Question 1

A liquidity trap occurs when the Federal Reserve reduces reserves in the system, choking off aggregate demand.

Accepted Answer

A) True 
 B)False

Question 2

The commercial banking system borrows from the Federal Reserve Banks. As a result, the checkable deposits

Accepted Answer

A)  of commercial banks are unchanged, but their reserves increase. 
B)  and reserves of commercial banks both decrease. 
C)  of commercial banks are unchanged, but their reserves decrease. 
D)  and reserves of commercial banks are both unchanged. 
A)  of commercial banks are unchanged, but their reserves increase. 
B)  and reserves of commercial banks both decrease. 
C)  of commercial banks are unchanged, but their reserves decrease. 
D)  and reserves of commercial banks are both unchanged.

Question 3

If the Fed seeks to maintain a ﬁxed targeted interest rate, then it will have to increase the money supply when the demand for money
increases as income increases.

Accepted Answer

A) True 
 B)False

Question 4

Federal Reserve Notes in circulation are

Accepted Answer

A)  an asset as viewed by the Federal Reserve Banks. 
B)  a liability as viewed by the Federal Reserve Banks. 
C)  neither an asset nor a liability as viewed by the Federal Reserve Banks. 
D)  part of M1 but not of M2. 
A)  an asset as viewed by the Federal Reserve Banks. 
B)  a liability as viewed by the Federal Reserve Banks. 
C)  neither an asset nor a liability as viewed by the Federal Reserve Banks. 
D)  part of M1 but not of M2.

Question 5

Refer to the diagram of the market for money. The equilibrium interest rate is

Accepted Answer

A)  $I_1.$ 
B)  $I _ { 2 }$ 
C)  $I_ { 3 }$ 
D)  not determinable without additional information. 
A)  $I_1.$ 
B)  $I _ { 2 }$ 
C)  $I_ { 3 }$ 
D)  not determinable without additional information.

Question 6

The most frequently used instrument of the Federal Reserve System to control the money supply is the required reserve ratio.

Accepted Answer

A) True 
 B)False

Question 7

The interest rate at which the Federal Reserve Banks lend to commercial banks is called the

Accepted Answer

A)  prime rate. 
B)  short-term rate. 
C)  discount rate. 
D)  federal funds rate. 
A)  prime rate. 
B)  short-term rate. 
C)  discount rate. 
D)  federal funds rate.

Question 8

If the quantity of money demanded exceeds the quantity supplied,

Accepted Answer

A)  the supply-of-money curve will shift to the left. 
B)  the demand-for-money curve will shift to the right. 
C)  the interest rate will rise. 
D)  the interest rate will fall. 
A)  the supply-of-money curve will shift to the left. 
B)  the demand-for-money curve will shift to the right. 
C)  the interest rate will rise. 
D)  the interest rate will fall.

Question 9

The Federal Reserve Banks buy government securities from commercial banks. As a result, the checkable deposits

Accepted Answer

A)  of commercial banks are unchanged, but their reserves increase. 
B)  and reserves of commercial banks both decrease. 
C)  of commercial banks are unchanged, but their reserves decrease. 
D)  and reserves of commercial banks are both unchanged. 
A)  of commercial banks are unchanged, but their reserves increase. 
B)  and reserves of commercial banks both decrease. 
C)  of commercial banks are unchanged, but their reserves decrease. 
D)  and reserves of commercial banks are both unchanged.

Question 10

(Advanced analysis) Assume the equation for the total demand for money is L = 0.4Y + 80 − 4i, where L is the amount of money demanded, Y is gross domestic product, and i is the interest rate. If gross domestic product is $200 and the interest rate is 10 (percent),
What amount of money will society want to hold?

Accepted Answer

A)  $200 
B)  $120 
C)  $320 
D)  $160 
A)  $200 
B)  $120 
C)  $320 
D)  $160

Question 11

The asset demand for money

Accepted Answer

A)  is unrelated to both the interest rate and the level of GDP. 
B)  varies inversely with the rate of interest. 
C)  varies inversely with the level of real GDP. 
D)  varies directly with the level of nominal GDP. 
A)  is unrelated to both the interest rate and the level of GDP. 
B)  varies inversely with the rate of interest. 
C)  varies inversely with the level of real GDP. 
D)  varies directly with the level of nominal GDP.

Question 12

An interesting development that happened in late 2008, relating to the Fed and bank reserves, was that the Fed

Accepted Answer

A)  reduced the reserve ratio drastically. 
B)  required banks to hold more excess reserves. 
C)  started paying interest on the banks' reserves. 
D)  gave back all the reserves to the banks to hold as vault cash. 
A)  reduced the reserve ratio drastically. 
B)  required banks to hold more excess reserves. 
C)  started paying interest on the banks' reserves. 
D)  gave back all the reserves to the banks to hold as vault cash.

Question 13

Deﬁne the Taylor rule.

Accepted Answer

The Taylor rule is a monetary rule propo

Question 14

Which of the following is a tool of monetary policy?

