Question 1

Banks will hold additional excess reserves when

Accepted Answer

A)  loans to customers look safe and interest rates are high. 
B)  they anticipate a bank audit. 
C)  loans to customers look risky and interest rates are low. 
D)  the economy is booming and there is a large demand for loans. 
A)  loans to customers look safe and interest rates are high. 
B)  they anticipate a bank audit. 
C)  loans to customers look risky and interest rates are low. 
D)  the economy is booming and there is a large demand for loans.

Question 2

A system that requires banks to keep 100 percent reserves

Accepted Answer

A)  would reduce the Fed's ability to control the money supply. 
B)  would undermine the effectiveness of reserve requirement changes. 
C)  would increase the Fed's ability to control the money supply. 
D)  could be implemented with little change in bank policy. 
A)  would reduce the Fed's ability to control the money supply. 
B)  would undermine the effectiveness of reserve requirement changes. 
C)  would increase the Fed's ability to control the money supply. 
D)  could be implemented with little change in bank policy.

Question 3

The Federal Reserve System was established by Congress in 1914

Accepted Answer

A)  as a result of a breakthrough in economic theory. 
B)  against significant opposition from the banking sector. 
C)  because of the need for a central bank. 
D)  as the world's first central bank. 
A)  as a result of a breakthrough in economic theory. 
B)  against significant opposition from the banking sector. 
C)  because of the need for a central bank. 
D)  as the world's first central bank.

Question 4

During the stock market crash of October 1987, the Fed

Accepted Answer

A)  raised the discount rate. 
B)  raised reserve requirements. 
C)  increased lending to member banks. 
D)  sold government securities. 
A)  raised the discount rate. 
B)  raised reserve requirements. 
C)  increased lending to member banks. 
D)  sold government securities.

Question 5

The Federal Reserve Board of Governors

Accepted Answer

A)  serve at the pleasure of the president similar to other cabinet positions. 
B)  report directly to Congress and are controlled by Congress. 
C)  consists of 12 members, one from each district bank. 
D)  is structurally independent of the executive and legislative branches of the federal government. 
A)  serve at the pleasure of the president similar to other cabinet positions. 
B)  report directly to Congress and are controlled by Congress. 
C)  consists of 12 members, one from each district bank. 
D)  is structurally independent of the executive and legislative branches of the federal government.

Question 6

Explain the relationship between interest rates and (1) investments in housing, and (2) business investments.

Accepted Answer

As the interest cost of a home mortgage

Question 7

The Federal Open Market Committee meets

Accepted Answer

A)  once a month. 
B)  eight times a year. 
C)  four times a year. 
D)  semi-annually. 
A)  once a month. 
B)  eight times a year. 
C)  four times a year. 
D)  semi-annually.

Question 8

Which of the following will increase interest rates in the short run?

Accepted Answer

A)  an decrease in reserve requirements 
B)  open market sales by the Fed 
C)  a decrease in real GDP 
D)  an decrease in the price level 
A)  an decrease in reserve requirements 
B)  open market sales by the Fed 
C)  a decrease in real GDP 
D)  an decrease in the price level

Question 9

Contractionary monetary policy shifts the reserve supply schedule inward.

Accepted Answer

A) True 
 B)False

Question 10

Some form of financial distress can become a full-blown recession if risk lead to ____ interest rates and ____ aggregate demand.

Accepted Answer

A)  higher; increased 
B)  higher; decreased 
C)  lower; increased 
D)  lower; decreased 
A)  higher; increased 
B)  higher; decreased 
C)  lower; increased 
D)  lower; decreased

Question 11

Table 13-1
EFFECTS OF AN OPEN MARKET TRANSACTION ON THE BALANCE SHEETS OF BANKS AND THE FED (In millions of dollars)
 $\begin{array}{cccc}
\text { BANKS }&&\text { FEDERAL RESERVE SYSTEM }\
\text { ASSETS } & \text { LIAB. } & \text { ASSETS } & \text { LIAB. } \
\text { Reserves }+\$ 10 && \text { U.S. Gov't } & \text { Bank Reserves } \
\text { U.S. Gov't } && \text { Sec. }+\$ 10 & +\$ 10\
\text { Securities - \$10 }
\end{array}$
-In Table 13-1, if the required reserve ratio is 10 percent, what will happen to the money supply? Use the oversimplified money multiplier in your calculations.

Accepted Answer

A)  The money supply will decrease by $100 million. 
B)  The money supply will decrease by $10 million. 
C)  The money supply will not change. 
D)  The money supply will increase by $10 million. 
E)  The money supply will increase by $100 million. 
A)  The money supply will decrease by $100 million. 
B)  The money supply will decrease by $10 million. 
C)  The money supply will not change. 
D)  The money supply will increase by $10 million. 
E)  The money supply will increase by $100 million.

Question 12

Monetary policy is the system of actions taken by the Fed to influence the money supply.

Accepted Answer

A) True 
 B)False

Question 13

The Federal Open Market Committee oversees the money supply through the purchase and sale of government securities.

