Question 1

Which of the following Fed actions increases the excess reserves of commercial banks?

Accepted Answer

A) selling bonds to the public 
B) selling bonds to commercial banks 
C) increasing the discount rate 
D) lower the reserve ratio 
A) selling bonds to the public 
B) selling bonds to commercial banks 
C) increasing the discount rate 
D) lower the reserve ratio

Question 2

The federal funds rate is the rate that banks charge other banks for overnight loans of excess reserves.

Accepted Answer

A) True 
 B)False

Question 3

Suppose the demand for money and the supply of money increase simultaneously.We can

Accepted Answer

A) expect the interest rate to rise and bond prices to fall. 
B) expect the interest rate to fall and bond prices to rise. 
C) expect the nominal GDP to expand. 
D) not accurately predict what will happen to interest rates or bond prices.Accessibility: Keyboard Navigation 
A) expect the interest rate to rise and bond prices to fall. 
B) expect the interest rate to fall and bond prices to rise. 
C) expect the nominal GDP to expand. 
D) not accurately predict what will happen to interest rates or bond prices.Accessibility: Keyboard Navigation

Question 4

Open-market operations change

Accepted Answer

A) the size of the monetary multiplier but not commercial bank reserves. 
B) commercial bank reserves but not the size of the monetary multiplier. 
C) neither commercial bank reserves nor the size of the monetary multiplier. 
D) both commercial bank reserves and the size of the monetary multiplier. 
A) the size of the monetary multiplier but not commercial bank reserves. 
B) commercial bank reserves but not the size of the monetary multiplier. 
C) neither commercial bank reserves nor the size of the monetary multiplier. 
D) both commercial bank reserves and the size of the monetary multiplier.

Question 5

Assuming government wishes to either increase or decrease the level of aggregate demand, which of the following pairs are not consistent policy measures?

Accepted Answer

A) a tax increase and an increase in the money supply 
B) a tax reduction and an increase in the money supply 
C) a reduction in government expenditures and a decline in the money supply 
D) a tax increase and an increase in the interest rate 
A) a tax increase and an increase in the money supply 
B) a tax reduction and an increase in the money supply 
C) a reduction in government expenditures and a decline in the money supply 
D) a tax increase and an increase in the interest rate

Question 6

A decrease in the nominal GDP, other things remaining the same, will decrease both the total demand for money and the equilibrium rate of interest in the economy.

Accepted Answer

A) True 
 B)False

Question 7

Compared to fiscal policy, monetary policy has a much shorter

Accepted Answer

A) recognition lag. 
B) administrative lag. 
C) operational lag. 
D) effects lag. 
A) recognition lag. 
B) administrative lag. 
C) operational lag. 
D) effects lag.

Question 8

The increase in excess reserves that occurred as a result of the mortgage debt crisis

Accepted Answer

A) was offset by restrictive monetary policy. 
B) rendered open-market operations ineffective. 
C) caused the Fed to set a negative nominal interest rate target for the federal funds rate. 
D) prevented the Fed from taking any further action to increase the money supply. 
A) was offset by restrictive monetary policy. 
B) rendered open-market operations ineffective. 
C) caused the Fed to set a negative nominal interest rate target for the federal funds rate. 
D) prevented the Fed from taking any further action to increase the money supply.

Question 9

The effects of expansionary monetary policy are strengthened by a liquidity trap.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following Fed actions will decrease the money supply?

Accepted Answer

A) reverse repos 
B) repos 
C) open-market purchases of bonds 
D) raising taxes 
A) reverse repos 
B) repos 
C) open-market purchases of bonds 
D) raising taxes

Question 11

A liquidity trap occurs when the Federal Reserve reduces reserves in the system, choking off aggregate demand.

Accepted Answer

A) True 
 B)False

Question 12

The asset demand for money

Accepted Answer

A) is unrelated to both the interest rate and the level of GDP. 
B) varies inversely with the rate of interest. 
C) varies inversely with the level of real GDP. 
D) varies directly with the level of nominal GDP. 
A) is unrelated to both the interest rate and the level of GDP. 
B) varies inversely with the rate of interest. 
C) varies inversely with the level of real GDP. 
D) varies directly with the level of nominal GDP.

