Question 1

The largest asset of the Fed from those on this list is

Accepted Answer

A) U)S. Treasury securities. 
B) mortgage-backed securities. 
C) loans to depository institutions. 
D) currency outstanding. 
A) U)S. Treasury securities. 
B) mortgage-backed securities. 
C) loans to depository institutions. 
D) currency outstanding.

Question 2

The money supply is $6 million,currency held by the nonbank public is $2 million,and the reserve-deposit ratio is 0.1.The monetary base is equal to

Accepted Answer

A) $2 million. 
B) $2.4 million. 
C) $2.6 million. 
D) $4 million. 
A) $2 million. 
B) $2.4 million. 
C) $2.6 million. 
D) $4 million.

Question 3

Suppose that in Mysore,the reserve-deposit ratio is res = 0.5 - 2 i,
Where i is the nominal interest rate.The currency-deposit ratio is 0.2 and the monetary base equals 100.The real quantity of money demanded is given by the money demand function
L(Y,i)= 0.5Y - 10i,
Where Y is real output.Currently,the real interest rate is 5% and the economy expects an inflation rate of 5%.The money multiplier equals

Accepted Answer

A) 2)00. 
B) 2)40. 
C) 3)00. 
D) 4)00. 
A) 2)00. 
B) 2)40. 
C) 3)00. 
D) 4)00.

Question 4

In late 2007 and early 2008,concerns about financial institutions led the Fed to

Accepted Answer

A) create special lending facilities. 
B) raise the target for the fed funds rate. 
C) increase reserve requirements. 
D) pay interest on bank reserves. 
A) create special lending facilities. 
B) raise the target for the fed funds rate. 
C) increase reserve requirements. 
D) pay interest on bank reserves.

Question 5

A liquidity trap occurs when

Accepted Answer

A) any additions to the monetary base are held as cash by people or reserves at banks. 
B) the Fed increases the money supply, causing the expected inflation rate to rise more than the real interest rate declines, so that the nominal interest rate increases. 
C) there are runs on banks that are solvent but illiquid. 
D) the demand for loans increases in a country on the gold standard, so that the monetary supply is not able to increase and interest rates rise dramatically. 
A) any additions to the monetary base are held as cash by people or reserves at banks. 
B) the Fed increases the money supply, causing the expected inflation rate to rise more than the real interest rate declines, so that the nominal interest rate increases. 
C) there are runs on banks that are solvent but illiquid. 
D) the demand for loans increases in a country on the gold standard, so that the monetary supply is not able to increase and interest rates rise dramatically.

Question 6

Suppose that bank reserves (res)are a function of the nominal interest rate (i):
res = 0.3 - 3i.
The money multiplier is (cu + 1)/(cu + res),where cu is the currency-deposit ratio.Initially,suppose the real interest rate (r)equals 0.03,the expected inflation rate (pe)equals 0.03,and the currency-deposit ratio equals:
cu = 0.4 - (10 × pe).
The real money demand function is L(Y,i)= 0.8Y - 1500i,where Y is the level of output.The monetary base equals 100.The price level equals 1.0 initially and will not change in the short run,but will adjust in the long run.
(a)Calculate the currency-deposit ratio,the reserve-deposit ratio,the money multiplier,the money supply,and the equilibrium level of output.Assume that this level of output equals full-employment output,so you are assuming that the economy is in general equilibrium with the price level equal to 1.0.Show your work.
(b)Suppose financial innovation causes the reserve-deposit ratio to decline to res = 0.2 - 3i.Calculate the new currency-deposit ratio,the reserve-deposit ratio,the money multiplier,the money supply,and the equilibrium level of output in the short run,assuming a Keynesian model with the price level fixed in the short run.Show your work.
(c)Calculate the equilibrium price level in the long run.Show your work.

Accepted Answer

(a)cu = 0.4 - (10 × 0.03)= 0.1; res = 0.

Question 7

According to the Taylor rule,if output is above its full-employment level and inflation is less than 2%

Accepted Answer

A) the Fed should raise the Fed funds rate above 4%. 
B) the Fed should reduce the Fed funds rate below 4%. 
C) the Fed should make the Fed funds rate exactly 4%. 
D) what the Fed should do is ambiguous. 
A) the Fed should raise the Fed funds rate above 4%. 
B) the Fed should reduce the Fed funds rate below 4%. 
C) the Fed should make the Fed funds rate exactly 4%. 
D) what the Fed should do is ambiguous.

Question 8

The leadership of the Federal Reserve System is provided by

Accepted Answer

A) the Board of Governors. 
B) the Federal Advisory Committee. 
C) the Federal Open Market Committee. 
D) the directors of the twelve Federal Reserve banks. 
A) the Board of Governors. 
B) the Federal Advisory Committee. 
C) the Federal Open Market Committee. 
D) the directors of the twelve Federal Reserve banks.

