. 
C) 8 percent. 
D) 30 percent. 
A) 2 percent. 
B) 6 percent. 
C) 8 percent. 
D) 30 percent.

Question 18

Who determines U.S. monetary policy?

Accepted Answer

A) Congress 
B) The president 
C) The Internal Revenue Service 
D) The Federal Reserve 
A) Congress 
B) The president 
C) The Internal Revenue Service 
D) The Federal Reserve

Question 19

A monetary policy that reduces both real and nominal income:

Accepted Answer

A) must be expansionary. 
B) must be contractionary. 
C) cannot be expansionary or contractionary. 
D) could be expansionary or contractionary. 
A) must be expansionary. 
B) must be contractionary. 
C) cannot be expansionary or contractionary. 
D) could be expansionary or contractionary.

Question 20

Suppose banks hold no excess reserves,the reserve requirement is 20%.
(a)If banks have $10 million in reserves what will the money supply be?
(b)How will your answer to (a)change if the Fed increases the reserve requirement to 30%?

Accepted Answer

(a)To determine the amount of the money

Exam 29: Monetary Policy

Most decisions about implementing monetary policy are made by the:

Explain the difference between the Fed's offensive and defensive actions as parts of its control over monetary policy.Give an example of each type of action.

If real income increases by 4 percent and the price level increases by 3 percent, nominal income must:

Fed watchers are:

Suppose the reserve requirement is 20 percent and banks hold no excess reserves. A $1 billion purchase of government securities by the Fed will:

Unlike the practice in many other countries, in the United States:

The discount rate refers to the:

When the Fed increases the reserve requirement, it:

Monetary regimes

The Federal Reserve kept interest rates low from 2002 through 2016 because they:

What is the monetary base? What role does it play in macroeconomic policy?

Explain the difference between real and nominal interest rates.How are they related?

The body that directly oversees the 12 regional Federal Reserve banks is the:

According to the AS/AD model, if the economy is in a recession and the Fed wants to increase output and employment, it should:

If the Fed wants to increase the money supply, it can:

Assume that the federal funds rate is at its target, 2 percent, output is about 1 percent beneath potential, and inflation is roughly 1.5 percent. If the Taylor rule is accurate, the Fed's desired rate of inflation at this time would be:

Suppose you are a borrower and you expect inflation to be 6 percent over the next year because inflation was 6 percent in the last year. If you do not want to pay more than 2 percent in real terms for any loan you take out, you will not borrow if the interest rate is greater than:

Who determines U.S. monetary policy?

A monetary policy that reduces both real and nominal income:

Suppose banks hold no excess reserves,the reserve requirement is 20%. (a)If banks have $10 million in reserves what will the money supply be? (b)How will your answer to (a)change if the Fed increases the reserve requirement to 30%?

Economics and Economic Reasoning

The Production Possibility Model, Trade, and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

Describing Supply and Demand: Elasticities

Taxation and Government Intervention

Market Failure Versus Government Failure

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

Production and Cost Analysis I

Production and Cost Analysis II

Perfect Competition

Monopoly and Monopolistic Competition

Oligopoly and Antitrust Policy

Real-World Competition and Technology

Work and the Labor Market

Who Gets What the Distribution of Income

The Logic of Individual Choice: the Foundation of Supply and Demand

Game Theory, Strategic Decision Making, and Behavioral Economics

Thinking Like a Modern Economist

Behavioral Economics and Modern Economic Policy

Microeconomic Policy, Economic Reasoning, and Beyond

Economic Growth, Business Cycles, and Unemployment

Measuring and Describing the Aggregate Economy

The Keynesian Short-Run Policy Model: Demand-Side Policies

The Classical Long-Run Policy Model: Growth and Supply-Side Policies

The Financial Sector and the Economy

Financial Crises, Panics, and Unconventional Monetary Policy

Deficits and Debt: the Austerity Debate

The Fiscal Policy Dilemma

Jobs and Unemployment

Inflation, Deflation, and Macro Policy

International Financial Policy

Macro Policy in a Global Setting

Structural Stagnation and Globalization

Macro Policy in Developing Countries

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