Question 1

The interest rate that banks pay for borrowing overnight from other banks is called:

Accepted Answer

A)  bank rate. 
B)  target rate. 
C)  federal funds rate. 
D)  real interest rate. 
E)  prime lending rate. 
A)  bank rate. 
B)  target rate. 
C)  federal funds rate. 
D)  real interest rate. 
E)  prime lending rate.

Question 2

The money supply function reflects a positive relationship between the interest rate and the quantity of money supplied.

Accepted Answer

A) True 
 B)False

Question 3

The sum of the coins and currencies in the bank's vault and its deposit in the Fed is called:

Accepted Answer

A)  vault cash. 
B)  transaction deposits. 
C)  legal reserves. 
D)  required reserves. 
E)  loanable funds. 
A)  vault cash. 
B)  transaction deposits. 
C)  legal reserves. 
D)  required reserves. 
E)  loanable funds.

Question 4

An individual who holds some of her wealth in the form of money in order to pay rent and buy groceries is illustrating the transactions demand for money.

Accepted Answer

A) True 
 B)False

Question 5

The bank rate is the interest rate charged by the commercial banks to its borrowers.

Accepted Answer

A) True 
 B)False

Question 6

Table 13.1
 $\begin{array}{c}
\text { Balance Sheet }\
\quad\quad\quad\text { Assets } \quad\quad\quad\quad\quad\quad\quad\quad \text { Liabilities }\
\begin{array}{|c|c|c|c|}
\hline\text { Vault Cash } & \$ 1,150 & \begin{array}{c}
\text { Checking } \
\text { Accounts }
\end{array} & \$ 11,300 \
\hline \begin{array}{c}
\text { Reserve } \
\text { Deposits }
\end{array} & \$ 1,650 & \text { Savings Accounts } & \$ 3,200 \
\hline \text { Loans } & \$ 11,700 & & \
\hline \text { Total Assets } & \$ 14,500 & \text { Total Liabilities } & \$ 14,500\
\hline
\end{array}\end{array}$

Assume that this is the balance sheet of the only bank in this economy and that the money supply is entirely kept by the bank in either a checking or a savings account.
-Refer to Table 13.1. Given a reserve requirement of 8 percent, what is the increase in required reserves when the government purchases $400 worth of government securities?

Accepted Answer

A)  $400 
B)  $224 
C)  $32 
D)  $256 
E)  $5,000 
A)  $400 
B)  $224 
C)  $32 
D)  $256 
E)  $5,000

Question 7

Which of the following is the official policy-making body of the Federal Reserve System?

Accepted Answer

A)  Federal Advisory Council 
B)  The U.S. Treasury 
C)  The Federal Open Market Committee 
D)  The Board of Governors 
E)  The Federal Reserve district banks 
A)  Federal Advisory Council 
B)  The U.S. Treasury 
C)  The Federal Open Market Committee 
D)  The Board of Governors 
E)  The Federal Reserve district banks

Question 8

The supply curve of U.S. dollars in the foreign exchange market is:

Accepted Answer

A)  downward-sloping because it is negatively related to U.S. exports. 
B)  downward-sloping because it is negatively related to U.S. imports. 
C)  upward-sloping because it is positively related to U.S. exports. 
D)  upward-sloping because it is positively related to U.S. imports. 
E)  horizontal because it is unrelated to foreign demand for U.S. goods and services 
A)  downward-sloping because it is negatively related to U.S. exports. 
B)  downward-sloping because it is negatively related to U.S. imports. 
C)  upward-sloping because it is positively related to U.S. exports. 
D)  upward-sloping because it is positively related to U.S. imports. 
E)  horizontal because it is unrelated to foreign demand for U.S. goods and services

Question 9

The Federal Reserve System was created in 1913, through the Federal Reserve Act, by the:

Accepted Answer

A)  U.S. President. 
B)  Judiciary. 
C)  Congress. 
D)  International Monetary Fund. 
E)  State governments. 
A)  U.S. President. 
B)  Judiciary. 
C)  Congress. 
D)  International Monetary Fund. 
E)  State governments.

