Question 1

If the FOMC orders a purchase of government securities from member banks, where does the FOMC get the money to pay for the securities?

Accepted Answer

A) It creates money to pay for the securities by adding the purchase amount to the banks' reserves. 
B) It pays for the securities with new Federal Reserve notes. 
C) It borrows the necessary funds from the Treasury. 
D) It auctions off part of the securities it already owns. 
A) It creates money to pay for the securities by adding the purchase amount to the banks' reserves. 
B) It pays for the securities with new Federal Reserve notes. 
C) It borrows the necessary funds from the Treasury. 
D) It auctions off part of the securities it already owns.

Question 2

Does the Fed have good control over the money supply?

Accepted Answer

A) Yes, open market operations generate exact changes in bank lending. 
B) Yes, reserve requirements create new loans. 
C) No, because of difficulties estimating the reserve ratio. 
D) No, because of difficulties estimating the size of the excess reserves and cash holdings by the public. 
A) Yes, open market operations generate exact changes in bank lending. 
B) Yes, reserve requirements create new loans. 
C) No, because of difficulties estimating the reserve ratio. 
D) No, because of difficulties estimating the size of the excess reserves and cash holdings by the public.

Question 3

An open market purchase of T-bonds by the Fed causes the money supply to

Accepted Answer

A) fall and bond prices to fall. 
B) rise and bond prices to fall. 
C) rise and bond prices to rise. 
D) fall and bond prices to rise. 
A) fall and bond prices to fall. 
B) rise and bond prices to fall. 
C) rise and bond prices to rise. 
D) fall and bond prices to rise.

Question 4

If the Fed buys $5 million in government bonds, how much will the money supply change?

Accepted Answer

A) It will increase by $5 million. 
B) It will increase by more than $5 million. 
C) It will decrease by $5 million. 
D) It will decrease by more than $5 million. 
A) It will increase by $5 million. 
B) It will increase by more than $5 million. 
C) It will decrease by $5 million. 
D) It will decrease by more than $5 million.

Question 5

Why does the economy's aggregate demand curve have a negative slope?

Accepted Answer

At higher price levels, the quantity of

Question 6

The Federal Reserve System was established by Congress in 1914

Accepted Answer

A) as a result of a breakthrough in economic theory. 
B) against significant opposition from the banking sector. 
C) because of the need for a central bank. 
D) as the world's first central bank. 
A) as a result of a breakthrough in economic theory. 
B) against significant opposition from the banking sector. 
C) because of the need for a central bank. 
D) as the world's first central bank.

Question 7

Why does the Fed have imperfect control over the money supply?

Accepted Answer

A) Because the Fed does not know how much reserves will change when it buys or sells securities. 
B) Because of unpredictable changes in the public's desire to hold cash and banks' desires to hold reserves. 
C) Because of unpredictable changes in reserve requirements. 
D) Because of the secrecy of FOMC meetings, which lead to policy surprises. 
A) Because the Fed does not know how much reserves will change when it buys or sells securities. 
B) Because of unpredictable changes in the public's desire to hold cash and banks' desires to hold reserves. 
C) Because of unpredictable changes in reserve requirements. 
D) Because of the secrecy of FOMC meetings, which lead to policy surprises.

Question 8

The Fed cannot predict the effects of open market operations with perfect accuracy because of

Accepted Answer

A) changes in people's desires for cash. 
B) foreigners desire to hold U.S.dollars. 
C) banks' desires to hold excess reserves. 
D) All of the above are correct. 
A) changes in people's desires for cash. 
B) foreigners desire to hold U.S.dollars. 
C) banks' desires to hold excess reserves. 
D) All of the above are correct.

Question 9

An increase in the reserve supply

Accepted Answer

A) will result in inflation if the unemployment rate is high. 
B) causes interest rates to rise. 
C) shifts the aggregate demand curve inward. 
D) will probably cause inflation if the economy is at potential GDP. 
A) will result in inflation if the unemployment rate is high. 
B) causes interest rates to rise. 
C) shifts the aggregate demand curve inward. 
D) will probably cause inflation if the economy is at potential GDP.

Question 10

The principal difference between income and money is that income is a ____ and money is a ____.

Accepted Answer

A) schedule, curve 
B) point, line 
C) stock, flow 
D) flow, stock 
A) schedule, curve 
B) point, line 
C) stock, flow 
D) flow, stock

Question 11

Reserves demanded varies

Accepted Answer

A) inversely with both prices and output. 
B) inversely with prices and directly with output. 
C) directly with prices and inversely with output. 
D) directly with both prices and output. 
A) inversely with both prices and output. 
B) inversely with prices and directly with output. 
C) directly with prices and inversely with output. 
D) directly with both prices and output.

Question 12

Technically, the Federal Reserve district banks are corporations whose stockholders are the

Accepted Answer

A) state governments in each district. 
B) citizens of the United States. 
C) Departments of Treasury and Commerce. 
D) member banks. 
A) state governments in each district. 
B) citizens of the United States. 
C) Departments of Treasury and Commerce. 
D) member banks.

