Question 1

According to the Taylor rule, when the economy is at full employment and inﬂation is at its target rate of 2 percent, the Fed should

Accepted Answer

A)  carefully lower the federal funds rate in an attempt to stimulate noninﬂationary real GDP growth. 
B)  raise the federal funds rate in an attempt to eliminate the remaining inﬂation. 
C)  lower the federal funds rate to lower borrowing costs for the federal government. 
D)  keep their targeted interest rate at 4 percent. 
A)  carefully lower the federal funds rate in an attempt to stimulate noninﬂationary real GDP growth. 
B)  raise the federal funds rate in an attempt to eliminate the remaining inﬂation. 
C)  lower the federal funds rate to lower borrowing costs for the federal government. 
D)  keep their targeted interest rate at 4 percent.

Question 2

According to the Taylor rule, if the inﬂation rate is one percentage point below the target of 2 percent but at full employment, 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

The largest asset item in the Federal Reserve Banks' consolidated balance sheet (as of February 2019) is

Accepted Answer

A)  loans to commercial banks. 
B)  Federal Reserve notes. 
C)  Treasury deposits. 
D)  securities. 
A)  loans to commercial banks. 
B)  Federal Reserve notes. 
C)  Treasury deposits. 
D)  securities.

Question 4

The largest single liability of the Federal Reserve Banks is their outstanding loans to commercial banks.

Accepted Answer

A) True 
 B)False

Question 5

Monetary policy is expected to have its greatest impact on

Accepted Answer

A)  $x _ { r r }$ 
B)  $\text { Ig }$ 
C)  C. 
D)  G. 
A)  $x _ { r r }$ 
B)  $\text { Ig }$ 
C)  C. 
D)  G.

Question 6

An increase in the money supply is likely to reduce

Accepted Answer

A)  the general price level. 
B)  nominal income. 
C)  money demand. 
D)  interest rates. 
A)  the general price level. 
B)  nominal income. 
C)  money demand. 
D)  interest rates.

Question 7

The price of a bond with no expiration date is $1,000, and the ﬁxed annual interest payment is $100. If the price of the bond falls to
$800, the interest rate to a new buyer of the bond is now 20 percent.

Accepted Answer

A) True 
 B)False

Question 8

Accepted Answer

A)  increase the money supply from $80 to $100. 
B)  increase the money supply from $80 to $120. 
C)  maintain the money supply at $80. 
D)  decrease the money supply from $80 to $60. 
A)  increase the money supply from $80 to $100. 
B)  increase the money supply from $80 to $120. 
C)  maintain the money supply at $80. 
D)  decrease the money supply from $80 to $60.

Question 9

Accepted Answer

A)  C 
B)  D 
C)  G 
D)  I 
A)  C 
B)  D 
C)  G 
D)  I

Question 10

Lowering the discount rate has the effect of

Accepted Answer

A)  turning required into excess reserves. 
B)  turning excess into required reserves. 
C)  making it less expensive for commercial banks to borrow from central banks. 
D)  forcing commercial banks to call in outstanding loans from their best customers. 
A)  turning required into excess reserves. 
B)  turning excess into required reserves. 
C)  making it less expensive for commercial banks to borrow from central banks. 
D)  forcing commercial banks to call in outstanding loans from their best customers.

Question 11

Restrictive monetary policy since the mortgage debt crisis

Accepted Answer

A)  has been aggressively implemented to stop inﬂationary pressure fueled by quantitative easing. 
B)  has raised interest rates back to pre-ﬁnancial crisis levels. 
C)  has mainly been attempts to "normalize" monetary policy by paying interest on excess reserves and starting QT, quantitative tightening. 
D)  has been limited by the zero lower bound problem. 
A)  has been aggressively implemented to stop inﬂationary pressure fueled by quantitative easing. 
B)  has raised interest rates back to pre-ﬁnancial crisis levels. 
C)  has mainly been attempts to "normalize" monetary policy by paying interest on excess reserves and starting QT, quantitative tightening. 
D)  has been limited by the zero lower bound problem.

Question 12

An increase in the legal reserve ratio

Accepted Answer

A)  increases the money supply by increasing excess reserves and increasing the monetary multiplier. 
B)  decreases the money supply by decreasing excess reserves and decreasing the monetary multiplier. 
C)  increases the money supply by decreasing excess reserves and decreasing the monetary multiplier. 
D)  decreases the money supply by increasing excess reserves and decreasing the monetary multiplier. 
A)  increases the money supply by increasing excess reserves and increasing the monetary multiplier. 
B)  decreases the money supply by decreasing excess reserves and decreasing the monetary multiplier. 
C)  increases the money supply by decreasing excess reserves and decreasing the monetary multiplier. 
D)  decreases the money supply by increasing excess reserves and decreasing the monetary multiplier.

Question 13

Assume that the MPC is 0.75 and that the price level is "sticky." If the Federal Reserve increases the money supply and investment spending increases by $8 billion, then aggregate demand is likely to

Accepted Answer

A)  increase by $6 billion. 
B)  increase by $8 billion. 
C)  increase by $32 billion. 
D)  decrease by $8 billion. 
A)  increase by $6 billion. 
B)  increase by $8 billion. 
C)  increase by $32 billion. 
D)  decrease by $8 billion.

