Question 1

The discount rate is the rate of interest at which

Accepted Answer

A)  Federal Reserve Banks lend to commercial banks. 
B)  savings and loan associations lend to some builders. 
C)  Federal Reserve Banks lend to large corporations. 
D)  commercial banks lend to large corporations. 
A)  Federal Reserve Banks lend to commercial banks. 
B)  savings and loan associations lend to some builders. 
C)  Federal Reserve Banks lend to large corporations. 
D)  commercial banks lend to large corporations.

Question 2

What are the two reasons that people want to hold money? In other words, what are the two types of demand for money?

Accepted Answer

One reason people want to hold money is

Question 3

Accepted Answer

A)  decrease the reserve ratio 
B)  decrease the discount rate 
C)  sell government securities in the open market 
D)  make no change in monetary policy 
A)  decrease the reserve ratio 
B)  decrease the discount rate 
C)  sell government securities in the open market 
D)  make no change in monetary policy

Question 4

In a repo transaction, the Fed _______ money; in a reverse repo transaction, the Fed _______ money.

Accepted Answer

A)  borrows; loans 
B)  loans; borrows 
C)  prints new; destroys 
D)  destroys; prints new 
A)  borrows; loans 
B)  loans; borrows 
C)  prints new; destroys 
D)  destroys; prints new

Question 5

A decrease in the reserve ratio increases the

Accepted Answer

A)  amount of actual reserves in the banking system. 
B)  amount of excess reserves in the banking system. 
C)  number of government securities held by the Federal Reserve Banks. 
D)  ratio of coins to paper currency in the economy. 
A)  amount of actual reserves in the banking system. 
B)  amount of excess reserves in the banking system. 
C)  number of government securities held by the Federal Reserve Banks. 
D)  ratio of coins to paper currency in the economy.

Question 6

Which of the following statements about quantitative easing (or "QE") and open-market purchase is true?

Accepted Answer

A)  QE is similar to open-market purchase in that both are aimed at reducing short-term interest rates in the economy. 
B)  QE is different from open-market purchase in that QE involves not just T-bonds but also bonds issued by other government agencies and government-backed corporations. 
C)  QE is done by the U.S. Treasury, whereas open-market purchase is done by the Federal Reserve System. 
D)  QE has to have Congressional approval, whereas open-market purchase does not. 
A)  QE is similar to open-market purchase in that both are aimed at reducing short-term interest rates in the economy. 
B)  QE is different from open-market purchase in that QE involves not just T-bonds but also bonds issued by other government agencies and government-backed corporations. 
C)  QE is done by the U.S. Treasury, whereas open-market purchase is done by the Federal Reserve System. 
D)  QE has to have Congressional approval, whereas open-market purchase does not.

Question 7

Assume that the required reserve ratio is 20 percent. If the Federal Reserve buys $80 million in government securities from the general public, then the money supply will immediately

Accepted Answer

A)  increase by $0 with this transaction, and the maximum money-lending potential of the commercial banking system will increase by $400 million. 
B)  increase by $0 with this transaction, but the maximum money-lending potential of the commercial banking system will increase by $320 million. 
C)  increase by $80 million with this transaction, and the maximum money-lending potential of the commercial banking system will increase by another $400 million. 
D)  increase by $80 million with this transaction, and the maximum money-lending potential of the commercial banking system will increase by another $320 million. 
A)  increase by $0 with this transaction, and the maximum money-lending potential of the commercial banking system will increase by $400 million. 
B)  increase by $0 with this transaction, but the maximum money-lending potential of the commercial banking system will increase by $320 million. 
C)  increase by $80 million with this transaction, and the maximum money-lending potential of the commercial banking system will increase by another $400 million. 
D)  increase by $80 million with this transaction, and the maximum money-lending potential of the commercial banking system will increase by another $320 million.

Question 8

It is inconceivable and impossible for a central bank to pursue a negative-interest rate policy because interest rates simply cannot turn
negative.

