Question 1

Interest paid on excess reserves held at the Fed

Accepted Answer

A)  is available to the general public, but not to commercial banks. 
B)  will incentivize ﬁnancial institutions to hold more reserves and reduce risky lending. 
C)  is determined by the federal funds rate. 
D)  totaled over $1 trillion in 2018. 
A)  is available to the general public, but not to commercial banks. 
B)  will incentivize ﬁnancial institutions to hold more reserves and reduce risky lending. 
C)  is determined by the federal funds rate. 
D)  totaled over $1 trillion in 2018.

Question 2

According to the Taylor rule, if the target rate of inﬂation for the Fed is 2 percent and inﬂation rises to 3 percent at full unemployment, then the Fed should

Accepted Answer

A)  raise the real federal funds rate by one percentage point. 
B)  lower the real federal funds rate by one percentage point. 
C)  raise their targeted interest rate by half of a percentage point. 
D)  lower their targeted interest rate by half of a percentage point. 
A)  raise the real federal funds rate by one percentage point. 
B)  lower the real federal funds rate by one percentage point. 
C)  raise their targeted interest rate by half of a percentage point. 
D)  lower their targeted interest rate by half of a percentage point.

Question 3

What does it mean when economists say that the Fed has attempted to "normalize" monetary policy after the Great Recession?

Accepted Answer

A)  The Fed has tried to use monetary policy to restore the unemployment rate to its normal full employment rate of around 5 percent. 
B)  The Fed has tried to use monetary policy to raise excess reserves back up to normal prerecession levels. 
C)  The Fed has tried to make all of the monetary policy actions used during the ﬁnancial crisis a normal part of the monetary policy tool kit. 
D)  The Fed has tried to use monetary policy to bring interest rates back to their historically normal levels. 
A)  The Fed has tried to use monetary policy to restore the unemployment rate to its normal full employment rate of around 5 percent. 
B)  The Fed has tried to use monetary policy to raise excess reserves back up to normal prerecession levels. 
C)  The Fed has tried to make all of the monetary policy actions used during the ﬁnancial crisis a normal part of the monetary policy tool kit. 
D)  The Fed has tried to use monetary policy to bring interest rates back to their historically normal levels.

Question 4

There is an asset demand for money because households and business ﬁrms use money as a store of value.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements about quantitative easing is most accurate?

Accepted Answer

A)  Quantitative easing refers to the Fed's use of open-market operations to buy trillions of dollars' worth of medium- and longer-maturity ﬁnancial assets. 
B)  Quantitative easing has become one of the permanently recognized tools of monetary policy. 
C)  Quantitative easing signiﬁcantly lowered interest rates in the aftermath of the ﬁnancial crisis. 
D)  Quantitative easing is the new oﬃcial name for open-market operations. 
A)  Quantitative easing refers to the Fed's use of open-market operations to buy trillions of dollars' worth of medium- and longer-maturity ﬁnancial assets. 
B)  Quantitative easing has become one of the permanently recognized tools of monetary policy. 
C)  Quantitative easing signiﬁcantly lowered interest rates in the aftermath of the ﬁnancial crisis. 
D)  Quantitative easing is the new oﬃcial name for open-market operations.

Question 6

The Federal Reserve System regulates the money supply primarily by

Accepted Answer

A)  controlling the production of coins at the U.S. mint. 
B)  altering the reserve requirements of commercial banks and thereby the ability of banks to make loans. 
C)  altering the reserves of commercial banks, largely through sales and purchases of government bonds. 
D)  restricting the issuance of Federal Reserve Notes because paper money is the largest portion of the money supply. 
A)  controlling the production of coins at the U.S. mint. 
B)  altering the reserve requirements of commercial banks and thereby the ability of banks to make loans. 
C)  altering the reserves of commercial banks, largely through sales and purchases of government bonds. 
D)  restricting the issuance of Federal Reserve Notes because paper money is the largest portion of the money supply.

Question 7

Other things equal, an increase in input prices will

Accepted Answer

A)  reduce aggregate supply and reduce real output. 
B)  increase the interest rate and lower the international value of the dollar. 
C)  increase aggregate supply and increase the price level. 
D)  increase net exports, increase investment, and reduce aggregate demand. 
A)  reduce aggregate supply and reduce real output. 
B)  increase the interest rate and lower the international value of the dollar. 
C)  increase aggregate supply and increase the price level. 
D)  increase net exports, increase investment, and reduce aggregate demand.