Question 10

For a bank to have lending power, its required reserves must:

Accepted Answer

A)  be smaller than its legal reserves. 
B)  exceed its legal reserves. 
C)  be smaller than its excess reserves. 
D)  exceed its excess reserves. 
E)  exceed its vault cash. 
A)  be smaller than its legal reserves. 
B)  exceed its legal reserves. 
C)  be smaller than its excess reserves. 
D)  exceed its excess reserves. 
E)  exceed its vault cash.

Question 11

When a bank's excess reserves are zero:

Accepted Answer

A)  its required reserves exceed its legal reserves. 
B)  its liabilities exceed its assets. 
C)  its liabilities must be lower than its assets. 
D)  its required reserves equal its legal reserves. 
E)  it cannot meet its reserve requirement. 
A)  its required reserves exceed its legal reserves. 
B)  its liabilities exceed its assets. 
C)  its liabilities must be lower than its assets. 
D)  its required reserves equal its legal reserves. 
E)  it cannot meet its reserve requirement.

Question 12

The aggregate demand curve will shift outward and to the right when the Federal Reserve undertakes which of the following monetary policies?

Accepted Answer

A)  Open market purchases of government securities 
B)  An increase in the discount rate 
C)  An increase in the reserve requirement 
D)  A reduction in loans to the U.S. Treasury 
E)  A more lenient supervision of savings and loan institutions 
A)  Open market purchases of government securities 
B)  An increase in the discount rate 
C)  An increase in the reserve requirement 
D)  A reduction in loans to the U.S. Treasury 
E)  A more lenient supervision of savings and loan institutions

Question 13

When the government raises spending to promote economic growth, the Fed sells government bonds on the open market. This implies that the Federal Reserve and the federal government are following different policy goals.

Accepted Answer

A) True 
 B)False

Question 14

According to the equation of exchange, a contractionary monetary policy must be adopted to offset any decrease in the velocity of money.

Accepted Answer

A) True 
 B)False

Question 15

The monetary policy decisions made by the Federal Reserve must be approved by the Congress before they are enacted.

Accepted Answer

A) True 
 B)False

Question 16

In order to use inflation targeting, a central bank must:

Accepted Answer

A)  be independent of fiscal policy. 
B)  be dependent on fiscal policy. 
C)  focus on money supply. 
D)  focus on unemployment. 
E)  focus on stable exchange rates. 
A)  be independent of fiscal policy. 
B)  be dependent on fiscal policy. 
C)  focus on money supply. 
D)  focus on unemployment. 
E)  focus on stable exchange rates.

Question 17

If a percentage decrease in money supply is followed by a proportional percentage decrease in prices and output, this means that:

Accepted Answer

A)  the velocity of money is constant. 
B)  the economy is in a recession. 
C)  the velocity of money has fallen. 
D)  real GDP is constant. 
E)  the economy is not at maximum capacity 
A)  the velocity of money is constant. 
B)  the economy is in a recession. 
C)  the velocity of money has fallen. 
D)  real GDP is constant. 
E)  the economy is not at maximum capacity

Question 18

Which of the following monetary policies will increase money supply?

Accepted Answer

A)  An increase in the discount rate 
B)  An increase in the reserve requirement 
C)  Open market purchases by the Fed 
D)  The Fed selling government bonds 
E)  An increase in the federal funds rate 
A)  An increase in the discount rate 
B)  An increase in the reserve requirement 
C)  Open market purchases by the Fed 
D)  The Fed selling government bonds 
E)  An increase in the federal funds rate

Question 19

The velocity of circulation of money is the ratio of the real gross domestic product to the money supply.

