Question 1

The asset 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 2

The lending ability of commercial banks increases when the

Accepted Answer

A) reserve ratio is raised. 
B) Treasury collects tax revenues. 
C) Fed sells securities in the open market. 
D) Fed buys securities in the open market. 
A) reserve ratio is raised. 
B) Treasury collects tax revenues. 
C) Fed sells securities in the open market. 
D) Fed buys securities in the open market.

Question 3

Ben Bernanke is the current (2016) chair of the Board of Governors.

Accepted Answer

A) True 
 B)False

Question 4

To increase the federal funds rate, the Fed historically has

Accepted Answer

A) bought government bonds from the public. 
B) decreased the discount rate. 
C) decreased the prime interest rate. 
D) sold government bonds to commercial banks. 
A) bought government bonds from the public. 
B) decreased the discount rate. 
C) decreased the prime interest rate. 
D) sold government bonds to commercial banks.

Question 5

Which of the following monetary policy tools was introduced in 2008?

Accepted Answer

A) the discount rate 
B) the federal funds rate 
C) open-market operations 
D) paying interest on excess reserves held at the Fed 
A) the discount rate 
B) the federal funds rate 
C) open-market operations 
D) paying interest on excess reserves held at the Fed

Question 6

Which of the following best describes the cause-effect chain of a restrictive monetary policy?

Accepted Answer

A) A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP. 
B) A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. 
C) An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. 
D) An increase in the money supply will lower the interest rate, decrease investment spending, and increase aggregate demand and GDP. 
A) A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP. 
B) A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. 
C) An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. 
D) An increase in the money supply will lower the interest rate, decrease investment spending, and increase aggregate demand and GDP.

Question 7

If the Fed sells government securities to the general public in the open market,

Accepted Answer

A) the Fed gives the securities to the public; the public pays for the securities by writing checks that, when cleared, will increase commercial bank reserves at the Fed. 
B) the Fed gives the securities to the public; the public pays for the securities by writing checks that, when cleared, will decrease commercial bank reserves at the Fed. 
C) the public gives the securities to the Fed in exchange for a Fed check, which, when deposited at commercial banks, will increase their reserves at the Fed. 
D) the public gives the securities to the Fed in exchange for a Fed check, which, when deposited at commercial banks, will decrease their reserves at 
A) the Fed gives the securities to the public; the public pays for the securities by writing checks that, when cleared, will increase commercial bank reserves at the Fed. 
B) the Fed gives the securities to the public; the public pays for the securities by writing checks that, when cleared, will decrease commercial bank reserves at the Fed. 
C) the public gives the securities to the Fed in exchange for a Fed check, which, when deposited at commercial banks, will increase their reserves at the Fed. 
D) the public gives the securities to the Fed in exchange for a Fed check, which, when deposited at commercial banks, will decrease their reserves at

Question 8

Which of the following statements about quantitative easing (or "QE") and open-market purchase is true?

Accepted Answer

A) QE is similar to open-market purchase in that both are aimed at reducing short-term interest rates in the economy. 
B) QE is different from open-market purchase in that QE involves not just T-bonds but also bonds issued by other government agencies and government-backed corporations. 
C) QE is done by the U.S.Treasury, whereas open-market purchase is done by the Federal Reserve System. 
D) QE has to have Congressional approval, whereas open-market purchase does not.Difficulty: 02 Medium 
A) QE is similar to open-market purchase in that both are aimed at reducing short-term interest rates in the economy. 
B) QE is different from open-market purchase in that QE involves not just T-bonds but also bonds issued by other government agencies and government-backed corporations. 
C) QE is done by the U.S.Treasury, whereas open-market purchase is done by the Federal Reserve System. 
D) QE has to have Congressional approval, whereas open-market purchase does not.Difficulty: 02 Medium

Question 9

In a repo transaction, the Fed money; in a reverse repo transaction, the Fed money.

Accepted Answer

A) borrows; loans. 
B) loans; borrows. 
C) prints new; destroys. 
D) destroys; prints new. 
A) borrows; loans. 
B) loans; borrows. 
C) prints new; destroys. 
D) destroys; prints new.

Question 10

A decrease in the interest rate will cause a(n)

Accepted Answer

A) increase in the transactions demand for money. 
B) decrease in the transactions demand for money. 
C) decrease in the amount of money held as an asset. 
D) increase in the amount of money held as an asset. 
A) increase in the transactions demand for money. 
B) decrease in the transactions demand for money. 
C) decrease in the amount of money held as an asset. 
D) increase in the amount of money held as an asset.

Question 11

A television report states: "The Federal Reserve will lower the discount rate for the fourth time this year." This report indicates that the Federal Reserve is most likely trying to

Accepted Answer

A) reduce inflation. 
B) save the banking industry. 
C) stimulate the economy. 
D) improve the savings rate. 
A) reduce inflation. 
B) save the banking industry. 
C) stimulate the economy. 
D) improve the savings rate.