Question 8

A consumer holds money to meet spending needs. This would be an example of the

Accepted Answer

A)  use of money as a measure of value. 
B)  use of money as legal tender. 
C)  transactions demand for money. 
D)  asset demand for money. 
A)  use of money as a measure of value. 
B)  use of money as legal tender. 
C)  transactions demand for money. 
D)  asset demand for money.

Question 9

The purpose of an expansionary monetary policy is to shift the

Accepted Answer

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

Question 10

U.S. Treasury deposits at the Federal Reserve Banks are

Accepted Answer

A)  a liability of the Federal Reserve Banks and the U.S. Treasury. 
B)  an asset of the Federal Reserve Banks and the U.S. Treasury. 
C)  a liability of the Federal Reserve Banks and an asset for the U.S. Treasury. 
D)  an asset of the Federal Reserve Banks and a liability for the U.S. Treasury. 
A)  a liability of the Federal Reserve Banks and the U.S. Treasury. 
B)  an asset of the Federal Reserve Banks and the U.S. Treasury. 
C)  a liability of the Federal Reserve Banks and an asset for the U.S. Treasury. 
D)  an asset of the Federal Reserve Banks and a liability for the U.S. Treasury.

Question 11

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 12

$$\begin{array} { | c | c | } 
\hline \text { Interest Rate } & \text { Asset Demand for Money (Billions) } \
\hline 7 \% & \$ 200 \
\hline 6 & 300 \
\hline 5 & 400 \
\hline 4 & 500 \
\hline
\end{array}$$ Suppose that the transactions demand for money is equal to 20 percent of the nominal GDP, the supply of money is $800 billion, and the asset demand for money is that shown in the table. If the nominal GDP is $2,000 billion, the equilibrium interest rate is

Accepted Answer

A)  4 percent. 
B)  5 percent. 
C)  6 percent. 
D)  7 percent. 
A)  4 percent. 
B)  5 percent. 
C)  6 percent. 
D)  7 percent.

Question 13

An increase in nominal GDP increases the demand for money because

Accepted Answer

A)  interest rates will rise. 
B)  more money is needed to ﬁnance a larger volume of transactions. 
C)  bond prices will fall. 
D)  the opportunity cost of holding money will decline. 
A)  interest rates will rise. 
B)  more money is needed to ﬁnance a larger volume of transactions. 
C)  bond prices will fall. 
D)  the opportunity cost of holding money will decline.

Question 14

The price of a bond having no expiration date is originally $8,000 and has a ﬁxed annual interest payment of $800. A fall in the price of the bond by $3,000 will provide a new buyer of the bond an interest rate of

Accepted Answer

A)  10 percent. 
B)  12 percent. 
C)  14 percent. 
D)  16 percent. 
A)  10 percent. 
B)  12 percent. 
C)  14 percent. 
D)  16 percent.

Question 15

A wealthy executive is holding money, waiting for a good time to invest in the stock market. This action would be an example of the

Accepted Answer

A)  transactions demand for money. 
B)  asset demand for money. 
C)  creation of ﬁat money. 
D)  use of money as a medium of exchange. 
A)  transactions demand for money. 
B)  asset demand for money. 
C)  creation of ﬁat money. 
D)  use of money as a medium of exchange.

Question 16

Which of the following is a difference between "quantitative easing" and ordinary open-market operations?

Accepted Answer

A)  There is no difference between the two policy tools. 
B)  Open-market operations are done to lower interest rates; quantitative easing is done to increase the quantity of bank reserves. 
C)  Quantitative easing is done in order to lower interest rates; open-market operations are merely intended to increase bank reserves. 
D)  Open-market operations involve forward commitment; quantitative easing is intentionally vague to maintain ﬂexibility. 
A)  There is no difference between the two policy tools. 
B)  Open-market operations are done to lower interest rates; quantitative easing is done to increase the quantity of bank reserves. 
C)  Quantitative easing is done in order to lower interest rates; open-market operations are merely intended to increase bank reserves. 
D)  Open-market operations involve forward commitment; quantitative easing is intentionally vague to maintain ﬂexibility.

Question 17

If the Fed wants to maintain current interest rates, it would be buying government bonds in the open market when

Accepted Answer

A)  the demand for money decreases. 
B)  the demand for money increases. 
C)  investment demand decreases. 
D)  the discount rate increases. 
A)  the demand for money decreases. 
B)  the demand for money increases. 
C)  investment demand decreases. 
D)  the discount rate increases.

