Question 1

What is monetary policy?

Accepted Answer

Monetary policy is the policy

Question 2

Which of the following monetary policies reduces aggregate demand and output?

Accepted Answer

A) A cut in the federal funds rate 
B) An open market purchase of government securities 
C) An increase in the discount rate 
D) A cut in the required reserve ratio 
A) A cut in the federal funds rate 
B) An open market purchase of government securities 
C) An increase in the discount rate 
D) A cut in the required reserve ratio

Question 3

Suppose banks have $25 million in reserves,the reserve requirement is 5%,and people do not hold any cash outside of banks.If the Fed makes an open market sale of $1 million of government securities,by how much will the money supply change? (Assume that the public does not hold any of its money in the form of currency. )

Accepted Answer

An open market sale will put securities

Question 4

If the Fed simultaneously lowers the reserve requirement and sells government bonds, the money supply will:

Accepted Answer

A) contract. 
B) remain unchanged. 
C) expand. 
D) move in a way that cannot be determined from the information given. 
A) contract. 
B) remain unchanged. 
C) expand. 
D) move in a way that cannot be determined from the information given.

Question 5

The chairperson of the Federal Reserve's Board of Governors is:

Accepted Answer

A) elected by the public. 
B) selected by commercial banks. 
C) appointed by the president. 
D) appointed by the Board of Governors. 
A) elected by the public. 
B) selected by commercial banks. 
C) appointed by the president. 
D) appointed by the Board of Governors.

Question 6

Suppose the federal funds rate is 5 percent. If the Fed decides to decrease the target for the federal funds rate from 5 percent to 4 percent, it could take:

Accepted Answer

A) a defensive action and raise reserve requirements. 
B) a defensive action and reduce reserve requirements. 
C) an offensive action and raise reserve requirements. 
D) an offensive action and reduce reserve requirements. 
A) a defensive action and raise reserve requirements. 
B) a defensive action and reduce reserve requirements. 
C) an offensive action and raise reserve requirements. 
D) an offensive action and reduce reserve requirements.

Question 7

Between from 2002 through 2016 the Federal Reserve:

Accepted Answer

A) raised rates in order to follow the Taylor Rule. 
B) left rates unchanged in order to follow the Taylor Rule. 
C) lowered rates and went against the Taylor Rule. 
D) abandoned the Taylor Rule in favor of the Greenspan Rule. 
A) raised rates in order to follow the Taylor Rule. 
B) left rates unchanged in order to follow the Taylor Rule. 
C) lowered rates and went against the Taylor Rule. 
D) abandoned the Taylor Rule in favor of the Greenspan Rule.

Question 8

Which is not a function of the Fed?

Accepted Answer

A) Conducting monetary policy 
B) Serving as a lender of last resort 
C) Providing financial services such as check clearing to commercial banks 
D) Directly financing U.S. budget deficits 
A) Conducting monetary policy 
B) Serving as a lender of last resort 
C) Providing financial services such as check clearing to commercial banks 
D) Directly financing U.S. budget deficits

Question 9

Explicit functions of the Fed include all the following except:

Accepted Answer

A) conducting monetary policy. 
B) conducting fiscal policy. 
C) providing banking services to the U.S. government. 
D) serving as a lender of last resort to financial institutions. 
A) conducting monetary policy. 
B) conducting fiscal policy. 
C) providing banking services to the U.S. government. 
D) serving as a lender of last resort to financial institutions.

Question 10

Using the following AS/AD diagram,answer the question below.   If the economy is currently at point A,does the Fed have enough information to decide whether it should conduct expansionary or contractionary monetary policy? Explain your answer.

Accepted Answer

The Federal Reserve does not have enough

Question 11

A contractionary monetary policy decreases the money supply and the interest rate, which decreases investment and output.

Accepted Answer

A) True 
 B)False

Question 12

If inflation exceeds target inflation by 3%,target inflation is at 2%,and total output is 1% above its potential,what is the Federal Funds rate that the Fed will set according to the Taylor rule?

Accepted Answer

Using the Taylor Rule: Fed funds rate =

Question 13

The federal funds rate:

Accepted Answer

A) is always slightly higher than the discount rate. 
B) can never be close to zero. 
C) may sometimes be targeted at zero. 
D) is an intermediate target of the Fed's monetary policy. 
A) is always slightly higher than the discount rate. 
B) can never be close to zero. 
C) may sometimes be targeted at zero. 
D) is an intermediate target of the Fed's monetary policy.

Question 14

Describe how the Federal Reserve uses Open Market Operations to change the money supply.

