Question 1

The Federal Reserve adheres strictly to the Taylor rule when formulating monetary policy.

Accepted Answer

A) True 
 B)False

Question 2

The reserves of commercial banks are assets to commercial banks and liabilities of the Federal Reserve System.

Accepted Answer

A) True 
 B)False

Question 3

Other things equal, an increase in productivity will

Accepted Answer

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

Question 4

The transactions demand for money is least likely to be a function of the

Accepted Answer

A)  price level. 
B)  interest rate. 
C)  level of national income. 
D)  frequency of wage and salary payments. 
A)  price level. 
B)  interest rate. 
C)  level of national income. 
D)  frequency of wage and salary payments.

Question 5

$$\begin{array} { | c | c | c | c | } 
\hline \text { Interest Rate } & \begin{array} { c } 
\text { Transactions Demand for } \
\text { Money }
\end{array} & \begin{array} { c } 
\text { Asset Demand for } \
\text { Money }
\end{array} &Money~Supply\
\hline 2 \% & \$ 220 & \$ 300 & \$ 460 \
\hline 4 & 220 & 280 & 460 \
\hline 6 & 220 & 260 & 460 \
\hline 8 & 220 & 240 & 460 \
\hline 10 & 220 & 220 & 460 \
\hline
\end{array}$$ Based on the given table, at equilibrium in the given market for money, the total amount of money demanded is

Accepted Answer

A)  $500. 
B)  $480. 
C)  $460. 
D)  $440. 
A)  $500. 
B)  $480. 
C)  $460. 
D)  $440.

Question 6

A money loan is said to be collateralized when

Accepted Answer

A)  an asset is pledged by the borrower to the lender in case of default. 
B)  the borrower pays periodic repayments of principal plus interest to the lender. 
C)  the loan is used to purchase a capital asset. 
D)  interest on the loan is compounded on an annual basis. 
A)  an asset is pledged by the borrower to the lender in case of default. 
B)  the borrower pays periodic repayments of principal plus interest to the lender. 
C)  the loan is used to purchase a capital asset. 
D)  interest on the loan is compounded on an annual basis.

Question 7

The ZIRP (zero interest rate policy) of the Fed led to the so-called zero lower bound problem, which refers to the problem of

Accepted Answer

A)  having a very low level of employment with zero new jobs created. 
B)  huge budget deﬁcits leaving the government no more ability to spend. 
C)  interest rates that can't go any lower, i.e., they cannot be driven down below zero. 
D)  zero real-GDP growth due to very weak aggregate demand. 
A)  having a very low level of employment with zero new jobs created. 
B)  huge budget deﬁcits leaving the government no more ability to spend. 
C)  interest rates that can't go any lower, i.e., they cannot be driven down below zero. 
D)  zero real-GDP growth due to very weak aggregate demand.

Question 8

Since the ﬁnancial crisis of 2008, the main tool of expansionary monetary policy used by the Fed has been

Accepted Answer

A)  changes in reserve requirements. 
B)  quantitative easing. 
C)  tariffs and fees. 
D)  too-big-to-fail. 
A)  changes in reserve requirements. 
B)  quantitative easing. 
C)  tariffs and fees. 
D)  too-big-to-fail.

Question 9

$$\begin{array} { | l | r | } 
\hline { \text { Item in Balance Sheet } } & \text { Amount } \
\hline \text { 1) Treasury Deposits } & \$ 7 \
\hline \text { 2) Reserves of Commercial Banks } & 31 \
\hline \text { 3) Federal Reserve Notes } & 275 \
\hline \text { 4) Loans to Commercial Banks } & 1 \
\hline \text { 5) All Other Assets } & 64 \
\hline \text { 6) Securities } & 255 \
\hline \text { 7) All Other Liabilities and Net Worth } & 7 \
\hline
\end{array}$$ The table shows items and ?gures taken from a consolidated balance sheet of the 12 Federal Reserve Banks. All ?gures are in billions of dollars. In this balance sheet, the assets would be items 5 and

Accepted Answer

A)  1 and 2. 
B)  2 and 3. 
C)  3 and 4. 
D)  4 and 6. 
A)  1 and 2. 
B)  2 and 3. 
C)  3 and 4. 
D)  4 and 6.