Question 13

If the Fed wants to maintain current interest rates, it would be buying government bonds in the open market when

Accepted Answer

A) the demand for money decreases. 
B) the demand for money increases. 
C) investment demand decreases. 
D) the discount rate increases. 
A) the demand for money decreases. 
B) the demand for money increases. 
C) investment demand decreases. 
D) the discount rate increases.

Question 14

The job of the Fed in limiting the supply of money may be made more complex if commercial banks initially have substantial excess reserves.

Accepted Answer

A) True 
 B)False

Question 15

Bond prices and interest rates are directly or positively related.

Accepted Answer

A) True 
 B)False

Question 16

The transactions demand for money is most closely related to money functioning as a

Accepted Answer

A) unit of account. 
B) medium of exchange. 
C) store of value. 
D) measure of value. 
A) unit of account. 
B) medium of exchange. 
C) store of value. 
D) measure of value.

Question 17

Prior to the financial crisis, to reduce the federal funds rate, the Fed could

Accepted Answer

A) buy government bonds from the public. 
B) increase the discount rate. 
C) increase the prime interest rate. 
D) sell government bonds to commercial banks. 
A) buy government bonds from the public. 
B) increase the discount rate. 
C) increase the prime interest rate. 
D) sell government bonds to commercial banks.

Question 18

Which of the following is not a result of policy actions taken by the Fed since the financial crisis in 2008?

Accepted Answer

A) a massive expansion of excess reserves in the banking system 
B) The federal funds rate has hovered near zero. 
C) very little activity in the federal funds market 
D) a very volatile federal funds rate 
A) a massive expansion of excess reserves in the banking system 
B) The federal funds rate has hovered near zero. 
C) very little activity in the federal funds market 
D) a very volatile federal funds rate

Question 19

The purchase of government securities from the public by the Fed will cause

Accepted Answer

A) commercial bank reserves to decrease. 
B) the money supply to increase. 
C) demand deposits to decrease. 
D) the interest rate to increase. 
A) commercial bank reserves to decrease. 
B) the money supply to increase. 
C) demand deposits to decrease. 
D) the interest rate to increase.

Question 20

Starting in 2014, the European Central Bank (ECB), along with a few other central banks in Europe, implemented a strange monetary policy of

Accepted Answer

A) closed-market operations. 
B) market integration. 
C) negative interest rates. 
D) qualitative easing. 
A) closed-market operations. 
B) market integration. 
C) negative interest rates. 
D) qualitative easing.

Exam 36: Interest Rates and Monetary Policy

Which of the following Fed actions increases the excess reserves of commercial banks?

The federal funds rate is the rate that banks charge other banks for overnight loans of excess reserves.

Suppose the demand for money and the supply of money increase simultaneously.We can

Open-market operations change

Assuming government wishes to either increase or decrease the level of aggregate demand, which of the following pairs are not consistent policy measures?

A decrease in the nominal GDP, other things remaining the same, will decrease both the total demand for money and the equilibrium rate of interest in the economy.

Compared to fiscal policy, monetary policy has a much shorter

The increase in excess reserves that occurred as a result of the mortgage debt crisis

The effects of expansionary monetary policy are strengthened by a liquidity trap.

Which of the following Fed actions will decrease the money supply?

A liquidity trap occurs when the Federal Reserve reduces reserves in the system, choking off aggregate demand.

The asset demand for money

If the Fed wants to maintain current interest rates, it would be buying government bonds in the open market when

The job of the Fed in limiting the supply of money may be made more complex if commercial banks initially have substantial excess reserves.

Bond prices and interest rates are directly or positively related.

The transactions demand for money is most closely related to money functioning as a

Prior to the financial crisis, to reduce the federal funds rate, the Fed could

Which of the following is not a result of policy actions taken by the Fed since the financial crisis in 2008?

The purchase of government securities from the public by the Fed will cause

Starting in 2014, the European Central Bank (ECB), along with a few other central banks in Europe, implemented a strange monetary policy of

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, Rd, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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