Accepted Answer

A) True 
 B)False

Question 9

The asset 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 10

A change in the reserve ratio will affect both the amount of the banking system's excess reserves and the multiple by which the system
can lend based on excess reserves.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following Fed actions will decrease the money supply?

Accepted Answer

A)  reverse repos 
B)  repos 
C)  open-market purchases of bonds 
D)  raising taxes 
A)  reverse repos 
B)  repos 
C)  open-market purchases of bonds 
D)  raising taxes

Question 12

The major advantages of monetary policy include its ﬂexibility, speed, and political palatability.

Accepted Answer

A) True 
 B)False

Question 13

In traditional (before 2008) analysis, an autonomous increase in investment spending when the economy is at full employment will
cause the Fed to seek a lower target for the federal funds rate by buying securities in the open market.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is the most accurate description of events when monetary authorities increase the size of commercial banks' excess reserves?

Accepted Answer

A)  A fall in interest rates decreases the money supply, causing an increase in investment spending, output, and employment. 
B)  A rise in interest rates increases the money supply, causing a decrease in investment spending, output, and employment. 
C)  The money supply is decreased, which increases the interest rate and causes investment spending, output, and employment to decrease. 
D)  The money supply is increased, which decreases the interest rate and causes investment spending, output, and employment to increase. 
A)  A fall in interest rates decreases the money supply, causing an increase in investment spending, output, and employment. 
B)  A rise in interest rates increases the money supply, causing a decrease in investment spending, output, and employment. 
C)  The money supply is decreased, which increases the interest rate and causes investment spending, output, and employment to decrease. 
D)  The money supply is increased, which decreases the interest rate and causes investment spending, output, and employment to increase.

Question 15

The total demand for money curve will shift to the right as a result of

Accepted Answer

A)  an increase in nominal GDP. 
B)  an increase in the interest rate. 
C)  a decline in the interest rate. 
D)  a decline in nominal GDP. 
A)  an increase in nominal GDP. 
B)  an increase in the interest rate. 
C)  a decline in the interest rate. 
D)  a decline in nominal GDP.

Question 16

Which of the following statements is most accurate about the Fed's zero interest rate policy (ZIRP)?

Accepted Answer

A)  The Fed has abandoned the ZIRP, recognizing the need to reduce nominal interest rates to below zero. 
B)  As of 2016, the ZIRP is being pursued by the Fed. 
C)  It ended in late 2015, with the Fed increasing the IOER and engaging in reverse repo transactions. 
D)  In an effort to end the ZIRP, the Fed prohibited nonbank lending to banks. 
A)  The Fed has abandoned the ZIRP, recognizing the need to reduce nominal interest rates to below zero. 
B)  As of 2016, the ZIRP is being pursued by the Fed. 
C)  It ended in late 2015, with the Fed increasing the IOER and engaging in reverse repo transactions. 
D)  In an effort to end the ZIRP, the Fed prohibited nonbank lending to banks.

Question 17

If the monetary authorities wished to rein in inﬂation, they would buy government securities in the open market.

Accepted Answer

A) True 
 B)False

Question 18

When the Fed loans money in exchange for government bonds being posted as collateral, this is known as a

Accepted Answer

A)  mortgage-backed security. 
B)  Federal Reserve note. 
C)  repo. 
D)  credit default swap. 
A)  mortgage-backed security. 
B)  Federal Reserve note. 
C)  repo. 
D)  credit default swap.

Question 19

When the Fed lends money to a commercial bank, the bank

Accepted Answer

A)  increases its reserves and enhances its ability to extend credit to bank customers. 
B)  decreases its reserves and reduces its ability to extend credit to bank customers. 
C)  pays the federal funds interest rate on the loan. 
D)  pays the prime interest rate on the loan. 
A)  increases its reserves and enhances its ability to extend credit to bank customers. 
B)  decreases its reserves and reduces its ability to extend credit to bank customers. 
C)  pays the federal funds interest rate on the loan. 
D)  pays the prime interest rate on the loan.