Question 9

Which of the following statements would Milton Friedman disagree with?

Accepted Answer

A) Monetary policy has few short-run effects on the real economy. 
B) In the long run, changes in the money supply primarily affect the price level. 
C) In practice, there is little scope for using monetary policy actively to smooth out business cycles. 
D) The Federal Reserve cannot be relied on to effectively smooth out business cycles. 
A) Monetary policy has few short-run effects on the real economy. 
B) In the long run, changes in the money supply primarily affect the price level. 
C) In practice, there is little scope for using monetary policy actively to smooth out business cycles. 
D) The Federal Reserve cannot be relied on to effectively smooth out business cycles.

Question 10

Vault cash is equal to $2 million,deposits by depository institutions at the central bank are $1 million,the monetary base is $15 million,and bank deposits are $35 million.Currency held by the nonbank public is

Accepted Answer

A) $3 million. 
B) $12 million. 
C) $15 million. 
D) $20 million. 
A) $3 million. 
B) $12 million. 
C) $15 million. 
D) $20 million.

Question 11

Assume that the reserve-deposit ratio is 0.2.The Federal Reserve carries out open-market operations,purchasing $1,000,000 worth of bonds from banks.This action increased the money supply by $2,600,000.What is the currency-deposit ratio?

Accepted Answer

A) 0)2 
B) 0)3 
C) 0)4 
D) 0)5 
A) 0)2 
B) 0)3 
C) 0)4 
D) 0)5

Question 12

When the Fed increases the quantity of assets it owns,it is said to be engaging in

Accepted Answer

A) credit easing. 
B) forward guidance. 
C) quantitative easing. 
D) a maturity extension program. 
A) credit easing. 
B) forward guidance. 
C) quantitative easing. 
D) a maturity extension program.

Question 13

Assume that the currency-deposit ratio is 0.2 and the reserve-deposit ratio is 0.1.The Federal Reserve carries out open-market operations,purchasing $1 million worth of bonds from banks.This action will increase the money supply by

Accepted Answer

A) $1 million. 
B) $2 million. 
C) $3 million. 
D) $4 million. 
A) $1 million. 
B) $2 million. 
C) $3 million. 
D) $4 million.

Question 14

A bank run is

Accepted Answer

A) a large-scale, panicky withdrawal of deposits from a bank. 
B) the transfer of funds from one bank to another. 
C) a situation when a bank borrows from the Fed's discount window. 
D) a situation in which a bank borrows at the Federal funds rate. 
A) a large-scale, panicky withdrawal of deposits from a bank. 
B) the transfer of funds from one bank to another. 
C) a situation when a bank borrows from the Fed's discount window. 
D) a situation in which a bank borrows at the Federal funds rate.

Question 15

Banks hold some deposits on reserve at the Fed because

Accepted Answer

A) the Fed requires every bank to hold at least $100 million on deposit at all times. 
B) the Fed will insure those deposits, but will not insure regular bank deposits. 
C) these are membership dues for being a member bank. 
D) these deposits meet the reserve requirements of the Fed. 
A) the Fed requires every bank to hold at least $100 million on deposit at all times. 
B) the Fed will insure those deposits, but will not insure regular bank deposits. 
C) these are membership dues for being a member bank. 
D) these deposits meet the reserve requirements of the Fed.

Question 16

Zero lower bound refers to the fact that

Accepted Answer

A) the government budget deficit must be zero in the long run. 
B) the lowest possible level of the current account deficit is zero in the long run. 
C) the inflation rate can never decline below zero. 
D) nominal interest rates cannot fall below zero. 
A) the government budget deficit must be zero in the long run. 
B) the lowest possible level of the current account deficit is zero in the long run. 
C) the inflation rate can never decline below zero. 
D) nominal interest rates cannot fall below zero.

Question 17

In the financial crisis in 2008,the Federal government created the ________,to purchase financial assets that were thought to be temporarily undervalued,preventing further financial panic.

Accepted Answer

A) Federal Home Loan Board. 
B) Troubled Asset Relief Program. 
C) Federal Deposit Insurance Corporation. 
D) Bank Insurance Fund. 
A) Federal Home Loan Board. 
B) Troubled Asset Relief Program. 
C) Federal Deposit Insurance Corporation. 
D) Bank Insurance Fund.

Question 18

If the money multiplier is 10,the purchase of $1 billion of securities by the Fed on the open market causes a

Accepted Answer

A) $10 billion decrease in the money supply. 
B) $1 billion decrease in the money supply. 
C) $1 billion increase in the money supply. 
D) $10 billion increase in the money supply. 
A) $10 billion decrease in the money supply. 
B) $1 billion decrease in the money supply. 
C) $1 billion increase in the money supply. 
D) $10 billion increase in the money supply.

