Question 1

If the Fed wants to discourage commercial bank lending, it will

Accepted Answer

A) increase the interest paid on excess reserves held at the Fed. 
B) decrease the interest paid on excess reserves held at the Fed. 
C) buy government securities from commercial banks. 
D) lower the federal funds rate target. 
A) increase the interest paid on excess reserves held at the Fed. 
B) decrease the interest paid on excess reserves held at the Fed. 
C) buy government securities from commercial banks. 
D) lower the federal funds rate target.

Question 2

Which of the following statements is most accurate about the Fed's use of the federal funds rate target since the financial crisis of 2007-2009?

Accepted Answer

A) It stimulated quick recovery from the Great Recession, and the target is now at precrisis levels. 
B) The target has become significantly more important as a tool for signaling policy changes. 
C) The Fed effectively lost the ability to use the target for contractionary monetary policy, as the actual federal funds rate fell to nearly zero. 
D) The Fed effectively lost the ability to use the target for expansionary monetary policy, as the actual federal funds rate fell to nearly zero. 
A) It stimulated quick recovery from the Great Recession, and the target is now at precrisis levels. 
B) The target has become significantly more important as a tool for signaling policy changes. 
C) The Fed effectively lost the ability to use the target for contractionary monetary policy, as the actual federal funds rate fell to nearly zero. 
D) The Fed effectively lost the ability to use the target for expansionary monetary policy, as the actual federal funds rate fell to nearly zero.

Question 3

Federal Reserve Notes in circulation are

Accepted Answer

A) an asset as viewed by the Federal Reserve Banks. 
B) a liability as viewed by the Federal Reserve Banks. 
C) neither an asset nor a liability as viewed by the Federal Reserve Banks. 
D) part of M1 but not of M2. 
A) an asset as viewed by the Federal Reserve Banks. 
B) a liability as viewed by the Federal Reserve Banks. 
C) neither an asset nor a liability as viewed by the Federal Reserve Banks. 
D) part of M1 but not of M2.

Question 4

The collateral used for repos and reverse repos is (are)

Accepted Answer

A) corporate securities. 
B) autos. 
C) homes. 
D) government bonds. 
A) corporate securities. 
B) autos. 
C) homes. 
D) government bonds.

Question 5

The Fed's response to the zero lower bound problem was quantitative easing (or "QE"), where the Fed buys large amounts of bonds in order to

Accepted Answer

A) lower the interest rates. 
B) increase banks' reserves. 
C) lower bond prices. 
D) reduce money supply. 
A) lower the interest rates. 
B) increase banks' reserves. 
C) lower bond prices. 
D) reduce money supply.

Question 6

An increase in the money supply, ceteris paribus, usually

Accepted Answer

A) increases the interest rate and increases aggregate demand. 
B) increases the interest rate and decreases aggregate demand. 
C) decreases the interest rate and increases aggregate demand. 
D) decreases the interest rate and decreases aggregate demand. 
A) increases the interest rate and increases aggregate demand. 
B) increases the interest rate and decreases aggregate demand. 
C) decreases the interest rate and increases aggregate demand. 
D) decreases the interest rate and decreases aggregate demand.

Question 7

Which of the following is a monetary policy intended to rein in inflation?

Accepted Answer

A) increase the money supply to shift the aggregate demand curve rightward 
B) reduce interest rates to increase investment spending 
C) reduce the interest paid on banks' reserves 
D) decrease the money supply to shift the aggregate demand curve leftward 
A) increase the money supply to shift the aggregate demand curve rightward 
B) reduce interest rates to increase investment spending 
C) reduce the interest paid on banks' reserves 
D) decrease the money supply to shift the aggregate demand curve leftward

Question 8

Assume that the required reserve ratio is 25 percent.If the Federal Reserve sells $120 million in government securities to the general public, the money supply will immediately

Accepted Answer

A) decrease by $120 million with this transaction, and the decrease in money supply could eventually reach a maximum of $480 million. 
B) decrease by $120 million with this transaction, and the decrease in money supply could eventually reach a maximum of $360 million. 
C) increase by $120 million with this transaction, and the increase in money supply could eventually reach a maximum of $480 million. 
D) increase by $120 million with this transaction, and the increase in money supply could eventually reach a maximum of $360 million. 
A) decrease by $120 million with this transaction, and the decrease in money supply could eventually reach a maximum of $480 million. 
B) decrease by $120 million with this transaction, and the decrease in money supply could eventually reach a maximum of $360 million. 
C) increase by $120 million with this transaction, and the increase in money supply could eventually reach a maximum of $480 million. 
D) increase by $120 million with this transaction, and the increase in money supply could eventually reach a maximum of $360 million.

Question 9

When the Fed loans money in exchange for government bonds being posted as collateral, this is known as a

Accepted Answer

A) mortgage-backed security. 
B) Federal Reserve note. 
C) repo. 
D) credit default swap. 
A) mortgage-backed security. 
B) Federal Reserve note. 
C) repo. 
D) credit default swap.

Question 10

The level of GDP, ceteris paribus, will tend to increase when

Accepted Answer

A) reserve requirements are increased. 
B) there is an increase in the discount rate. 
C) the Federal Reserve buys government securities in the open market. 
D) the Federal Reserve sells government securities in the open market. 
A) reserve requirements are increased. 
B) there is an increase in the discount rate. 
C) the Federal Reserve buys government securities in the open market. 
D) the Federal Reserve sells government securities in the open market.

