Question 1

The use of monetary policy to shift aggregate demand to the right in a severe recession is like

Accepted Answer

A)  pushing on a string. 
B)  putting all your eggs in one basket. 
C)  pulling on one's purse-strings. 
D)  pushing the envelope. 
A)  pushing on a string. 
B)  putting all your eggs in one basket. 
C)  pulling on one's purse-strings. 
D)  pushing the envelope.

Question 2

What is the discount rate and how does changing it affect the money supply?

Accepted Answer

The discount rate is the interest rate t

Question 3

A contraction of the money supply

Accepted Answer

A)  increases the interest rate and decreases aggregate demand. 
B)  increases both the interest rate and aggregate demand. 
C)  lowers the interest rate and increases aggregate demand. 
D)  lowers both the interest rate and aggregate demand. 
A)  increases the interest rate and decreases aggregate demand. 
B)  increases both the interest rate and aggregate demand. 
C)  lowers the interest rate and increases aggregate demand. 
D)  lowers both the interest rate and aggregate demand.

Question 4

The problem of cyclical asymmetry refers to the idea that

Accepted Answer

A)  a restrictive monetary policy can force a contraction of the money supply, but an expansionary monetary policy may not achieve an increase in the money supply. 
B)  the monetary authorities have been less willing to use an expansionary monetary policy than they have a restrictive monetary policy. 
C)  cyclical downswings are typically of longer duration than cyclical upswings. 
D)  an expansionary monetary policy can force an expansion of the money supply, but a restrictive monetary policy may not achieve a contraction of the money supply. 
A)  a restrictive monetary policy can force a contraction of the money supply, but an expansionary monetary policy may not achieve an increase in the money supply. 
B)  the monetary authorities have been less willing to use an expansionary monetary policy than they have a restrictive monetary policy. 
C)  cyclical downswings are typically of longer duration than cyclical upswings. 
D)  an expansionary monetary policy can force an expansion of the money supply, but a restrictive monetary policy may not achieve a contraction of the money supply.

Question 5

The transactions demand for money will decrease when income decreases, but it is not much affected by interest rates.

Accepted Answer

A) True 
 B)False

Question 6

When the required reserve ratio is increased, the excess reserves of banks are

Accepted Answer

A)  reduced, but the multiple by which the commercial banking system can lend is unaffected. 
B)  reduced and the multiple by which the commercial banking system can lend is increased. 
C)  increased and the multiple by which the commercial banking system can lend is increased. 
D)  reduced and the multiple by which the commercial banking system can lend is reduced. 
A)  reduced, but the multiple by which the commercial banking system can lend is unaffected. 
B)  reduced and the multiple by which the commercial banking system can lend is increased. 
C)  increased and the multiple by which the commercial banking system can lend is increased. 
D)  reduced and the multiple by which the commercial banking system can lend is reduced.

Question 7

Suppose the economy is experiencing inﬂation. How would a restrictive monetary policy address this problem?

Accepted Answer

The Federal Reserve could attempt to red

Question 8

Accepted Answer

A)  increase aggregate demand from AD $$A D _ { 3 } \text { to } A D _ { 2 }$$ 
B)  decrease the money supply from $225 to $150 billion 
C)  increase interest rates from 4 to 8 percent 
D)  make no change in monetary policy 
A)  increase aggregate demand from AD $$A D _ { 3 } \text { to } A D _ { 2 }$$ 
B)  decrease the money supply from $225 to $150 billion 
C)  increase interest rates from 4 to 8 percent 
D)  make no change in monetary policy

Question 9

If the Fed were to reduce the legal reserve ratio, we would expect

Accepted Answer

A)  lower interest rates, an expanded GDP, and a higher rate of inﬂation. 
B)  lower interest rates, an expanded GDP, and a lower rate of inﬂation. 
C)  higher interest rates, a contracted GDP, and a higher rate of inﬂation. 
D)  higher interest rates, a contracted GDP, and a lower rate of inﬂation. 
A)  lower interest rates, an expanded GDP, and a higher rate of inﬂation. 
B)  lower interest rates, an expanded GDP, and a lower rate of inﬂation. 
C)  higher interest rates, a contracted GDP, and a higher rate of inﬂation. 
D)  higher interest rates, a contracted GDP, and a lower rate of inﬂation.