Accepted Answer

A) True 
 B)False

Question 20

All the following affect short-run operating targets of the FOMC, except:

Accepted Answer

A)  the federal funds rate. 
B)  the rate of inflation. 
C)  the budget deficit. 
D)  the foreign exchange rate. 
E)  the growth of real GDP. 
A)  the federal funds rate. 
B)  the rate of inflation. 
C)  the budget deficit. 
D)  the foreign exchange rate. 
E)  the growth of real GDP.

The interest rate that banks pay for borrowing overnight from other banks is called:

The money supply function reflects a positive relationship between the interest rate and the quantity of money supplied.

The sum of the coins and currencies in the bank's vault and its deposit in the Fed is called:

An individual who holds some of her wealth in the form of money in order to pay rent and buy groceries is illustrating the transactions demand for money.

The bank rate is the interest rate charged by the commercial banks to its borrowers.

Which of the following is the official policy-making body of the Federal Reserve System?

The supply curve of U.S. dollars in the foreign exchange market is:

The Federal Reserve System was created in 1913, through the Federal Reserve Act, by the:

For a bank to have lending power, its required reserves must:

When a bank's excess reserves are zero:

The aggregate demand curve will shift outward and to the right when the Federal Reserve undertakes which of the following monetary policies?

When the government raises spending to promote economic growth, the Fed sells government bonds on the open market. This implies that the Federal Reserve and the federal government are following different policy goals.

According to the equation of exchange, a contractionary monetary policy must be adopted to offset any decrease in the velocity of money.

The monetary policy decisions made by the Federal Reserve must be approved by the Congress before they are enacted.

In order to use inflation targeting, a central bank must:

If a percentage decrease in money supply is followed by a proportional percentage decrease in prices and output, this means that:

Which of the following monetary policies will increase money supply?

The velocity of circulation of money is the ratio of the real gross domestic product to the money supply.

All the following affect short-run operating targets of the FOMC, except:

Economics: the World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

National Income Accounting

An Introduction to the Foreign Exchange Market and the Balance of Payments

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Aggregate Expenditures

Income and Expenditures Equilibrium

Fiscal Policy

Money and Banking

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

Economic Growth

Development Economics

Globalization

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

Filters

Exam 13: Monetary Policy

The interest rate that banks pay for borrowing overnight from other banks is called:

The money supply function reflects a positive relationship between the interest rate and the quantity of money supplied.

The sum of the coins and currencies in the bank's vault and its deposit in the Fed is called:

An individual who holds some of her wealth in the form of money in order to pay rent and buy groceries is illustrating the transactions demand for money.

The bank rate is the interest rate charged by the commercial banks to its borrowers.

Which of the following is the official policy-making body of the Federal Reserve System?

The supply curve of U.S. dollars in the foreign exchange market is:

The Federal Reserve System was created in 1913, through the Federal Reserve Act, by the:

For a bank to have lending power, its required reserves must:

When a bank's excess reserves are zero:

The aggregate demand curve will shift outward and to the right when the Federal Reserve undertakes which of the following monetary policies?

When the government raises spending to promote economic growth, the Fed sells government bonds on the open market. This implies that the Federal Reserve and the federal government are following different policy goals.

According to the equation of exchange, a contractionary monetary policy must be adopted to offset any decrease in the velocity of money.

The monetary policy decisions made by the Federal Reserve must be approved by the Congress before they are enacted.

In order to use inflation targeting, a central bank must:

If a percentage decrease in money supply is followed by a proportional percentage decrease in prices and output, this means that:

Which of the following monetary policies will increase money supply?

The velocity of circulation of money is the ratio of the real gross domestic product to the money supply.

All the following affect short-run operating targets of the FOMC, except:

Economics: the World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

National Income Accounting

An Introduction to the Foreign Exchange Market and the Balance of Payments

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Aggregate Expenditures

Income and Expenditures Equilibrium

Fiscal Policy

Money and Banking

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

Economic Growth

Development Economics

Globalization

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

Filters