Accepted Answer

Open market operations are the Fed's buy

Question 15

Which of the following gives the correct relationship between nominal and real interest rates?

Accepted Answer

A) Real interest rate = nominal interest rate + expected inflation rate 
B) Nominal interest rate = real interest rate + expected inflation rate 
C) Nominal interest rate + real interest rate = expected inflation rate 
D) Nominal interest rate = real interest rate - expected inflation 
A) Real interest rate = nominal interest rate + expected inflation rate 
B) Nominal interest rate = real interest rate + expected inflation rate 
C) Nominal interest rate + real interest rate = expected inflation rate 
D) Nominal interest rate = real interest rate - expected inflation

Question 16

Suppose the federal funds rate is 5 percent. If the Fed decides to increase the target for the federal funds rate from 5 percent to 6 percent, it could take:

Accepted Answer

A) a defensive action and raise reserve requirements. 
B) a defensive action and reduce reserve requirements. 
C) an offensive action and raise reserve requirements. 
D) an offensive action and reduce reserve requirements. 
A) a defensive action and raise reserve requirements. 
B) a defensive action and reduce reserve requirements. 
C) an offensive action and raise reserve requirements. 
D) an offensive action and reduce reserve requirements.

Question 17

To achieve its target when the federal funds rate is above the target range, the Fed should:

Accepted Answer

A) follow expansionary policy. 
B) follow contractionary policy. 
C) buy foreign currency. 
D) do nothing. 
A) follow expansionary policy. 
B) follow contractionary policy. 
C) buy foreign currency. 
D) do nothing.

Question 18

One of the reasons that expansionary monetary policy was not as effective as expected in recent years is that banks:

Accepted Answer

A) returned reserves that the Fed added to banks. 
B) loaned reserves that the Fed added to banks. 
C) held onto the reserves that the Fed added to banks. 
D) purchased Treasures with the reserves that the Fed added to their accounts. 
A) returned reserves that the Fed added to banks. 
B) loaned reserves that the Fed added to banks. 
C) held onto the reserves that the Fed added to banks. 
D) purchased Treasures with the reserves that the Fed added to their accounts.

Question 19

The Fed can conduct monetary policy in all the following ways except:

Accepted Answer

A) changing the reserve requirement. 
B) changing the discount rate. 
C) executing open market operations. 
D) running deficits. 
A) changing the reserve requirement. 
B) changing the discount rate. 
C) executing open market operations. 
D) running deficits.

Question 20

The standard discussion of monetary policy is based on the assumption that:

Accepted Answer

A) long-term rates will fall when the Fed pushes up short-term interest rates. 
B) long-term rates will rise when the Fed pushes up short-term interest rates. 
C) short-term rates will fall when the Fed pushes up long-term interest rates. 
D) short-term rates will rise when the Fed pushes up long-term interest rates. 
A) long-term rates will fall when the Fed pushes up short-term interest rates. 
B) long-term rates will rise when the Fed pushes up short-term interest rates. 
C) short-term rates will fall when the Fed pushes up long-term interest rates. 
D) short-term rates will rise when the Fed pushes up long-term interest rates.

Exam 29: Monetary Policy

What is monetary policy?

Which of the following monetary policies reduces aggregate demand and output?

If the Fed simultaneously lowers the reserve requirement and sells government bonds, the money supply will:

The chairperson of the Federal Reserve's Board of Governors is:

Suppose the federal funds rate is 5 percent. If the Fed decides to decrease the target for the federal funds rate from 5 percent to 4 percent, it could take:

Between from 2002 through 2016 the Federal Reserve:

Which is not a function of the Fed?

Explicit functions of the Fed include all the following except:

Using the following AS/AD diagram,answer the question below. If the economy is currently at point A,does the Fed have enough information to decide whether it should conduct expansionary or contractionary monetary policy? Explain your answer.

A contractionary monetary policy decreases the money supply and the interest rate, which decreases investment and output.

If inflation exceeds target inflation by 3%,target inflation is at 2%,and total output is 1% above its potential,what is the Federal Funds rate that the Fed will set according to the Taylor rule?

The federal funds rate:

Describe how the Federal Reserve uses Open Market Operations to change the money supply.

Which of the following gives the correct relationship between nominal and real interest rates?

Suppose the federal funds rate is 5 percent. If the Fed decides to increase the target for the federal funds rate from 5 percent to 6 percent, it could take:

To achieve its target when the federal funds rate is above the target range, the Fed should:

One of the reasons that expansionary monetary policy was not as effective as expected in recent years is that banks:

The Fed can conduct monetary policy in all the following ways except:

The standard discussion of monetary policy is based on the assumption that:

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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