Question 1

A restrictive monetary policy is designed to shift the

Accepted Answer

A)  aggregate demand curve rightward. 
B)  aggregate demand curve leftward. 
C)  aggregate supply curve rightward. 
D)  aggregate supply curve leftward. 
A)  aggregate demand curve rightward. 
B)  aggregate demand curve leftward. 
C)  aggregate supply curve rightward. 
D)  aggregate supply curve leftward.

Question 2

Which of the following is an asset on the consolidated balance sheet of the Federal Reserve Banks?

Accepted Answer

A)  loans to commercial banks 
B)  Federal Reserve Notes in circulation 
C)  Treasury deposits 
D)  reserves of commercial banks 
A)  loans to commercial banks 
B)  Federal Reserve Notes in circulation 
C)  Treasury deposits 
D)  reserves of commercial banks

Question 3

The asset demand for money is downsloping because

Accepted Answer

A)  the opportunity cost of holding money increases as the interest rate rises. 
B)  it is more attractive to hold money at high interest rates than at low interest rates. 
C)  bond prices rise as interest rates rise. 
D)  the opportunity cost of holding money declines as the interest rate rises. 
A)  the opportunity cost of holding money increases as the interest rate rises. 
B)  it is more attractive to hold money at high interest rates than at low interest rates. 
C)  bond prices rise as interest rates rise. 
D)  the opportunity cost of holding money declines as the interest rate rises.

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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 6

Refer to the given market-for-money diagrams. If the interest rate was at 8 percent, people would

Accepted Answer

A)  sell bonds, which would cause bond prices to fall and the interest rate to fall. 
B)  buy bonds, which would cause bond prices to rise and the interest rate to fall. 
C)  have insuﬃcient liquidity, which would cause them to reduce their spending on consumer goods. 
D)  buy bonds, which would cause bond prices to fall and the interest rate to rise. 
A)  sell bonds, which would cause bond prices to fall and the interest rate to fall. 
B)  buy bonds, which would cause bond prices to rise and the interest rate to fall. 
C)  have insuﬃcient liquidity, which would cause them to reduce their spending on consumer goods. 
D)  buy bonds, which would cause bond prices to fall and the interest rate to rise.

Question 7

Assume that the stock of money is determined by the Federal Reserve and does not change when the interest rate changes. This situation means that the

Accepted Answer

A)  supply of money curve is vertical. 
B)  supply of money curve is horizontal. 
C)  demand for money curve is directly related to the interest rate. 
D)  supply of money curve is inversely related to the interest rate. 
A)  supply of money curve is vertical. 
B)  supply of money curve is horizontal. 
C)  demand for money curve is directly related to the interest rate. 
D)  supply of money curve is inversely related to the interest rate.

Question 8

The transactions demand for money is most closely related to money functioning as a

Accepted Answer

A)  unit of account. 
B)  medium of exchange. 
C)  store of value. 
D)  measure of value. 
A)  unit of account. 
B)  medium of exchange. 
C)  store of value. 
D)  measure of value.

Question 9

Expansionary monetary policy beginning in December 2008 consisted mainly of quantitative easing (QE) which meant massive bond
purchases by the Fed to expand bank reserves and the Fed implementing a zero-interest-rate policy.

Accepted Answer

A) True 
 B)False

Question 10

$$\begin{array} { | c | c | c | c | } 
\hline \text { Money Supply } & \text { Money Demand } & \text { Interest Rate } & \begin{array} { c } 
\text { Investment (at Interest } \
\text { Rate Shown) }
\end{array} \
\hline \$ 400 & \$ 600 & 2 \% & \$ 700 \
\hline \$ 400 & 500 & 3 & 600 \
\hline \$ 400 & 400 & 4 & 500 \
\hline \$ 400 & 300 & 5 & 300 \
\hline \$ 400 & 200 & 6 & 200 \
\hline
\end{array}$$
Answer the question based on the information in the table. Suppose the legal reserve requirement is 10 percent and initially there are no excess reserves in the banking system. If the Fed wished to reduce the interest rate by 1 percentage point, it would

Accepted Answer

A)  sell $10 of government bonds in the open market. 
B)  buy $100 of government bonds in the open market. 
C)  sell $100 of government bonds in the open market. 
D)  buy $10 of government bonds in the open market. 
A)  sell $10 of government bonds in the open market. 
B)  buy $100 of government bonds in the open market. 
C)  sell $100 of government bonds in the open market. 
D)  buy $10 of government bonds in the open market.

Question 11

Accepted Answer

A)  B 
B)  E 
C)  F 
D)  I 
A)  B 
B)  E 
C)  F 
D)  I

Question 12

The price of government bonds and the interest rate received by a bond buyer are

Accepted Answer

A)  positively related. 
B)  unrelated. 
C)  inversely related. 
D)  independent of Federal Reserve open-market operations. 
A)  positively related. 
B)  unrelated. 
C)  inversely related. 
D)  independent of Federal Reserve open-market operations.