Question 11

Which of the following is not a reason why after the Great Recession, when the recovery turned out to be very weak, economic policy in the U.S.had to turn forcefully toward fiscal policy?

Accepted Answer

A) Monetary policy suffered from cyclical asymmetry. 
B) The banking system fell into a liquidity trap. 
C) Interest rates had already been cut to very low levels. 
D) There was a time lag implementing monetary policy. 
A) Monetary policy suffered from cyclical asymmetry. 
B) The banking system fell into a liquidity trap. 
C) Interest rates had already been cut to very low levels. 
D) There was a time lag implementing monetary policy.

Question 12

The discount rate is the interest rate at which commercial banks lend to their best corporate customers.

Accepted Answer

A) True 
 B)False

Question 13

Loans of the Federal Reserve Banks to commercial banks are

Accepted Answer

A) a liability of the Federal Reserve Banks and of the commercial banks. 
B) an asset of the Federal Reserve Banks and of the commercial banks. 
C) a liability of the Federal Reserve Banks and an asset for commercial banks. 
D) an asset of the Federal Reserve Banks and a liability for commercial banks. 
A) a liability of the Federal Reserve Banks and of the commercial banks. 
B) an asset of the Federal Reserve Banks and of the commercial banks. 
C) a liability of the Federal Reserve Banks and an asset for commercial banks. 
D) an asset of the Federal Reserve Banks and a liability for commercial banks.

Question 14

An expansionary monetary policy is one that reduces the supply of money.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following statements is correct? Blooms: Understand

Accepted Answer

A) Interest rates and bond prices vary directly. 
B) Interest rates and bond prices vary inversely. 
C) Interest rates and bond prices are unrelated. 
D) Interest rates and bond prices vary directly during inflations and inversely during recessions. 
A) Interest rates and bond prices vary directly. 
B) Interest rates and bond prices vary inversely. 
C) Interest rates and bond prices are unrelated. 
D) Interest rates and bond prices vary directly during inflations and inversely during recessions.

Question 16

The major advantages of monetary policy include its flexibility, speed, and political palatability.

Accepted Answer

A) True 
 B)False

Question 17

Suppose that, for every 1-percentage-point decline of the discount rate, commercial banks collectively borrow an additional $2 billion from Federal Reserve Banks.Also assume that the reserve ratio is 20 percent.If the Fed increases the discount rate from 4.0 percent to 4.25 percent, bank reserves will

Accepted Answer

A) increase by $0.5 billion and the money supply will increase by $2.5 billion. 
B) decline by $0.5 billion and the money supply will decline by $2.5 billion. 
C) increase by $0.75 billion and the money supply will increase by $3.75 billion. 
D) increase by $1 billion and the money supply will increase by $5 billion. 
A) increase by $0.5 billion and the money supply will increase by $2.5 billion. 
B) decline by $0.5 billion and the money supply will decline by $2.5 billion. 
C) increase by $0.75 billion and the money supply will increase by $3.75 billion. 
D) increase by $1 billion and the money supply will increase by $5 billion.

Question 18

The use of monetary policy to shift aggregate demand to the right in a severe recession is like

Accepted Answer

A) pushing on a string. 
B) putting all your eggs in one basket. 
C) pulling on one's purse-strings. 
D) pushing the envelope. 
A) pushing on a string. 
B) putting all your eggs in one basket. 
C) pulling on one's purse-strings. 
D) pushing the envelope.

Question 19

The purpose of an expansionary monetary policy is to increase

Accepted Answer

A) the GDP gap. 
B) the inflation rate. 
C) real GDP. 
D) interest rates. 
A) the GDP gap. 
B) the inflation rate. 
C) real GDP. 
D) interest rates.

Question 20

Prior to the mortgage debt crisis, the most frequently employed restrictive monetary policy tool was

Accepted Answer

A) raising the reserve ratio. 
B) selling bonds in the open market. 
C) raising the discount rate. 
D) raising the prime interest rate. 
A) raising the reserve ratio. 
B) selling bonds in the open market. 
C) raising the discount rate. 
D) raising the prime interest rate.

Exam 36: Interest Rates and Monetary Policy

If the Fed wants to discourage commercial bank lending, it will

Which of the following statements is most accurate about the Fed's use of the federal funds rate target since the financial crisis of 2007-2009?

Federal Reserve Notes in circulation are

The collateral used for repos and reverse repos is (are)

The Fed's response to the zero lower bound problem was quantitative easing (or "QE"), where the Fed buys large amounts of bonds in order to

An increase in the money supply, ceteris paribus, usually

Which of the following is a monetary policy intended to rein in inflation?

Assume that the required reserve ratio is 25 percent.If the Federal Reserve sells $120 million in government securities to the general public, the money supply will immediately

When the Fed loans money in exchange for government bonds being posted as collateral, this is known as a

The level of GDP, ceteris paribus, will tend to increase when

Which of the following is not a reason why after the Great Recession, when the recovery turned out to be very weak, economic policy in the U.S.had to turn forcefully toward fiscal policy?

The discount rate is the interest rate at which commercial banks lend to their best corporate customers.

Loans of the Federal Reserve Banks to commercial banks are

An expansionary monetary policy is one that reduces the supply of money.

Which of the following statements is correct? Blooms: Understand

The major advantages of monetary policy include its flexibility, speed, and political palatability.

The use of monetary policy to shift aggregate demand to the right in a severe recession is like

The purpose of an expansionary monetary policy is to increase

Prior to the mortgage debt crisis, the most frequently employed restrictive monetary policy tool was

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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