Question 18

If the demand for money and the supply of money both decrease, the equilibrium

Accepted Answer

A)  interest rate will decline, but we cannot predict the change in the equilibrium quantity of money. 
B)  quantity of money and the equilibrium interest rate will both increase. 
C)  quantity of money will increase, but we cannot predict the change in the equilibrium interest rate. 
D)  quantity of money will decline, but we cannot predict the change in the equilibrium interest rate. 
A)  interest rate will decline, but we cannot predict the change in the equilibrium quantity of money. 
B)  quantity of money and the equilibrium interest rate will both increase. 
C)  quantity of money will increase, but we cannot predict the change in the equilibrium interest rate. 
D)  quantity of money will decline, but we cannot predict the change in the equilibrium interest rate.

Question 19

Refer to the graph. If the interest rate rises from 2 percent to 3 percent, the supply of money must have

Accepted Answer

A)  decreased by $50 billion. 
B)  decreased by $100 billion. 
C)  decreased by $150 billion. 
D)  increased by $50 billion. 
A)  decreased by $50 billion. 
B)  decreased by $100 billion. 
C)  decreased by $150 billion. 
D)  increased by $50 billion.

Question 20

A commercial bank can add to its actual reserves by

Accepted Answer

A)  lending money to bank customers. 
B)  buying government securities from the public. 
C)  buying government securities from a Federal Reserve Bank. 
D)  borrowing from a Federal Reserve Bank. 
A)  lending money to bank customers. 
B)  buying government securities from the public. 
C)  buying government securities from a Federal Reserve Bank. 
D)  borrowing from a Federal Reserve Bank.

Interest paid on excess reserves held at the Fed

According to the Taylor rule, if the target rate of inﬂation for the Fed is 2 percent and inﬂation rises to 3 percent at full unemployment, then the Fed should

What does it mean when economists say that the Fed has attempted to "normalize" monetary policy after the Great Recession?

There is an asset demand for money because households and business ﬁrms use money as a store of value.

Which of the following statements about quantitative easing is most accurate?

The Federal Reserve System regulates the money supply primarily by

Other things equal, an increase in input prices will

A consumer holds money to meet spending needs. This would be an example of the

The purpose of an expansionary monetary policy is to shift the

U.S. Treasury deposits at the Federal Reserve Banks are

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

An increase in nominal GDP increases the demand for money because

The price of a bond having no expiration date is originally $8,000 and has a ﬁxed annual interest payment of $800. A fall in the price of the bond by $3,000 will provide a new buyer of the bond an interest rate of

A wealthy executive is holding money, waiting for a good time to invest in the stock market. This action would be an example of the

Which of the following is a difference between "quantitative easing" and ordinary open-market operations?

If the Fed wants to maintain current interest rates, it would be buying government bonds in the open market when

If the demand for money and the supply of money both decrease, the equilibrium

Refer to the graph. If the interest rate rises from 2 percent to 3 percent, the supply of money must have

A commercial bank can add to its actual reserves by

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

Interest paid on excess reserves held at the Fed

According to the Taylor rule, if the target rate of inﬂation for the Fed is 2 percent and inﬂation rises to 3 percent at full unemployment, then the Fed should

What does it mean when economists say that the Fed has attempted to "normalize" monetary policy after the Great Recession?

There is an asset demand for money because households and business ﬁrms use money as a store of value.

Which of the following statements about quantitative easing is most accurate?

The Federal Reserve System regulates the money supply primarily by

Other things equal, an increase in input prices will

A consumer holds money to meet spending needs. This would be an example of the

The purpose of an expansionary monetary policy is to shift the

U.S. Treasury deposits at the Federal Reserve Banks are

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

An increase in nominal GDP increases the demand for money because

The price of a bond having no expiration date is originally $8,000 and has a ﬁxed annual interest payment of $800. A fall in the price of the bond by $3,000 will provide a new buyer of the bond an interest rate of

A wealthy executive is holding money, waiting for a good time to invest in the stock market. This action would be an example of the

Which of the following is a difference between "quantitative easing" and ordinary open-market operations?

If the Fed wants to maintain current interest rates, it would be buying government bonds in the open market when

If the demand for money and the supply of money both decrease, the equilibrium

Refer to the graph. If the interest rate rises from 2 percent to 3 percent, the supply of money must have

A commercial bank can add to its actual reserves by

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