Question 1

Which of the following statements is correct?

Accepted Answer

A)  Excess reserves may be found by subtracting actual from required reserves. 
B)  The supply of money declines when the public purchases securities from commercial banks. 
C)  Commercial bank reserves are a liability to commercial banks but an asset to Federal Reserve Banks. 
D)  Commercial banks reduce the supply of money when they purchase government bonds from the public. 
A)  Excess reserves may be found by subtracting actual from required reserves. 
B)  The supply of money declines when the public purchases securities from commercial banks. 
C)  Commercial bank reserves are a liability to commercial banks but an asset to Federal Reserve Banks. 
D)  Commercial banks reduce the supply of money when they purchase government bonds from the public.

Question 2

The total demand for money will shift to the left as a result of

Accepted Answer

A)  a decline in nominal GDP. 
B)  an increase in the price level. 
C)  a change in the interest rate. 
D)  an increase in nominal GDP. 
A)  a decline in nominal GDP. 
B)  an increase in the price level. 
C)  a change in the interest rate. 
D)  an increase in nominal GDP.

Question 3

The pushing-on-a-string analogy makes the point that monetary policy may be better at

Accepted Answer

A)  controlling demand-pull inﬂation than cost-push inﬂation. 
B)  pulling the aggregate demand curve leftward than pushing it rightward. 
C)  pulling the unemployment rate downward than pushing the economic growth rate upward. 
D)  keeping rapid inﬂation from occurring than reducing it once it has begun. 
A)  controlling demand-pull inﬂation than cost-push inﬂation. 
B)  pulling the aggregate demand curve leftward than pushing it rightward. 
C)  pulling the unemployment rate downward than pushing the economic growth rate upward. 
D)  keeping rapid inﬂation from occurring than reducing it once it has begun.

Question 4

Assume that the Federal Reserve Banks sell $40 million in government securities to commercial banks and the reserve ratio is 20 percent, then the effect will be to reduce

Accepted Answer

A)  excess reserves by $8 million. 
B)  excess reserves by $200 million. 
C)  the money supply by potentially $200 million. 
D)  the money supply by potentially $400 million. 
A)  excess reserves by $8 million. 
B)  excess reserves by $200 million. 
C)  the money supply by potentially $200 million. 
D)  the money supply by potentially $400 million.

Question 5

If nominal GDP is $2,000 billion and the amount of money demanded for transactions purposes is $500 billion, then on average each
dollar will be spent about four times a year.

Accepted Answer

A) True 
 B)False

Question 6

Monetary policy, unlike ﬁscal policy, does not have any time lags.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is correct?

Accepted Answer

A)  The asset demand for money is downsloping because the opportunity cost of holding money declines as the interest rate rises. 
B)  The asset demand for money is downsloping because the opportunity cost of holding money increases as the interest rate rises. 
C)  The transactions demand for money is downsloping because the opportunity cost of holding money varies inversely with the interest rate. 
D)  The asset demand for money is downsloping because bond prices and the interest rate are directly related. 
A)  The asset demand for money is downsloping because the opportunity cost of holding money declines as the interest rate rises. 
B)  The asset demand for money is downsloping because the opportunity cost of holding money increases as the interest rate rises. 
C)  The transactions demand for money is downsloping because the opportunity cost of holding money varies inversely with the interest rate. 
D)  The asset demand for money is downsloping because bond prices and the interest rate are directly related.

Question 8

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)  depository institutions, that is, 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)  depository institutions, that is, commercial banks and thrift institutions. 
C)  state-chartered commercial banks only. 
D)  federally chartered commercial banks only.

Question 9

Accepted Answer

A)  increase the reserve ratio. 
B)  increase the discount rate. 
C)  buy government securities in the open market or initiate bond repos. 
D)  sell government securities in the open market or initiate bond reverse repos. 
A)  increase the reserve ratio. 
B)  increase the discount rate. 
C)  buy government securities in the open market or initiate bond repos. 
D)  sell government securities in the open market or initiate bond reverse repos.

Question 10

In which of the following situations is it certain that the quantity of money demanded by the public will decrease?

