Question 1

Interest rates declined in 2007.What happened to bond prices during this time?

Accepted Answer

A)  They were unchanged. 
B)  They increased. 
C)  They decreased. 
D)  Not enough data to answer. 
A)  They were unchanged. 
B)  They increased. 
C)  They decreased. 
D)  Not enough data to answer.

Question 2

Which of the following is an income number?

Accepted Answer

A)  M₁ 
B)  M2 
C)  GDP 
D)  cash 
A)  M₁ 
B)  M2 
C)  GDP 
D)  cash

Question 3

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

Accepted Answer

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

Question 4

How are Treasury bond prices affected when the interest rate falls?

Accepted Answer

A)  The purchaser of the bond needs to spend less money to obtain a given number of dollars of interest per year, so the price of the bond must decrease. 
B)  The purchaser of the bond needs to spend more money to obtain a given number of dollars of interest per year, so the price of the bond must increase. 
C)  The purchaser of the bond needs to spend more money to obtain a given number of dollars of interest per year, so the price of the bond must decrease. 
D)  The purchaser of the bond needs to spend less money to obtain a given number of dollars of interest per year, so the price of the bond must increase. 
A)  The purchaser of the bond needs to spend less money to obtain a given number of dollars of interest per year, so the price of the bond must decrease. 
B)  The purchaser of the bond needs to spend more money to obtain a given number of dollars of interest per year, so the price of the bond must increase. 
C)  The purchaser of the bond needs to spend more money to obtain a given number of dollars of interest per year, so the price of the bond must decrease. 
D)  The purchaser of the bond needs to spend less money to obtain a given number of dollars of interest per year, so the price of the bond must increase.

Question 5

Why does the Fed have imperfect control over the money supply?

Accepted Answer

A)  Because the Fed does not know how much reserves will change when it buys or sells securities. 
B)  Because of unpredictable changes in the public's desire to hold cash and banks' desires to hold reserves. 
C)  Because of unpredictable changes in reserve requirements. 
D)  Because of the secrecy of FOMC meetings, which lead to policy surprises. 
A)  Because the Fed does not know how much reserves will change when it buys or sells securities. 
B)  Because of unpredictable changes in the public's desire to hold cash and banks' desires to hold reserves. 
C)  Because of unpredictable changes in reserve requirements. 
D)  Because of the secrecy of FOMC meetings, which lead to policy surprises.

Question 6

In Latin America, countries like Brazil and Mexico have found it necessary to grant their central banks more independence in order to

Accepted Answer

A)  maintain higher levels of political stability. 
B)  promote economic growth and employment. 
C)  counteract high rates of inflation. 
D)  deal with the consequences of globalization. 
A)  maintain higher levels of political stability. 
B)  promote economic growth and employment. 
C)  counteract high rates of inflation. 
D)  deal with the consequences of globalization.

Question 7

An open market sale of T-bonds by the Fed causes the money supply to

Accepted Answer

A)  fall and bond prices to fall. 
B)  rise and bond prices to fall. 
C)  rise and bond prices to rise. 
D)  fall and bond prices to rise. 
A)  fall and bond prices to fall. 
B)  rise and bond prices to fall. 
C)  rise and bond prices to rise. 
D)  fall and bond prices to rise.

Question 8

The Fed carries out monetary policy chiefly by influencing the demand for reserves schedule.

Accepted Answer

A) True 
 B)False

Question 9

What determines the magnitude of the changes in price level when central bank takes monetary policy measures that leads to a change in the aggregate demand?

Accepted Answer

A)  Changes in the money supply 
B)  Slope of the aggregate supply curve 
C)  Rate of change of interest rate 
D)  Total money supply in the economy 
A)  Changes in the money supply 
B)  Slope of the aggregate supply curve 
C)  Rate of change of interest rate 
D)  Total money supply in the economy

Question 10

____ is the rate that applies when banks borrow and lend reserves to one another.

Accepted Answer

A)  The repo rate 
B)  The discount rate 
C)  The coupon rate 
D)  The federal fund rate 
A)  The repo rate 
B)  The discount rate 
C)  The coupon rate 
D)  The federal fund rate

Question 11

If the Fed decreases the discount rate, what happens to reserves and the money supply?

Accepted Answer

A)  Reserves increase and the money supply decreases. 
B)  Both increase. 
C)  Reserves decrease and the money supply increases. 
D)  Both decrease. 
A)  Reserves increase and the money supply decreases. 
B)  Both increase. 
C)  Reserves decrease and the money supply increases. 
D)  Both decrease.

