Question 1

Which of the following tools of monetary policy has not been used since 1992?

Accepted Answer

A) paying interest on excess reserves 
B) the reserve ratio 
C) open-market operations 
D) the federal funds rate 
A) paying interest on excess reserves 
B) the reserve ratio 
C) open-market operations 
D) the federal funds rate

Question 2

The price of a bond with no expiration date is $1,000, and the fixed annual interest payment is $100.If the price of the bond falls to $800, the interest rate to a new buyer of the bond is now 20 percent.

Accepted Answer

A) True 
 B)False

Question 3

The discount rate is the rate of interest at which

Accepted Answer

A) Federal Reserve Banks lend to commercial banks. 
B) savings and loan associations lend to some builders. 
C) Federal Reserve Banks lend to large corporations. 
D) commercial banks lend to large corporations. 
A) Federal Reserve Banks lend to commercial banks. 
B) savings and loan associations lend to some builders. 
C) Federal Reserve Banks lend to large corporations. 
D) commercial banks lend to large corporations.

Question 4

The benchmark interest rate that banks use as a reference point for a variety of consumer and business loans is the

Accepted Answer

A) federal funds rate. 
B) prime interest rate. 
C) discount rate. 
D) Treasury bill rate. 
A) federal funds rate. 
B) prime interest rate. 
C) discount rate. 
D) Treasury bill rate.

Question 5

The reserves of commercial banks are assets to commercial banks and liabilities of the Federal Reserve System.Topic: The Consolidated Balance Sheet of the Federal Reserve Banks

Accepted Answer

A) True 
 B)False

Question 6

The interest rate that banks use as a reference point for interest rates on a wide range of loans to businesses and individuals is the

Accepted Answer

A) discount rate. 
B) term auction rate. 
C) prime interest rate. 
D) real interest rate. 
A) discount rate. 
B) term auction rate. 
C) prime interest rate. 
D) real interest rate.

Question 7

Assume that a single commercial bank has no excess reserves and that the reserve ratio is 20 percent.If this bank sells a bond for $1,000 to a Federal Reserve Bank, it can expand its loans by a maximum of

Accepted Answer

A) $1,000. 
B) $2,000. 
C) $800. 
D) $5,000. 
A) $1,000. 
B) $2,000. 
C) $800. 
D) $5,000.

Question 8

Which of the following would not be a consequence of negative interest rates?

Accepted Answer

A) Peopleâ€™s deposits in banks would have shrinking balances over time. 
B) People would get paid to borrow money. 
C) People would want to put more money in banks. 
D) People would rather hold cash than bank deposits. 
A) Peopleâ€™s deposits in banks would have shrinking balances over time. 
B) People would get paid to borrow money. 
C) People would want to put more money in banks. 
D) People would rather hold cash than bank deposits.

Question 9

A few years ago, you bought a bond with no expiration and a fixed annual interest payment of $1,000 at a price of $10,000.If the interest rate in the economy is now 12.5 percent a year and you want to sell the bond, the maximum price that you can get for it is

Accepted Answer

A) $7,500. 
B) $8,000. 
C) $9,750. 
D) $12,500. 
A) $7,500. 
B) $8,000. 
C) $9,750. 
D) $12,500.

Question 10

The prime interest rate

Accepted Answer

A) affects investment spending, while the federal funds rate affects consumption spending. 
B) affects consumption spending, while the federal funds rate affects investment spending. 
C) has no effect on exchange rates and net exports. 
D) affects investment spending, while the federal funds rate affects overnight borrowing of bank reserves. 
A) affects investment spending, while the federal funds rate affects consumption spending. 
B) affects consumption spending, while the federal funds rate affects investment spending. 
C) has no effect on exchange rates and net exports. 
D) affects investment spending, while the federal funds rate affects overnight borrowing of bank reserves.

Question 11

Beginning in 2008, the Fed was allowed to

Accepted Answer

A) lend directly to consumers. 
B) alter tax rates. 
C) pay interest on excess reserves deposited at Fed banks. 
D) require commercial banks to loan a certain percentage of their excess reserves. 
A) lend directly to consumers. 
B) alter tax rates. 
C) pay interest on excess reserves deposited at Fed banks. 
D) require commercial banks to loan a certain percentage of their excess reserves.

Question 12

The desire to hold money for transactions purposes arises because

Accepted Answer

A) receipts of income and expenditures are not perfectly synchronized. 
B) people fear that prices will rise. 
C) households want money on hand in case a good financial investment opportunity arises. 
D) low interest rates reduce the opportunity cost of holding money. 
A) receipts of income and expenditures are not perfectly synchronized. 
B) people fear that prices will rise. 
C) households want money on hand in case a good financial investment opportunity arises. 
D) low interest rates reduce the opportunity cost of holding money.

Question 13

Which of the following combinations of Fed actions would be most effective in "mopping up" reserves away from the banking system?

Accepted Answer

A) reducing the interest paid on excess reserves and also doing "repos" with banks and nonbanks 
B) raising the interest paid on excess reserves and also doing "repos" with banks and nonbanks 
C) reducing the interest paid on excess reserves and also doing "reverse repos" with banks and nonbanks 
D) raising the interest paid on excess reserves and also doing "reverse repos" with banks and nonbanks 
A) reducing the interest paid on excess reserves and also doing "repos" with banks and nonbanks 
B) raising the interest paid on excess reserves and also doing "repos" with banks and nonbanks 
C) reducing the interest paid on excess reserves and also doing "reverse repos" with banks and nonbanks 
D) raising the interest paid on excess reserves and also doing "reverse repos" with banks and nonbanks

Question 14

When the Fed does repos and reverse repos (or repurchase agreements) with financial institutions, the collateral used in these transactions is

Accepted Answer

A) corporate stock. 
B) municipal bonds. 
C) government bonds. 
D) certificates of deposits. 
A) corporate stock. 
B) municipal bonds. 
C) government bonds. 
D) certificates of deposits.