Question 10

Which of the following would most likely result from the Fed imposing negative nominal interest rates in response to a ﬁnancial crisis and recession?

Accepted Answer

A)  The negative interest rates would stimulate massive borrowing and spending, triggering rapid inﬂation in the short term. 
B)  It would signal trouble to ﬁnancial markets, causing people to deposit more money in banks to enhance feelings of ﬁnancial security. 
C)  Banks would freeze customer accounts so that they couldn't withdraw money, inciting ﬁnancial panic. 
D)  Customers would withdraw deposits, banks would have less money to lend, and the money supply and aggregate demand would both fall. 
A)  The negative interest rates would stimulate massive borrowing and spending, triggering rapid inﬂation in the short term. 
B)  It would signal trouble to ﬁnancial markets, causing people to deposit more money in banks to enhance feelings of ﬁnancial security. 
C)  Banks would freeze customer accounts so that they couldn't withdraw money, inciting ﬁnancial panic. 
D)  Customers would withdraw deposits, banks would have less money to lend, and the money supply and aggregate demand would both fall.

Question 11

The Fed's response to the zero lower bound problem was

Accepted Answer

A)  to raise the lower bound. 
B)  quantitative easing. 
C)  to lower the reserve ratio. 
D)  restrictive monetary policy. 
A)  to raise the lower bound. 
B)  quantitative easing. 
C)  to lower the reserve ratio. 
D)  restrictive monetary policy.

Question 12

Bond prices and interest rates are directly or positively related.

Accepted Answer

A) True 
 B)False

Question 13

Beginning in 2008, the Fed was allowed to

Accepted Answer

A)  lend directly to consumers. 
B)  alter tax rates. 
C)  pay interest on excess reserves deposited at Fed banks. 
D)  require commercial banks to loan a certain percentage of their excess reserves. 
A)  lend directly to consumers. 
B)  alter tax rates. 
C)  pay interest on excess reserves deposited at Fed banks. 
D)  require commercial banks to loan a certain percentage of their excess reserves.

Question 14

If the Federal Reserve System buys government securities from commercial banks and the public,

Accepted Answer

A)  commercial bank reserves will decline. 
B)  commercial bank reserves will be unaffected. 
C)  it will be easier to obtain loans at commercial banks. 
D)  the money supply will contract. 
A)  commercial bank reserves will decline. 
B)  commercial bank reserves will be unaffected. 
C)  it will be easier to obtain loans at commercial banks. 
D)  the money supply will contract.

Question 15

The sale of government bonds by the Federal Reserve Banks to commercial banks will

Accepted Answer

A)  increase aggregate supply. 
B)  decrease aggregate supply. 
C)  increase aggregate demand. 
D)  decrease aggregate demand. 
A)  increase aggregate supply. 
B)  decrease aggregate supply. 
C)  increase aggregate demand. 
D)  decrease aggregate demand.

Question 16

In a repo (or repurchase agreement), if the Fed buys securities from Firm A with an agreement that Firm A will buy back the securities
from the Fed on the following day, then the Fed is acting as the lender and Firm A the borrower.

Accepted Answer

A) True 
 B)False

Question 17

The interest rate will fall when the

Accepted Answer

A)  quantity of money demanded exceeds the quantity of money supplied. 
B)  quantity of money supplied exceeds the quantity of money demanded. 
C)  demand for money increases. 
D)  supply of money decreases. 
A)  quantity of money demanded exceeds the quantity of money supplied. 
B)  quantity of money supplied exceeds the quantity of money demanded. 
C)  demand for money increases. 
D)  supply of money decreases.

Question 18

Describe how the usefulness of the federal funds rate has changed from before the ﬁnancial crisis to after.