Question 12

The transactions demand for money will shift to the

Accepted Answer

A) left when nominal GDP increases. 
B) left when nominal GDP decreases. 
C) right when nominal GDP decreases. 
D) right when the interest rate increases. 
A) left when nominal GDP increases. 
B) left when nominal GDP decreases. 
C) right when nominal GDP decreases. 
D) right when the interest rate increases.

Question 13

If the economy is operating in the relatively steep (upper) portion of its aggregate supply curve, a reduction in the money supply will

Accepted Answer

A) increase the interest rate and increase employment. 
B) reduce the interest rate and increase employment. 
C) increase the interest rate and reduce the price level, assuming it is flexible downward. 
D) reduce the interest rate and increase the price level. 
A) increase the interest rate and increase employment. 
B) reduce the interest rate and increase employment. 
C) increase the interest rate and reduce the price level, assuming it is flexible downward. 
D) reduce the interest rate and increase the price level.

Question 14

Monetary policy actions by the Fed are

Accepted Answer

A) more effective in a restrictive direction than they are in an expansionary direction. 
B) more effective in an expansionary direction than they are in a restrictive direction. 
C) equally effective in both expansionary and restrictive directions. 
D) only effective when coupled with fiscal policy actions. 
A) more effective in a restrictive direction than they are in an expansionary direction. 
B) more effective in an expansionary direction than they are in a restrictive direction. 
C) equally effective in both expansionary and restrictive directions. 
D) only effective when coupled with fiscal policy actions.

Question 15

Holding money as an asset presents a risk of capital loss.

Accepted Answer

A) True 
 B)False

Question 16

The effects on aggregate demand of an open market purchase and a tax cut are similar.

Accepted Answer

A) True 
 B)False

Question 17

It is inconceivable and impossible for a central bank to pursue a negative-interest rate policy because interest rates simply cannot turn negative.

Accepted Answer

A) True 
 B)False

Question 18

After the financial crisis of 2007-2009, why did the Federal Reserve effectively lose its ability to increase the money supply by manipulating the federal funds rate target?

Accepted Answer

A) Regulatory changes in response to the financial crisis significantly restricted the use of the federal funds rate target. 
B) The increase in excess reserves in the banking system virtually eliminated the need for banks to borrow in the federal funds market. 
C) Borrowing of excess reserves moved from traditional banks to the shadow banking industry. 
D) The federal funds rate rose significantly and would not respond to Fed changes in the supply of reserves. 
A) Regulatory changes in response to the financial crisis significantly restricted the use of the federal funds rate target. 
B) The increase in excess reserves in the banking system virtually eliminated the need for banks to borrow in the federal funds market. 
C) Borrowing of excess reserves moved from traditional banks to the shadow banking industry. 
D) The federal funds rate rose significantly and would not respond to Fed changes in the supply of reserves.

Question 19

On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively, the total demand for money can be found by

Accepted Answer

A) horizontally adding the transactions and the asset demand for money. 
B) vertically subtracting the transactions demand from the asset demand for money. 
C) horizontally subtracting the asset demand from the transactions demand for money. 
D) vertically adding the transactions and the asset demand for money. 
A) horizontally adding the transactions and the asset demand for money. 
B) vertically subtracting the transactions demand from the asset demand for money. 
C) horizontally subtracting the asset demand from the transactions demand for money. 
D) vertically adding the transactions and the asset demand for money.

Question 20

Other things equal, a reduction in income taxes would

Accepted Answer

A) reduce productivity and reduce aggregate supply. 
B) increase consumption and increase aggregate demand. 
C) increase the supply of money and reduce investment. 
D) increase government spending and increase aggregate demanD. 
A) reduce productivity and reduce aggregate supply. 
B) increase consumption and increase aggregate demand. 
C) increase the supply of money and reduce investment. 
D) increase government spending and increase aggregate demanD.

Exam 36: Interest Rates and Monetary Policy

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

The lending ability of commercial banks increases when the

Ben Bernanke is the current (2016) chair of the Board of Governors.

To increase the federal funds rate, the Fed historically has

Which of the following monetary policy tools was introduced in 2008?

Which of the following best describes the cause-effect chain of a restrictive monetary policy?

If the Fed sells government securities to the general public in the open market,

Which of the following statements about quantitative easing (or "QE") and open-market purchase is true?

In a repo transaction, the Fed money; in a reverse repo transaction, the Fed money.

A decrease in the interest rate will cause a(n)

A television report states: "The Federal Reserve will lower the discount rate for the fourth time this year." This report indicates that the Federal Reserve is most likely trying to

The transactions demand for money will shift to the

If the economy is operating in the relatively steep (upper) portion of its aggregate supply curve, a reduction in the money supply will

Monetary policy actions by the Fed are

Holding money as an asset presents a risk of capital loss.

The effects on aggregate demand of an open market purchase and a tax cut are similar.

It is inconceivable and impossible for a central bank to pursue a negative-interest rate policy because interest rates simply cannot turn negative.

After the financial crisis of 2007-2009, why did the Federal Reserve effectively lose its ability to increase the money supply by manipulating the federal funds rate target?

On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively, the total demand for money can be found by

Other things equal, a reduction in income taxes would

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

Filters