Accepted Answer

A)  nominal GDP decreases and the interest rate decreases 
B)  nominal GDP increases and the interest rate decreases 
C)  nominal GDP decreases and the interest rate increases 
D)  nominal GDP increases and the interest rate increases 
A)  nominal GDP decreases and the interest rate decreases 
B)  nominal GDP increases and the interest rate decreases 
C)  nominal GDP decreases and the interest rate increases 
D)  nominal GDP increases and the interest rate increases

Question 11

In which case would the quantity of money demanded by the public tend to increase by the greatest amount?

Accepted Answer

A)  The interest rate increases and nominal GDP increases. 
B)  The interest rate increases and nominal GDP decreases. 
C)  The interest rate decreases and nominal GDP decreases. 
D)  The interest rate decreases and nominal GDP increases. 
A)  The interest rate increases and nominal GDP increases. 
B)  The interest rate increases and nominal GDP decreases. 
C)  The interest rate decreases and nominal GDP decreases. 
D)  The interest rate decreases and nominal GDP increases.

Question 12

Accepted Answer

A)  $50 
B)  $100 
C)  $150 
D)  $225 
A)  $50 
B)  $100 
C)  $150 
D)  $225

Question 13

$$\begin{array} { | c | c | c | c | } 
\hline \text { Money Supply } & \text { Money Demand } & \text { Interest Rate } & \begin{array} { c } 
\text { Investment (at Interest } \
\text { Rate Shown) }
\end{array} \
\hline \$ 400 & \$ 600 & 2 \% & \$ 700 \
\hline \$ 400 & 500 & 3 & 600 \
\hline \$ 400 & 400 & 4 & 500 \
\hline \$ 400 & 300 & 5 & 300 \
\hline \$ 400 & 200 & 6 & 200 \
\hline
\end{array}$$ 
Answer the question based on the information in the table. An interest rate of 2 percent is not sustainable because

Accepted Answer

A)  the demand for bonds in the bond market will fall and the interest rate will fall. 
B)  the demand for bonds in the bond market will rise and the interest rate will fall. 
C)  the supply of bonds in the bond market will decline and the interest rate will rise. 
D)  the supply of bonds in the bond market will rise and the interest rate will rise. 
A)  the demand for bonds in the bond market will fall and the interest rate will fall. 
B)  the demand for bonds in the bond market will rise and the interest rate will fall. 
C)  the supply of bonds in the bond market will decline and the interest rate will rise. 
D)  the supply of bonds in the bond market will rise and the interest rate will rise.

Question 14

In response to the zero lower bound problem,

Accepted Answer

A)  the Fed implemented the zero interest rate policy (ZIRP). 
B)  Congress approved additional ﬁscal stimulus in 2010. 
C)  the Fed pursued quantitative easing. 
D)  the Fed ended its forward commitment in order to encourage further lending. 
A)  the Fed implemented the zero interest rate policy (ZIRP). 
B)  Congress approved additional ﬁscal stimulus in 2010. 
C)  the Fed pursued quantitative easing. 
D)  the Fed ended its forward commitment in order to encourage further lending.

Question 15

Other things equal, if there is an increase in nominal GDP,

Accepted Answer

A)  the demand for money will decrease. 
B)  the interest rate will rise. 
C)  bond prices will rise. 
D)  consumption spending will fall. 
A)  the demand for money will decrease. 
B)  the interest rate will rise. 
C)  bond prices will rise. 
D)  consumption spending will fall.

Question 16

Quantitative easing (QE) and traditional open-market purchase differ in that

Accepted Answer

A)  the goal of an open-market purchase was to raise the federal funds rate, while QE intends to reduce it. 
B)  open-market purchases raises the reserves in the banking system, while QE does not affect the amount of reserves. 
C)  an open-market purchase was intended to reduce the federal funds rate, while QE is not intended to do so. 
D)  open-market purchases increase the reserves in the banking system, while QE reduces the amount of reserves. 
A)  the goal of an open-market purchase was to raise the federal funds rate, while QE intends to reduce it. 
B)  open-market purchases raises the reserves in the banking system, while QE does not affect the amount of reserves. 
C)  an open-market purchase was intended to reduce the federal funds rate, while QE is not intended to do so. 
D)  open-market purchases increase the reserves in the banking system, while QE reduces the amount of reserves.

Question 17

In order to stimulate the economy and reduce unemployment, the Fed would traditionally set a lower target for the federal funds rate.