Question 19

Describe the strategy of inflation targeting.Why have many countries begun to use this strategy instead of targeting money growth? What are the advantages and disadvantages of inflation targeting?

Accepted Answer

Under inflation targeting,the central ba

Question 20

The new monetary policy tool that the Fed began using in 2008 is

Accepted Answer

A) changing the interest rate paid on reserves. 
B) imposing a surcharge on credit cards. 
C) putting a tax on all financial transactions. 
D) borrowing from China. 
A) changing the interest rate paid on reserves. 
B) imposing a surcharge on credit cards. 
C) putting a tax on all financial transactions. 
D) borrowing from China.

The largest asset of the Fed from those on this list is

The money supply is $6 million,currency held by the nonbank public is $2 million,and the reserve-deposit ratio is 0.1.The monetary base is equal to

In late 2007 and early 2008,concerns about financial institutions led the Fed to

A liquidity trap occurs when

According to the Taylor rule,if output is above its full-employment level and inflation is less than 2%

The leadership of the Federal Reserve System is provided by

Which of the following statements would Milton Friedman disagree with?

Vault cash is equal to $2 million,deposits by depository institutions at the central bank are $1 million,the monetary base is $15 million,and bank deposits are $35 million.Currency held by the nonbank public is

Assume that the reserve-deposit ratio is 0.2.The Federal Reserve carries out open-market operations,purchasing $1,000,000 worth of bonds from banks.This action increased the money supply by $2,600,000.What is the currency-deposit ratio?

When the Fed increases the quantity of assets it owns,it is said to be engaging in

Assume that the currency-deposit ratio is 0.2 and the reserve-deposit ratio is 0.1.The Federal Reserve carries out open-market operations,purchasing $1 million worth of bonds from banks.This action will increase the money supply by

A bank run is

Banks hold some deposits on reserve at the Fed because

Zero lower bound refers to the fact that

In the financial crisis in 2008,the Federal government created the ________,to purchase financial assets that were thought to be temporarily undervalued,preventing further financial panic.

If the money multiplier is 10,the purchase of $1 billion of securities by the Fed on the open market causes a

Describe the strategy of inflation targeting.Why have many countries begun to use this strategy instead of targeting money growth? What are the advantages and disadvantages of inflation targeting?

The new monetary policy tool that the Fed began using in 2008 is

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, output, and Employment

Consumption, saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, money, and Prices

Business Cycles

The Is-Lmad-As Model

Classical Business Cycle Analysis

Keynesianism: the Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Exchange Rates, business Cycles, and Macroeconomic Policy in the Open Economy

Government Spending and Its Financing

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Exam 14: Monetary Policy and the Federal Reserve System

The largest asset of the Fed from those on this list is

The money supply is $6 million,currency held by the nonbank public is $2 million,and the reserve-deposit ratio is 0.1.The monetary base is equal to

In late 2007 and early 2008,concerns about financial institutions led the Fed to

A liquidity trap occurs when

According to the Taylor rule,if output is above its full-employment level and inflation is less than 2%

The leadership of the Federal Reserve System is provided by

Which of the following statements would Milton Friedman disagree with?

Vault cash is equal to $2 million,deposits by depository institutions at the central bank are $1 million,the monetary base is $15 million,and bank deposits are $35 million.Currency held by the nonbank public is

Assume that the reserve-deposit ratio is 0.2.The Federal Reserve carries out open-market operations,purchasing $1,000,000 worth of bonds from banks.This action increased the money supply by $2,600,000.What is the currency-deposit ratio?

When the Fed increases the quantity of assets it owns,it is said to be engaging in

Assume that the currency-deposit ratio is 0.2 and the reserve-deposit ratio is 0.1.The Federal Reserve carries out open-market operations,purchasing $1 million worth of bonds from banks.This action will increase the money supply by

A bank run is

Banks hold some deposits on reserve at the Fed because

Zero lower bound refers to the fact that

In the financial crisis in 2008,the Federal government created the ________,to purchase financial assets that were thought to be temporarily undervalued,preventing further financial panic.

If the money multiplier is 10,the purchase of $1 billion of securities by the Fed on the open market causes a

Describe the strategy of inflation targeting.Why have many countries begun to use this strategy instead of targeting money growth? What are the advantages and disadvantages of inflation targeting?

The new monetary policy tool that the Fed began using in 2008 is

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, output, and Employment

Consumption, saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, money, and Prices

Business Cycles

The Is-Lmad-As Model

Classical Business Cycle Analysis

Keynesianism: the Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Exchange Rates, business Cycles, and Macroeconomic Policy in the Open Economy

Government Spending and Its Financing

Filters