Accepted Answer

A)  open-market operations 
B)  changes in banking laws 
C)  changes in tax rates 
D)  changes in government spending 
A)  open-market operations 
B)  changes in banking laws 
C)  changes in tax rates 
D)  changes in government spending

Question 15

One new element of the Fed's open market operations is the use of government securities as collateral for loans to banks and other
ﬁnancial institutions.

Accepted Answer

A) True 
 B)False

Question 16

Which of the monetary policy tools can alter both the level of excess reserves and the money multiplier?

Accepted Answer

A)  open-market operations 
B)  the reserve ratio 
C)  the discount rate 
D)  the federal funds rate 
A)  open-market operations 
B)  the reserve ratio 
C)  the discount rate 
D)  the federal funds rate

Question 17

Accepted Answer

A)  decrease aggregate demand by increasing the interest rate from 2 to 4 percent. 
B)  decrease aggregate demand by increasing the interest rate from 4 to 6 percent. 
C)  increase aggregate demand by decreasing the interest rate from 4 to 2 percent. 
D)  increase the level of investment spending from $120 billion to $150 billion. 
A)  decrease aggregate demand by increasing the interest rate from 2 to 4 percent. 
B)  decrease aggregate demand by increasing the interest rate from 4 to 6 percent. 
C)  increase aggregate demand by decreasing the interest rate from 4 to 2 percent. 
D)  increase the level of investment spending from $120 billion to $150 billion.

Question 18

If bond prices decrease, then the

Accepted Answer

A)  interest rate decreases. 
B)  interest rate increases. 
C)  transactions demand for money will decrease. 
D)  transactions demand for money will increase. 
A)  interest rate decreases. 
B)  interest rate increases. 
C)  transactions demand for money will decrease. 
D)  transactions demand for money will increase.

Question 19

An expansionary monetary policy may be frustrated if the

Accepted Answer

A)  demand-for-money curve shifts to the right. 
B)  investment-demand curve shifts to the left. 
C)  saving schedule shifts downward. 
D)  investment-demand curve shifts to the right. 
A)  demand-for-money curve shifts to the right. 
B)  investment-demand curve shifts to the left. 
C)  saving schedule shifts downward. 
D)  investment-demand curve shifts to the right.

Question 20

Accepted Answer

A)  increase the interest rate from 4 percent to 6 percent. 
B)  decrease the interest rate from 4 percent to 2 percent. 
C)  increase investment spending by $20 billion. 
D)  maintain the interest rate at 4 percent. 
A)  increase the interest rate from 4 percent to 6 percent. 
B)  decrease the interest rate from 4 percent to 2 percent. 
C)  increase investment spending by $20 billion. 
D)  maintain the interest rate at 4 percent.

A liquidity trap occurs when the Federal Reserve reduces reserves in the system, choking off aggregate demand.

The commercial banking system borrows from the Federal Reserve Banks. As a result, the checkable deposits

If the Fed seeks to maintain a ﬁxed targeted interest rate, then it will have to increase the money supply when the demand for money increases as income increases.

Federal Reserve Notes in circulation are

Refer to the diagram of the market for money. The equilibrium interest rate is

The most frequently used instrument of the Federal Reserve System to control the money supply is the required reserve ratio.

The interest rate at which the Federal Reserve Banks lend to commercial banks is called the

If the quantity of money demanded exceeds the quantity supplied,

The Federal Reserve Banks buy government securities from commercial banks. As a result, the checkable deposits

The asset demand for money

An interesting development that happened in late 2008, relating to the Fed and bank reserves, was that the Fed

Deﬁne the Taylor rule.

Which of the following is a tool of monetary policy?

One new element of the Fed's open market operations is the use of government securities as collateral for loans to banks and other ﬁnancial institutions.

Which of the monetary policy tools can alter both the level of excess reserves and the money multiplier?

If bond prices decrease, then the

An expansionary monetary policy may be frustrated if the

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 liquidity trap occurs when the Federal Reserve reduces reserves in the system, choking off aggregate demand.

The commercial banking system borrows from the Federal Reserve Banks. As a result, the checkable deposits

If the Fed seeks to maintain a ﬁxed targeted interest rate, then it will have to increase the money supply when the demand for money increases as income increases.

Federal Reserve Notes in circulation are

Refer to the diagram of the market for money. The equilibrium interest rate is

The most frequently used instrument of the Federal Reserve System to control the money supply is the required reserve ratio.

The interest rate at which the Federal Reserve Banks lend to commercial banks is called the

If the quantity of money demanded exceeds the quantity supplied,

The Federal Reserve Banks buy government securities from commercial banks. As a result, the checkable deposits

The asset demand for money

An interesting development that happened in late 2008, relating to the Fed and bank reserves, was that the Fed

Deﬁne the Taylor rule.

Which of the following is a tool of monetary policy?

One new element of the Fed's open market operations is the use of government securities as collateral for loans to banks and other ﬁnancial institutions.

Which of the monetary policy tools can alter both the level of excess reserves and the money multiplier?

If bond prices decrease, then the

An expansionary monetary policy may be frustrated if the

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