Accepted Answer

Targeting the federal funds rate is not

Question 19

A restrictive monetary policy may be frustrated if the investment-demand curve shifts to the left.

Accepted Answer

A) True 
 B)False

Question 20

The purpose of a restrictive monetary policy is to

Accepted Answer

A)  alleviate recessions. 
B)  raise interest rates and restrict the availability of bank credit. 
C)  increase aggregate demand and GDP. 
D)  increase investment spending. 
A)  alleviate recessions. 
B)  raise interest rates and restrict the availability of bank credit. 
C)  increase aggregate demand and GDP. 
D)  increase investment spending.

The Federal Reserve adheres strictly to the Taylor rule when formulating monetary policy.

The reserves of commercial banks are assets to commercial banks and liabilities of the Federal Reserve System.

Other things equal, an increase in productivity will

The transactions demand for money is least likely to be a function of the

Interest Rate Transactions Demand for Money Asset Demand for Money Money\nobreakspaceSupply 2\% \ 220 \ 300 \ 460 4 220 280 460 6 220 260 460 8 220 240 460 10 220 220 460 Based on the given table, at equilibrium in the given market for money, the total amount of money demanded is

A money loan is said to be collateralized when

The ZIRP (zero interest rate policy) of the Fed led to the so-called zero lower bound problem, which refers to the problem of

Since the ﬁnancial crisis of 2008, the main tool of expansionary monetary policy used by the Fed has been

Which of the following would most likely result from the Fed imposing negative nominal interest rates in response to a ﬁnancial crisis and recession?

The Fed's response to the zero lower bound problem was

Bond prices and interest rates are directly or positively related.

Beginning in 2008, the Fed was allowed to

If the Federal Reserve System buys government securities from commercial banks and the public,

The sale of government bonds by the Federal Reserve Banks to commercial banks will

In a repo (or repurchase agreement), if the Fed buys securities from Firm A with an agreement that Firm A will buy back the securities from the Fed on the following day, then the Fed is acting as the lender and Firm A the borrower.

The interest rate will fall when the

Describe how the usefulness of the federal funds rate has changed from before the ﬁnancial crisis to after.

A restrictive monetary policy may be frustrated if the investment-demand curve shifts to the left.

The purpose of a restrictive monetary policy is 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 Federal Reserve adheres strictly to the Taylor rule when formulating monetary policy.

The reserves of commercial banks are assets to commercial banks and liabilities of the Federal Reserve System.

Other things equal, an increase in productivity will

The transactions demand for money is least likely to be a function of the

Interest Rate Transactions Demand for Money Asset Demand for Money Money\nobreakspaceSupply 2\% \ 220 \ 300 \ 460 4 220 280 460 6 220 260 460 8 220 240 460 10 220 220 460 Based on the given table, at equilibrium in the given market for money, the total amount of money demanded is

A money loan is said to be collateralized when

The ZIRP (zero interest rate policy) of the Fed led to the so-called zero lower bound problem, which refers to the problem of

Since the ﬁnancial crisis of 2008, the main tool of expansionary monetary policy used by the Fed has been

Which of the following would most likely result from the Fed imposing negative nominal interest rates in response to a ﬁnancial crisis and recession?

The Fed's response to the zero lower bound problem was

Bond prices and interest rates are directly or positively related.

Beginning in 2008, the Fed was allowed to

If the Federal Reserve System buys government securities from commercial banks and the public,

The sale of government bonds by the Federal Reserve Banks to commercial banks will

In a repo (or repurchase agreement), if the Fed buys securities from Firm A with an agreement that Firm A will buy back the securities from the Fed on the following day, then the Fed is acting as the lender and Firm A the borrower.

The interest rate will fall when the

Describe how the usefulness of the federal funds rate has changed from before the ﬁnancial crisis to after.

A restrictive monetary policy may be frustrated if the investment-demand curve shifts to the left.

The purpose of a restrictive monetary policy is 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