Question 15

The conduct of monetary policy in the United States is the main responsibility of the

Accepted Answer

A) U.S.Treasury. 
B) Federal Reserve System. 
C) Office of Management and Budget. 
D) Bureau of Economic Analysis. 
A) U.S.Treasury. 
B) Federal Reserve System. 
C) Office of Management and Budget. 
D) Bureau of Economic Analysis.

Question 16

Reserves must be deposited in the Federal Reserve Banks by

Accepted Answer

A) only commercial banks that are members of the Federal Reserve System. 
B) all depository institutions, that is, all commercial banks and thrift institutions. 
C) state-chartered commercial banks only. 
D) federally chartered commercial banks only. 
A) only commercial banks that are members of the Federal Reserve System. 
B) all depository institutions, that is, all commercial banks and thrift institutions. 
C) state-chartered commercial banks only. 
D) federally chartered commercial banks only.

Question 17

The major problem facing the economy is high unemployment and weak economic growth.The inflation rate is low and stable.Therefore, the Federal Reserve decides to pursue a policy to increase the rate of economic growth.Which policy changes by the Fed would tend to offset each other in trying to achieve that objective?

Accepted Answer

A) selling government securities and raising the discount rate 
B) selling government securities and raising the reserve ratio 
C) buying government securities and raising the discount rate 
D) buying government securities and lowering the reserve ratio 
A) selling government securities and raising the discount rate 
B) selling government securities and raising the reserve ratio 
C) buying government securities and raising the discount rate 
D) buying government securities and lowering the reserve ratio

Question 18

If the Fed buys $1 million in government securities from Bank A, then the immediate effect of this transaction is an increase in

Accepted Answer

A) money supply M1. 
B) Bank A's excess reserves. 
C) Bank A's liabilities. 
D) Bank A's required reserves. 
A) money supply M1. 
B) Bank A's excess reserves. 
C) Bank A's liabilities. 
D) Bank A's required reserves.

Question 19

The Fed can induce banks to increase their reserve holdings by

Accepted Answer

A) increasing the discount rate. 
B) reducing the required reserve ratio. 
C) increasing the interest on reserves. 
D) selling securities in the open market. 
A) increasing the discount rate. 
B) reducing the required reserve ratio. 
C) increasing the interest on reserves. 
D) selling securities in the open market.

Question 20

If severe demand-pull inflation was occurring in the economy, proper government policies would involve a government

Accepted Answer

A) budget deficit, the purchase of securities in the open market, a higher discount rate, and higher reserve requirements. 
B) budget deficit, the sale of securities in the open market, a higher discount rate, and lower reserve requirements. 
C) budget surplus, the sale of securities in the open market, a higher discount rate, and higher reserve requirements. 
D) budget surplus, the purchase of securities in the open market, a lower discount rate, and lower reserve requirements. 
A) budget deficit, the purchase of securities in the open market, a higher discount rate, and higher reserve requirements. 
B) budget deficit, the sale of securities in the open market, a higher discount rate, and lower reserve requirements. 
C) budget surplus, the sale of securities in the open market, a higher discount rate, and higher reserve requirements. 
D) budget surplus, the purchase of securities in the open market, a lower discount rate, and lower reserve requirements.

Exam 36: Interest Rates and Monetary Policy

Which of the following tools of monetary policy has not been used since 1992?

The price of a bond with no expiration date is $1,000, and the fixed annual interest payment is $100.If the price of the bond falls to $800, the interest rate to a new buyer of the bond is now 20 percent.

The discount rate is the rate of interest at which

The benchmark interest rate that banks use as a reference point for a variety of consumer and business loans is the

The reserves of commercial banks are assets to commercial banks and liabilities of the Federal Reserve System.Topic: The Consolidated Balance Sheet of the Federal Reserve Banks

The interest rate that banks use as a reference point for interest rates on a wide range of loans to businesses and individuals is the

Assume that a single commercial bank has no excess reserves and that the reserve ratio is 20 percent.If this bank sells a bond for $1,000 to a Federal Reserve Bank, it can expand its loans by a maximum of

Which of the following would not be a consequence of negative interest rates?

A few years ago, you bought a bond with no expiration and a fixed annual interest payment of $1,000 at a price of $10,000.If the interest rate in the economy is now 12.5 percent a year and you want to sell the bond, the maximum price that you can get for it is

The prime interest rate

Beginning in 2008, the Fed was allowed to

The desire to hold money for transactions purposes arises because

Which of the following combinations of Fed actions would be most effective in "mopping up" reserves away from the banking system?

When the Fed does repos and reverse repos (or repurchase agreements) with financial institutions, the collateral used in these transactions is

The conduct of monetary policy in the United States is the main responsibility of the

Reserves must be deposited in the Federal Reserve Banks by

If the Fed buys $1 million in government securities from Bank A, then the immediate effect of this transaction is an increase in

The Fed can induce banks to increase their reserve holdings by

If severe demand-pull inflation was occurring in the economy, proper government policies would involve a government

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