Question 20

Suppose the Federal Reserve Banks sell $2 billion of government bonds to the public, which pays for them by drawing checks. As a result, commercial bank reserves will

Accepted Answer

A)  increase by $10 billion. 
B)  remain unchanged. 
C)  decrease by $2 billion. 
D)  increase by $2 billion. 
A)  increase by $10 billion. 
B)  remain unchanged. 
C)  decrease by $2 billion. 
D)  increase by $2 billion.

The discount rate is the rate of interest at which

What are the two reasons that people want to hold money? In other words, what are the two types of demand for money?

In a repo transaction, the Fed _ money; in a reverse repo transaction, the Fed _ money.

A decrease in the reserve ratio increases the

Which of the following statements about quantitative easing (or "QE") and open-market purchase is true?

Assume that the required reserve ratio is 20 percent. If the Federal Reserve buys $80 million in government securities from the general public, then the money supply will immediately

It is inconceivable and impossible for a central bank to pursue a negative-interest rate policy because interest rates simply cannot turn negative.

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

A change in the reserve ratio will affect both the amount of the banking system's excess reserves and the multiple by which the system can lend based on excess reserves.

Which of the following Fed actions will decrease the money supply?

The major advantages of monetary policy include its ﬂexibility, speed, and political palatability.

In traditional (before 2008) analysis, an autonomous increase in investment spending when the economy is at full employment will cause the Fed to seek a lower target for the federal funds rate by buying securities in the open market.

Which of the following is the most accurate description of events when monetary authorities increase the size of commercial banks' excess reserves?

The total demand for money curve will shift to the right as a result of

Which of the following statements is most accurate about the Fed's zero interest rate policy (ZIRP)?

If the monetary authorities wished to rein in inﬂation, they would buy government securities in the open market.

When the Fed loans money in exchange for government bonds being posted as collateral, this is known as a

When the Fed lends money to a commercial bank, the bank

Suppose the Federal Reserve Banks sell $2 billion of government bonds to the public, which pays for them by drawing checks. As a result, commercial bank reserves will

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 discount rate is the rate of interest at which

What are the two reasons that people want to hold money? In other words, what are the two types of demand for money?

In a repo transaction, the Fed _______ money; in a reverse repo transaction, the Fed _______ money.

A decrease in the reserve ratio increases the

Which of the following statements about quantitative easing (or "QE") and open-market purchase is true?

Assume that the required reserve ratio is 20 percent. If the Federal Reserve buys $80 million in government securities from the general public, then the money supply will immediately

It is inconceivable and impossible for a central bank to pursue a negative-interest rate policy because interest rates simply cannot turn negative.

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

A change in the reserve ratio will affect both the amount of the banking system's excess reserves and the multiple by which the system can lend based on excess reserves.

Which of the following Fed actions will decrease the money supply?

The major advantages of monetary policy include its ﬂexibility, speed, and political palatability.

In traditional (before 2008) analysis, an autonomous increase in investment spending when the economy is at full employment will cause the Fed to seek a lower target for the federal funds rate by buying securities in the open market.

Which of the following is the most accurate description of events when monetary authorities increase the size of commercial banks' excess reserves?

The total demand for money curve will shift to the right as a result of

Which of the following statements is most accurate about the Fed's zero interest rate policy (ZIRP)?

If the monetary authorities wished to rein in inﬂation, they would buy government securities in the open market.

When the Fed loans money in exchange for government bonds being posted as collateral, this is known as a

When the Fed lends money to a commercial bank, the bank

Suppose the Federal Reserve Banks sell $2 billion of government bonds to the public, which pays for them by drawing checks. As a result, commercial bank reserves will

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

In a repo transaction, the Fed _ money; in a reverse repo transaction, the Fed _ money.