Exam 13: Monetary Policy

The President of which of the following district banks of the Fed is perpetually present on the Federal Open Market Committee?

To fix the foreign currency price of domestic currency below the free market equilibrium rate, a government must:

In the figure given below panel A represents money market equilibrium, panel B represents investment demand, and panel C represents equilibrium real GDP. Figure 13.3 -Refer to Figure 13.3. Other things equal, if real GDP is equal to $900 billion, then:

The figure given below depicts the equilibrium in the foreign exchange market. Figure 13.1 -Refer to Figure 13.1. Which of the following is most likely to cause equilibrium to change from point A to point D?

Each district bank of the Fed comprises of nine board of directors of which three are appointed by the:

If a depreciation of the British pound is to be prevented, the U.S. Federal Reserve has to buy British pounds and sell U.S. dollars.

Scenario 13.1 Assume the following conditions hold. a.At all banks, excess reserves are zero. b.The deposit expansion multiplier is 3. c.The investment spending function is as illustrated in the figure below. Now the Federal Reserve engages in an open market operation by purchasing $1 billion worth of government bonds from private bond dealers, who then deposit the $1 billion in the banks. This acts to lower the equilibrium interest rate by 2 percent. -Refer to Scenario 13.1. What is the change in required reserves following the open market operation by the Fed?

The "secondary credit" of the discount rate is usually lower than the "primary credit," because it is intended for banks in good financial condition.

To keep the U.S. dollar from depreciating against the euro, the U.S. Federal Reserve must:

Assume the economy is in equilibrium as illustrated by Figure 13.3. Based on the equation of exchange, what is the velocity of money?

Suppose a bank has $850 million in vault cash and a deposit in the Fed of $100 million. If the bank's required reserves equal $500 million, then the bank has excess reserves of:

The sale of U.S. currency and purchase of foreign currency by the Federal Reserve would shift the demand curve for U.S. dollars to the left.

If a bond pays a fixed return of $500 a year and the current interest rate has risen from 5 percent to 10 percent, then the bond price must have:

The interest rate represents the opportunity cost of holding non-monetary assets.

If M = quantity of money, V = velocity of money, P = price level, and Q = the quantity of output, then the equation of exchange will be defined as:

There is an inverse relationship between the interest rate and the quantity of money demanded.

An outward shift of the money demand function indicates an increase in the market rate of interest and hence a decrease in the level of investment in the economy.

If interest rates decrease:

An increase in nominal income will result in:

Scenario 13.2 Assume the following conditions hold. A)At all banks, excess reserves are zero. B)The deposit expansion multiplier is 3. C)The spending multiplier is 5. D)The initial equilibrium level of national income is $500 billion. E)The initial equilibrium interest rate equals 6 percent. F)The investment spending function is as illustrated in the figure below. Now the Federal Reserve engages in an open market operation by purchasing $1 billion worth of government bonds from private bond dealers, who then deposit the $1 billion in the banks. This acts to lower the equilibrium interest rate by 2 percent. -Refer to Scenario 13.2. What is the change in investment spending following the open market operation by the Fed?