Question 10

There is an asset demand for money primarily because of which function of money?

Accepted Answer

A)  legal tender 
B)  store of value 
C)  measure of value 
D)  medium of exchange 
A)  legal tender 
B)  store of value 
C)  measure of value 
D)  medium of exchange

Question 11

The Federal Reserve alters the amount of the nation's money supply by

Accepted Answer

A)  reducing the liabilities of the banking system. 
B)  controlling the assets of the nation's largest banks. 
C)  minting coins and printing currency that is distributed to banks. 
D)  manipulating the size of excess reserves held by commercial banks. 
A)  reducing the liabilities of the banking system. 
B)  controlling the assets of the nation's largest banks. 
C)  minting coins and printing currency that is distributed to banks. 
D)  manipulating the size of excess reserves held by commercial banks.

Question 12

$$\begin{array} { | c | c | c | c | } 
\hline \text { Money Supply } & \text { Money Demand } & \text { Interest Rate } & \begin{array} { c } 
\text { Investment (at Interest } \
\text { Rate Shown) }
\end{array} \
\hline \$ 400 & \$ 600 & 2 \% & \$ 700 \
\hline \$ 400 & 500 & 3 & 600 \
\hline \$ 400 & 400 & 4 & 500 \
\hline \$ 400 & 300 & 5 & 300 \
\hline \$ 400 & 200 & 6 & 200 \
\hline
\end{array}$$
Answer the question based on the information in the table. The amount of investment that will be forthcoming in this economy at
equilibrium is

Accepted Answer

A)  $700. 
B)  $600. 
C)  $500. 
D)  $300. 
A)  $700. 
B)  $600. 
C)  $500. 
D)  $300.

Question 13

The asset demand for money varies inversely with the nominal GDP.

Accepted Answer

A) True 
 B)False

Question 14

Assume that the price level is ﬂexible both upward and downward and that the Fed's policy is to keep the price level from either rising or falling. If aggregate supply increases in the economy, the Fed

Accepted Answer

A)  will have to increase interest rates to keep the price level from falling. 
B)  will have to reduce the money supply to keep the price level from rising. 
C)  will have to increase the money supply to keep the price level from falling. 
D)  can keep the price level stable without altering the money supply or interest rate. 
A)  will have to increase interest rates to keep the price level from falling. 
B)  will have to reduce the money supply to keep the price level from rising. 
C)  will have to increase the money supply to keep the price level from falling. 
D)  can keep the price level stable without altering the money supply or interest rate.

Question 15

When the Fed does repos and reverse repos (or repurchase agreements) with ﬁnancial institutions, the collateral used in these transactions is

Accepted Answer

A)  corporate stock. 
B)  municipal bonds. 
C)  government bonds. 
D)  certiﬁcates of deposits. 
A)  corporate stock. 
B)  municipal bonds. 
C)  government bonds. 
D)  certiﬁcates of deposits.

Question 16

Which of the following is considered an advantage of monetary policy compared to ﬁscal policy?

Accepted Answer

A)  It is blunter and more politically obvious than ﬁscal policy. 
B)  It does not have any of the time lags of ﬁscal policy. 
C)  It is relatively isolated from political pressure. 
D)  It is cyclically asymmetrical. 
A)  It is blunter and more politically obvious than ﬁscal policy. 
B)  It does not have any of the time lags of ﬁscal policy. 
C)  It is relatively isolated from political pressure. 
D)  It is cyclically asymmetrical.

Question 17

In the 1990s and early 2000s, Japan's central bank reduced real interest rates to zero percent, but investment spending did not respond enough to bring the economy out of recession. Japan's experience is an illustration of

Accepted Answer

A)  the crowding-out effect. 
B)  "pulling on a string." 
C)  the Taylor rule. 
D)  the liquidity trap. 
A)  the crowding-out effect. 
B)  "pulling on a string." 
C)  the Taylor rule. 
D)  the liquidity trap.