Question 12

If the Fed decides to sell T-bills, it increases the supply of T-bills.How will this affect the price of T-bills and the interest rate?

Accepted Answer

A)  T-bill prices fall and interest rates fall. 
B)  T-bill prices rise and interest rates rise. 
C)  T-bill prices rise and interest rates fall. 
D)  T-bill prices fall and interest rates rise. 
A)  T-bill prices fall and interest rates fall. 
B)  T-bill prices rise and interest rates rise. 
C)  T-bill prices rise and interest rates fall. 
D)  T-bill prices fall and interest rates rise.

Question 13

Proponents of Fed independence maintain that

Accepted Answer

A)  independence helps ensure low unemployment rates. 
B)  money is too important to be left to the bankers. 
C)  independence permits objective decisions not based on politics. 
D)  only the Federal Reserve knows how to act wisely. 
A)  independence helps ensure low unemployment rates. 
B)  money is too important to be left to the bankers. 
C)  independence permits objective decisions not based on politics. 
D)  only the Federal Reserve knows how to act wisely.

Question 14

Which of the following is the most frequently used tool of monetary policy?

Accepted Answer

A)  changing the discount rate 
B)  changing reserve requirements 
C)  open market operations 
D)  interest rate changes 
A)  changing the discount rate 
B)  changing reserve requirements 
C)  open market operations 
D)  interest rate changes

Question 15

When the Fed wishes to decrease the money supply it can

Accepted Answer

A)  ask people to buy more bonds. 
B)  turn additional funds over to the Treasury. 
C)  increase the required reserve ratio. 
D)  decrease the required reserve ratio. 
A)  ask people to buy more bonds. 
B)  turn additional funds over to the Treasury. 
C)  increase the required reserve ratio. 
D)  decrease the required reserve ratio.

Question 16

The Fed has which of the following as its strongest control over the money supply?

Accepted Answer

A)  interest rate changes 
B)  the discount rate 
C)  open market operations 
D)  the required reserve rate 
A)  interest rate changes 
B)  the discount rate 
C)  open market operations 
D)  the required reserve rate

Question 17

Unconventional monetary policies include massive lending to banks and open-market purchases of assets other than Treasury bills.

Accepted Answer

A) True 
 B)False

Question 18

If the Fed raises the discount rate, what happens to reserves and the money supply?

Accepted Answer

A)  Reserves increase and the money supply decreases. 
B)  Both increase. 
C)  Reserves decrease and the money supply increases. 
D)  Both decrease. 
A)  Reserves increase and the money supply decreases. 
B)  Both increase. 
C)  Reserves decrease and the money supply increases. 
D)  Both decrease.

Question 19

Which one of the following policies might the Fed initiate if it wanted to increase the money supply?

Accepted Answer

A)  sell government securities 
B)  increase the reserve requirement 
C)  increase the discount rate 
D)  decrease the reserve requirement 
A)  sell government securities 
B)  increase the reserve requirement 
C)  increase the discount rate 
D)  decrease the reserve requirement

Question 20

Money is a concept that has a certain value at a point in time.

Accepted Answer

A) True 
 B)False

Exam 30: Monetary Policy: Conventional and Unconventional

Interest rates declined in 2007.What happened to bond prices during this time?

Which of the following is an income number?

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

How are Treasury bond prices affected when the interest rate falls?

Why does the Fed have imperfect control over the money supply?

In Latin America, countries like Brazil and Mexico have found it necessary to grant their central banks more independence in order to

An open market sale of T-bonds by the Fed causes the money supply to

The Fed carries out monetary policy chiefly by influencing the demand for reserves schedule.

What determines the magnitude of the changes in price level when central bank takes monetary policy measures that leads to a change in the aggregate demand?

____ is the rate that applies when banks borrow and lend reserves to one another.

If the Fed decreases the discount rate, what happens to reserves and the money supply?

If the Fed decides to sell T-bills, it increases the supply of T-bills.How will this affect the price of T-bills and the interest rate?

Proponents of Fed independence maintain that

Which of the following is the most frequently used tool of monetary policy?

When the Fed wishes to decrease the money supply it can

The Fed has which of the following as its strongest control over the money supply?

Unconventional monetary policies include massive lending to banks and open-market purchases of assets other than Treasury bills.

If the Fed raises the discount rate, what happens to reserves and the money supply?

Which one of the following policies might the Fed initiate if it wanted to increase the money supply?

Money is a concept that has a certain value at a point in time.

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

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