Question 14

An increase in the money supply will

Accepted Answer

A)  lower interest rates and lower the equilibrium GDP. 
B)  lower interest rates and increase the equilibrium GDP. 
C)  increase interest rates and increase the equilibrium GDP. 
D)  increase interest rates and lower the equilibrium GDP. 
A)  lower interest rates and lower the equilibrium GDP. 
B)  lower interest rates and increase the equilibrium GDP. 
C)  increase interest rates and increase the equilibrium GDP. 
D)  increase interest rates and lower the equilibrium GDP.

Question 15

The discount rate is the interest

Accepted Answer

A)  rate at which the central banks lend to the U.S. Treasury. 
B)  rate at which the Federal Reserve Banks lend to commercial banks. 
C)  yield on long-term government bonds. 
D)  rate at which commercial banks lend to the public. 
A)  rate at which the central banks lend to the U.S. Treasury. 
B)  rate at which the Federal Reserve Banks lend to commercial banks. 
C)  yield on long-term government bonds. 
D)  rate at which commercial banks lend to the public.

Question 16

Why is the money demand curve downsloping?

Accepted Answer

The total money demand curve consists of

Question 17

Accepted Answer

A)  increase the money supply from $75 to $150 billion 
B)  increase the money supply from $150 to $225 billion 
C)  decrease the money supply from $225 to $150 billion 
D)  make no change in the money supply 
A)  increase the money supply from $75 to $150 billion 
B)  increase the money supply from $150 to $225 billion 
C)  decrease the money supply from $225 to $150 billion 
D)  make no change in the money supply

Question 18

When the Fed sells government securities in the open market, its intent is to try to increase aggregate demand.

Accepted Answer

A) True 
 B)False

Question 19

Assume the legal reserve ratio is 25 percent and the Fourth National Bank borrows $10,000 from the Federal Reserve Bank in its district. As a result,

Accepted Answer

A)  commercial bank reserves are increased by $10,000. 
B)  the supply of money automatically declines by $7,500. 
C)  commercial bank reserves are increased by $7,500. 
D)  the supply of money is automatically increased by $10,000. 
A)  commercial bank reserves are increased by $10,000. 
B)  the supply of money automatically declines by $7,500. 
C)  commercial bank reserves are increased by $7,500. 
D)  the supply of money is automatically increased by $10,000.

Question 20

Prior to the mortgage debt crisis, the most frequently employed monetary policy tool was

Accepted Answer

A)  raising the reserve ratio. 
B)  open-market operations. 
C)  raising the discount rate. 
D)  raising the prime interest rate. 
A)  raising the reserve ratio. 
B)  open-market operations. 
C)  raising the discount rate. 
D)  raising the prime interest rate.

According to the Taylor rule, when the economy is at full employment and inﬂation is at its target rate of 2 percent, the Fed should

According to the Taylor rule, if the inﬂation rate is one percentage point below the target of 2 percent but at full employment, then the Fed should

The largest asset item in the Federal Reserve Banks' consolidated balance sheet (as of February 2019) is

The largest single liability of the Federal Reserve Banks is their outstanding loans to commercial banks.

Monetary policy is expected to have its greatest impact on

An increase in the money supply is likely to reduce

The price of a bond with no expiration date is $1,000, and the ﬁxed annual interest payment is $100. If the price of the bond falls to $800, the interest rate to a new buyer of the bond is now 20 percent.

Lowering the discount rate has the effect of

Restrictive monetary policy since the mortgage debt crisis

An increase in the legal reserve ratio

Assume that the MPC is 0.75 and that the price level is "sticky." If the Federal Reserve increases the money supply and investment spending increases by $8 billion, then aggregate demand is likely to

An increase in the money supply will

The discount rate is the interest

Why is the money demand curve downsloping?

When the Fed sells government securities in the open market, its intent is to try to increase aggregate demand.

Assume the legal reserve ratio is 25 percent and the Fourth National Bank borrows $10,000 from the Federal Reserve Bank in its district. As a result,

Prior to the mortgage debt crisis, the most frequently employed monetary policy tool was

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

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Exam 16: Interest Rates and Monetary Policy

According to the Taylor rule, when the economy is at full employment and inﬂation is at its target rate of 2 percent, the Fed should

According to the Taylor rule, if the inﬂation rate is one percentage point below the target of 2 percent but at full employment, then the Fed should

The largest asset item in the Federal Reserve Banks' consolidated balance sheet (as of February 2019) is

The largest single liability of the Federal Reserve Banks is their outstanding loans to commercial banks.

Monetary policy is expected to have its greatest impact on

An increase in the money supply is likely to reduce

The price of a bond with no expiration date is $1,000, and the ﬁxed annual interest payment is $100. If the price of the bond falls to $800, the interest rate to a new buyer of the bond is now 20 percent.

Lowering the discount rate has the effect of

Restrictive monetary policy since the mortgage debt crisis

An increase in the legal reserve ratio

Assume that the MPC is 0.75 and that the price level is "sticky." If the Federal Reserve increases the money supply and investment spending increases by $8 billion, then aggregate demand is likely to

An increase in the money supply will

The discount rate is the interest

Why is the money demand curve downsloping?

When the Fed sells government securities in the open market, its intent is to try to increase aggregate demand.

Assume the legal reserve ratio is 25 percent and the Fourth National Bank borrows $10,000 from the Federal Reserve Bank in its district. As a result,

Prior to the mortgage debt crisis, the most frequently employed monetary policy tool was

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