Question 18

The desire to hold money for transactions purposes arises because

Accepted Answer

A)  receipts of income and expenditures are not perfectly synchronized. 
B)  people fear that prices will rise. 
C)  households want money on hand in case a good ﬁnancial investment opportunity arises. 
D)  low interest rates reduce the opportunity cost of holding money. 
A)  receipts of income and expenditures are not perfectly synchronized. 
B)  people fear that prices will rise. 
C)  households want money on hand in case a good ﬁnancial investment opportunity arises. 
D)  low interest rates reduce the opportunity cost of holding money.

Question 19

Traditionally, the Fed often communicated its intentions to restrict or expand monetary policy by announcing a change in its target for the

Accepted Answer

A)  prime rate. 
B)  federal funds rate. 
C)  discount rate. 
D)  consumer price index. 
A)  prime rate. 
B)  federal funds rate. 
C)  discount rate. 
D)  consumer price index.

Question 20

Open-market operations refer to

Accepted Answer

A)  purchases of stocks in the New York Stock Exchange. 
B)  the purchase or sale of government securities, as well as collateralized money loans, by the Fed. 
C)  central bank lending to commercial banks. 
D)  the specifying of loan maximums on stock purchases. 
A)  purchases of stocks in the New York Stock Exchange. 
B)  the purchase or sale of government securities, as well as collateralized money loans, by the Fed. 
C)  central bank lending to commercial banks. 
D)  the specifying of loan maximums on stock purchases.

The use of monetary policy to shift aggregate demand to the right in a severe recession is like

What is the discount rate and how does changing it affect the money supply?

A contraction of the money supply

The problem of cyclical asymmetry refers to the idea that

The transactions demand for money will decrease when income decreases, but it is not much affected by interest rates.

When the required reserve ratio is increased, the excess reserves of banks are

Suppose the economy is experiencing inﬂation. How would a restrictive monetary policy address this problem?

If the Fed were to reduce the legal reserve ratio, we would expect

There is an asset demand for money primarily because of which function of money?

The Federal Reserve alters the amount of the nation's money supply by

The asset demand for money varies inversely with the nominal GDP.

Assume that the price level is ﬂexible both upward and downward and that the Fed's policy is to keep the price level from either rising or falling. If aggregate supply increases in the economy, the Fed

When the Fed does repos and reverse repos (or repurchase agreements) with ﬁnancial institutions, the collateral used in these transactions is

Which of the following is considered an advantage of monetary policy compared to ﬁscal policy?

In the 1990s and early 2000s, Japan's central bank reduced real interest rates to zero percent, but investment spending did not respond enough to bring the economy out of recession. Japan's experience is an illustration of

The desire to hold money for transactions purposes arises because

Traditionally, the Fed often communicated its intentions to restrict or expand monetary policy by announcing a change in its target for the

Open-market operations refer to

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

The use of monetary policy to shift aggregate demand to the right in a severe recession is like

What is the discount rate and how does changing it affect the money supply?

A contraction of the money supply

The problem of cyclical asymmetry refers to the idea that

The transactions demand for money will decrease when income decreases, but it is not much affected by interest rates.

When the required reserve ratio is increased, the excess reserves of banks are

Suppose the economy is experiencing inﬂation. How would a restrictive monetary policy address this problem?

If the Fed were to reduce the legal reserve ratio, we would expect

There is an asset demand for money primarily because of which function of money?

The Federal Reserve alters the amount of the nation's money supply by

The asset demand for money varies inversely with the nominal GDP.

Assume that the price level is ﬂexible both upward and downward and that the Fed's policy is to keep the price level from either rising or falling. If aggregate supply increases in the economy, the Fed

When the Fed does repos and reverse repos (or repurchase agreements) with ﬁnancial institutions, the collateral used in these transactions is

Which of the following is considered an advantage of monetary policy compared to ﬁscal policy?

In the 1990s and early 2000s, Japan's central bank reduced real interest rates to zero percent, but investment spending did not respond enough to bring the economy out of recession. Japan's experience is an illustration of

The desire to hold money for transactions purposes arises because

Traditionally, the Fed often communicated its intentions to restrict or expand monetary policy by announcing a change in its target for the

Open-market operations refer to

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