Question 13

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 14

Accepted Answer

A)  $s _ { m 3 }$ and the interest rate will be 4 percent. 
B)  $s _ { m 3 }$ and the interest rate will be 8 percent. 
C)  $S _ { m 1 }$ and the interest rate will be 8 percent. 
D)  $S _ { m 1 }$ and the interest rate will be 4 percent. 
A)  $s _ { m 3 }$ and the interest rate will be 4 percent. 
B)  $s _ { m 3 }$ and the interest rate will be 8 percent. 
C)  $S _ { m 1 }$ and the interest rate will be 8 percent. 
D)  $S _ { m 1 }$ and the interest rate will be 4 percent.

Question 15

From September 2007 to April 2008, the Fed lowered the federal funds rate from 5.25 percent to 2 percent in a series of steps. The Fed's actions were largely in response to

Accepted Answer

A)  threats to the ﬁnancial system from the mortgage default crisis. 
B)  forecasts of higher inﬂation rates. 
C)  Chinese refusal to allow their exchange rate to reﬂect market conditions. 
D)  pressure from the president to offset contractionary effects of a tax increase. 
A)  threats to the ﬁnancial system from the mortgage default crisis. 
B)  forecasts of higher inﬂation rates. 
C)  Chinese refusal to allow their exchange rate to reﬂect market conditions. 
D)  pressure from the president to offset contractionary effects of a tax increase.

Question 16

In the United States, monetary policy is the responsibility of the

Accepted Answer

A)  U.S. Treasury. 
B)  Department of Commerce. 
C)  Board of Governors of the Federal Reserve System. 
D)  U.S. Congress. 
A)  U.S. Treasury. 
B)  Department of Commerce. 
C)  Board of Governors of the Federal Reserve System. 
D)  U.S. Congress.

Question 17

What are the four principal tools of monetary policy? Explain how they can be used.

Accepted Answer

The four principal tools of monetary pol

Question 18

Which of the following is least likely to be a problem for monetary policy?

Accepted Answer

A)  the recognition lag 
B)  the operational lag 
C)  the administrative lag 
D)  cyclical asymmetry 
A)  the recognition lag 
B)  the operational lag 
C)  the administrative lag 
D)  cyclical asymmetry

Question 19

If, in the market for money, the quantity of money demanded exceeds the money supply, the interest rate will

Accepted Answer

A)  fall, causing households and businesses to hold less money. 
B)  rise, causing households and businesses to hold less money. 
C)  rise, causing households and businesses to hold more money. 
D)  fall, causing households and businesses to hold more money. 
A)  fall, causing households and businesses to hold less money. 
B)  rise, causing households and businesses to hold less money. 
C)  rise, causing households and businesses to hold more money. 
D)  fall, causing households and businesses to hold more money.

Question 20

Compared to ﬁscal policy, monetary policy has a much shorter

Accepted Answer

A)  recognition lag. 
B)  administrative lag. 
C)  operational lag. 
D)  effects lag. 
A)  recognition lag. 
B)  administrative lag. 
C)  operational lag. 
D)  effects lag.

A restrictive monetary policy is designed to shift the

Which of the following is an asset on the consolidated balance sheet of the Federal Reserve Banks?

The asset demand for money is downsloping because

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

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

Refer to the given market-for-money diagrams. If the interest rate was at 8 percent, people would

Assume that the stock of money is determined by the Federal Reserve and does not change when the interest rate changes. This situation means that the

The transactions demand for money is most closely related to money functioning as a

Expansionary monetary policy beginning in December 2008 consisted mainly of quantitative easing (QE) which meant massive bond purchases by the Fed to expand bank reserves and the Fed implementing a zero-interest-rate policy.

The price of government bonds and the interest rate received by a bond buyer are

The purpose of an expansionary monetary policy is to increase

From September 2007 to April 2008, the Fed lowered the federal funds rate from 5.25 percent to 2 percent in a series of steps. The Fed's actions were largely in response to

In the United States, monetary policy is the responsibility of the

What are the four principal tools of monetary policy? Explain how they can be used.

Which of the following is least likely to be a problem for monetary policy?

If, in the market for money, the quantity of money demanded exceeds the money supply, the interest rate will

Compared to ﬁscal policy, monetary policy has a much shorter

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

A restrictive monetary policy is designed to shift the

Which of the following is an asset on the consolidated balance sheet of the Federal Reserve Banks?

The asset demand for money is downsloping because

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

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

Refer to the given market-for-money diagrams. If the interest rate was at 8 percent, people would

Assume that the stock of money is determined by the Federal Reserve and does not change when the interest rate changes. This situation means that the

The transactions demand for money is most closely related to money functioning as a

Expansionary monetary policy beginning in December 2008 consisted mainly of quantitative easing (QE) which meant massive bond purchases by the Fed to expand bank reserves and the Fed implementing a zero-interest-rate policy.

The price of government bonds and the interest rate received by a bond buyer are

The purpose of an expansionary monetary policy is to increase

From September 2007 to April 2008, the Fed lowered the federal funds rate from 5.25 percent to 2 percent in a series of steps. The Fed's actions were largely in response to

In the United States, monetary policy is the responsibility of the

What are the four principal tools of monetary policy? Explain how they can be used.

Which of the following is least likely to be a problem for monetary policy?

If, in the market for money, the quantity of money demanded exceeds the money supply, the interest rate will

Compared to ﬁscal policy, monetary policy has a much shorter

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