Accepted Answer

A) True 
 B)False

Question 14

As a knowledgeable investor in 2007, you should have realized that as interest rates fell, bond prices would

Accepted Answer

A)  also fall. 
B)  rise. 
C)  become more volatile, like stock prices. 
D)  fall but not by as much as stock prices. 
A)  also fall. 
B)  rise. 
C)  become more volatile, like stock prices. 
D)  fall but not by as much as stock prices.

Question 15

At the time of its founding, which tool was thought to be the most useful for the Fed?

Accepted Answer

A)  changing the reserve requirement 
B)  altering deposit interest rates 
C)  lending to banks 
D)  open market operations 
A)  changing the reserve requirement 
B)  altering deposit interest rates 
C)  lending to banks 
D)  open market operations

Question 16

The Federal Reserve System is

Accepted Answer

A)  controlled by the Department of the Treasury. 
B)  the central bank for the United States. 
C)  completely similar to the Bank of England. 
D)  All of the above are correct. 
A)  controlled by the Department of the Treasury. 
B)  the central bank for the United States. 
C)  completely similar to the Bank of England. 
D)  All of the above are correct.

Question 17

The immediate impetus for the establishment of the Federal Reserve System came from

Accepted Answer

A)  severe outbreaks of inflation in the early 1900s. 
B)  four severe banking panics between 1873 and 1907. 
C)  the discovery of gold in Alaska. 
D)  the desire to copy the founding of the Bank of England. 
A)  severe outbreaks of inflation in the early 1900s. 
B)  four severe banking panics between 1873 and 1907. 
C)  the discovery of gold in Alaska. 
D)  the desire to copy the founding of the Bank of England.

Question 18

Are money and income the same thing?

Accepted Answer

A)  No, money is measured at a point in time and income is measured for a period of time. 
B)  No, money is measured for a period of time and income is measured at a point in time. 
C)  Yes, they are just measured in different ways. 
D)  Yes, the only difference is real versus nominal. 
A)  No, money is measured at a point in time and income is measured for a period of time. 
B)  No, money is measured for a period of time and income is measured at a point in time. 
C)  Yes, they are just measured in different ways. 
D)  Yes, the only difference is real versus nominal.

Question 19

In 1998, Japan decided to make the Bank of Japan, its central bank,

Accepted Answer

A)  more independent. 
B)  more concerned with fighting inflation. 
C)  subject to direct control by the Japanese prime minister. 
D)  subject to direct control by the Diet, the Japanese parliament. 
A)  more independent. 
B)  more concerned with fighting inflation. 
C)  subject to direct control by the Japanese prime minister. 
D)  subject to direct control by the Diet, the Japanese parliament.

Question 20

The reason that the Fed does not actively use discount rate policy to control the money supply is because the Fed

Accepted Answer

A)  acts when a majority of member banks agree on policy and the banks rarely agree. 
B)  earns interest on discounting and cannot afford to lose the revenue. 
C)  does not know how banks will respond to discount rate changes. 
D)  has been directed by Congress to set the discount rate at a permanent level. 
A)  acts when a majority of member banks agree on policy and the banks rarely agree. 
B)  earns interest on discounting and cannot afford to lose the revenue. 
C)  does not know how banks will respond to discount rate changes. 
D)  has been directed by Congress to set the discount rate at a permanent level.

Exam 30: Monetary Policy: Conventional and Unconventional

Banks will hold additional excess reserves when

A system that requires banks to keep 100 percent reserves

The Federal Reserve System was established by Congress in 1914

During the stock market crash of October 1987, the Fed

The Federal Reserve Board of Governors

Explain the relationship between interest rates and (1) investments in housing, and (2) business investments.

The Federal Open Market Committee meets

Which of the following will increase interest rates in the short run?

Contractionary monetary policy shifts the reserve supply schedule inward.

Some form of financial distress can become a full-blown recession if risk lead to ____ interest rates and ____ aggregate demand.

Monetary policy is the system of actions taken by the Fed to influence the money supply.

The Federal Open Market Committee oversees the money supply through the purchase and sale of government securities.

As a knowledgeable investor in 2007, you should have realized that as interest rates fell, bond prices would

At the time of its founding, which tool was thought to be the most useful for the Fed?

The Federal Reserve System is

The immediate impetus for the establishment of the Federal Reserve System came from

Are money and income the same thing?

In 1998, Japan decided to make the Bank of Japan, its central bank,

The reason that the Fed does not actively use discount rate policy to control the money supply is because the Fed

What Is Economics?

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: An Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: The Importance of Marginal Analysis

Securities: Business Finance, and the Economy: The Tail that Wags the Dog?

The Firm and the Industry under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets I: The Price System

The Shortcomings of Free Markets

The Market's Prime Achievement: Innovation and Growth

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: The Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation?

Bringing in the Supply Side: Unemployment and Inflation?

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

The Financial Crisis and the Great Recession

The Debate over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder?

Exchange Rates and the Macroeconomy

Filters

Some form of financial distress can become a full-blown recession if risk lead to interest rates and aggregate demand.