Accepted Answer

A) True 
 B)False

Question 18

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 19

Assume that the required reserve ratio is 20 percent. If the Federal Reserve buys $80 million in government securities from commercial banks, then the money supply will immediately

Accepted Answer

A)  increase by $0 with this transaction, and the maximum money-lending potential of the commercial banking system will increase by $400 million. 
B)  increase by $0 with this transaction, but the maximum money-lending potential of the commercial banking system will increase by $320 million. 
C)  increase by $80 million with this transaction, and the maximum money-lending potential of the commercial banking system will increase by another $400 million. 
D)  increase by $80 million with this transaction, and the maximum money-lending potential of the commercial banking system will increase by another $320 million. 
A)  increase by $0 with this transaction, and the maximum money-lending potential of the commercial banking system will increase by $400 million. 
B)  increase by $0 with this transaction, but the maximum money-lending potential of the commercial banking system will increase by $320 million. 
C)  increase by $80 million with this transaction, and the maximum money-lending potential of the commercial banking system will increase by another $400 million. 
D)  increase by $80 million with this transaction, and the maximum money-lending potential of the commercial banking system will increase by another $320 million.

Question 20

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

Accepted Answer

A) True 
 B)False

Which of the following statements is correct?

The total demand for money will shift to the left as a result of

The pushing-on-a-string analogy makes the point that monetary policy may be better at

Assume that the Federal Reserve Banks sell $40 million in government securities to commercial banks and the reserve ratio is 20 percent, then the effect will be to reduce

If nominal GDP is $2,000 billion and the amount of money demanded for transactions purposes is $500 billion, then on average each dollar will be spent about four times a year.

Monetary policy, unlike ﬁscal policy, does not have any time lags.

Which of the following is correct?

Reserves must be deposited in the Federal Reserve Banks by

In which of the following situations is it certain that the quantity of money demanded by the public will decrease?

In which case would the quantity of money demanded by the public tend to increase by the greatest amount?

Money Supply Money Demand Interest Rate Investment (at Interest Rate Shown) \ 400 \ 600 2\% \ 700 \ 400 500 3 600 \ 400 400 4 500 \ 400 300 5 300 \ 400 200 6 200 Answer the question based on the information in the table. An interest rate of 2 percent is not sustainable because

In response to the zero lower bound problem,

Other things equal, if there is an increase in nominal GDP,

Quantitative easing (QE) and traditional open-market purchase differ in that

In order to stimulate the economy and reduce unemployment, the Fed would traditionally set a lower target for the federal funds rate.

An increase in the money supply, ceteris paribus, usually

Assume that the required reserve ratio is 20 percent. If the Federal Reserve buys $80 million in government securities from commercial banks, then the money supply will immediately

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

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

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

Exam 16: Interest Rates and Monetary Policy

Which of the following statements is correct?

The total demand for money will shift to the left as a result of

The pushing-on-a-string analogy makes the point that monetary policy may be better at

Assume that the Federal Reserve Banks sell $40 million in government securities to commercial banks and the reserve ratio is 20 percent, then the effect will be to reduce

If nominal GDP is $2,000 billion and the amount of money demanded for transactions purposes is $500 billion, then on average each dollar will be spent about four times a year.

Monetary policy, unlike ﬁscal policy, does not have any time lags.

Which of the following is correct?

Reserves must be deposited in the Federal Reserve Banks by

In which of the following situations is it certain that the quantity of money demanded by the public will decrease?

In which case would the quantity of money demanded by the public tend to increase by the greatest amount?

Money Supply Money Demand Interest Rate Investment (at Interest Rate Shown) \ 400 \ 600 2\% \ 700 \ 400 500 3 600 \ 400 400 4 500 \ 400 300 5 300 \ 400 200 6 200 Answer the question based on the information in the table. An interest rate of 2 percent is not sustainable because

In response to the zero lower bound problem,

Other things equal, if there is an increase in nominal GDP,

Quantitative easing (QE) and traditional open-market purchase differ in that

In order to stimulate the economy and reduce unemployment, the Fed would traditionally set a lower target for the federal funds rate.

An increase in the money supply, ceteris paribus, usually

Assume that the required reserve ratio is 20 percent. If the Federal Reserve buys $80 million in government securities from commercial banks, then the money supply will immediately

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

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

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