Question 13

The Federal Reserve System functions as America's

Accepted Answer

A) tax collector. 
B) stock and bond market. 
C) savings bank. 
D) central bank. 
A) tax collector. 
B) stock and bond market. 
C) savings bank. 
D) central bank.

Question 14

To decrease the money supply, the Fed purchases government securities, which decreases government spending.

Accepted Answer

A) True 
 B)False

Question 15

The Fed's principal objective is to

Accepted Answer

A) make profits to pay into the U.S.Treasury. 
B) collect tax revenues. 
C) supervise the business decisions of banks. 
D) manage the money supply and interest rates. 
A) make profits to pay into the U.S.Treasury. 
B) collect tax revenues. 
C) supervise the business decisions of banks. 
D) manage the money supply and interest rates.

Question 16

Why is the Chair of the Fed Reserve considered by many to be the most powerful person in the economic world?

Accepted Answer

People in financial markets around the w

Question 17

Money is a concept that has a certain value at a point in time.

Accepted Answer

A) True 
 B)False

Question 18

Figure 13-1
  
-In Figure 13-1, which panel shows the effect of an expansionary monetary policy on the interest rate?

Accepted Answer

A) Panel (
A)  
B) Panel (
B)  
C) Panel (
C)  
D) Panel (
D)  
A) Panel (
A)  
B) Panel (
B)  
C) Panel (
C)  
D) Panel (
D)

Question 19

Table 13-1
EFFECTS OF AN OPEN MARKET TRANSACTION ON THE BALANCE SHEETS OF BANKS AND THE FED (In millions of dollars)

-After the transaction in Table 13-1 is completed, what happens to actual reserves, required reserves, and excess reserves?
Assume the required reserve ratio is 25 percent.

Accepted Answer

A) Actual reserves increase by $10 million, required reserves increase $2.5 million, and excess reserves increase by $7.5 million. 
B) Actual reserves decrease by $10 million, required reserves decrease $2.5 million, and excess reserves decrease by $7.5 million. 
C) Actual reserves increase by $10 million, required reserves are unchanged, and excess reserves increase by $10 million. 
D) Actual reserves decrease by $10 million, required reserves decrease by $10 million, and excess reserves are unchanged. 
A) Actual reserves increase by $10 million, required reserves increase $2.5 million, and excess reserves increase by $7.5 million. 
B) Actual reserves decrease by $10 million, required reserves decrease $2.5 million, and excess reserves decrease by $7.5 million. 
C) Actual reserves increase by $10 million, required reserves are unchanged, and excess reserves increase by $10 million. 
D) Actual reserves decrease by $10 million, required reserves decrease by $10 million, and excess reserves are unchanged.

Question 20

If the Fed raises the discount rate, what happens to reserves and the money supply?

Accepted Answer

A) Reserves increase and the money supply decreases. 
B) Both increase. 
C) Reserves decrease and the money supply increases. 
D) Both decrease. 
A) Reserves increase and the money supply decreases. 
B) Both increase. 
C) Reserves decrease and the money supply increases. 
D) Both decrease.

Exam 30: Monetary Policy: Conventional and Unconventional

If the FOMC orders a purchase of government securities from member banks, where does the FOMC get the money to pay for the securities?

Does the Fed have good control over the money supply?

An open market purchase of T-bonds by the Fed causes the money supply to

If the Fed buys $5 million in government bonds, how much will the money supply change?

Why does the economy's aggregate demand curve have a negative slope?

The Federal Reserve System was established by Congress in 1914

Why does the Fed have imperfect control over the money supply?

The Fed cannot predict the effects of open market operations with perfect accuracy because of

An increase in the reserve supply

The principal difference between income and money is that income is a ____ and money is a ____.

Reserves demanded varies

Technically, the Federal Reserve district banks are corporations whose stockholders are the

The Federal Reserve System functions as America's

To decrease the money supply, the Fed purchases government securities, which decreases government spending.

The Fed's principal objective is to

Why is the Chair of the Fed Reserve considered by many to be the most powerful person in the economic world?

Money is a concept that has a certain value at a point in time.

Figure 13-1 -In Figure 13-1, which panel shows the effect of an expansionary monetary policy on the interest rate?

Table 13-1 EFFECTS OF AN OPEN MARKET TRANSACTION ON THE BALANCE SHEETS OF BANKS AND THE FED (In millions of dollars) -After the transaction in Table 13-1 is completed, what happens to actual reserves, required reserves, and excess reserves? Assume the required reserve ratio is 25 percent.

If the Fed raises the discount rate, what happens to reserves and the money supply?

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: the Importance of Marginal Analysis

Securities: Business Finance and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets: the Price System

The Shortcomings of Free Markets

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

Is Useconomic Leadership Threatened

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation

Bringing in the Supply Side: Unemployment and Inflation

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

He Financial Crisis and the Great Recession

The Debate Over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off Between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder

Exchange Rates and the Macroeconomy

Filters

The principal difference between income and money is that income is a and money is a .