Question 1

If the Fed conducted an open market sale of government bonds and raised the discount rate:

Accepted Answer

A)  the money supply would increase. 
B)  the money supply would decrease. 
C)  the money supply would not change. 
D)  the money supply could either increase or decrease. 
A)  the money supply would increase. 
B)  the money supply would decrease. 
C)  the money supply would not change. 
D)  the money supply could either increase or decrease.

Question 2

During the sixteenth century,Spanish conquistadors like Hernan Cortes overwhelmed the Aztecs and other indigenous peoples in America by pillaging their cities,and taking their gold and silver.The gold and silver was sent back to Spain,causing its money supply to increase tenfold.Assuming V remained stable and Q increased slightly,what do you think happened to prices in Spain during this period?

Accepted Answer

According to the equation of exchange,if

Question 3

In the equation of exchange,an increase in M of 8 percent could be accompanied by changes in velocity,the price level and real GDP of:

Accepted Answer

A)  -2%, 3%, 3%. 
B)  4%, 0%, 4%. 
C)  2%, 8%, 8%. 
D)  8%, 8%, 4%. 
A)  -2%, 3%, 3%. 
B)  4%, 0%, 4%. 
C)  2%, 8%, 8%. 
D)  8%, 8%, 4%.

Question 4

If the monetary authorities persistently expand the money supply at a rapid rate,the probable result will be:

Accepted Answer

A)  inflation. 
B)  low nominal interest rates. 
C)  rapid growth of real GDP. 
D)  all of the above. 
A)  inflation. 
B)  low nominal interest rates. 
C)  rapid growth of real GDP. 
D)  all of the above.

Question 5

If policy makers wanted to use both monetary and fiscal policy to stimulate demand and reduce a high rate of unemployment,which of the following would be most appropriate?

Accepted Answer

A)  A larger budget deficit and the purchase of securities in the open market by the Fed 
B)  A government surplus and the sale of securities in the open market by the Fed 
C)  A larger government deficit and an increase in the discount rate 
D)  A larger government surplus and a reduction in the discount rate 
A)  A larger budget deficit and the purchase of securities in the open market by the Fed 
B)  A government surplus and the sale of securities in the open market by the Fed 
C)  A larger government deficit and an increase in the discount rate 
D)  A larger government surplus and a reduction in the discount rate

Question 6

If the Fed raises the discount rate,it:

Accepted Answer

A)  forces commercial banks to call in existing loans. 
B)  changes excess reserves into required reserves. 
C)  changes required reserves into excess reserves. 
D)  none of the above 
A)  forces commercial banks to call in existing loans. 
B)  changes excess reserves into required reserves. 
C)  changes required reserves into excess reserves. 
D)  none of the above

Question 7

There are several motives for holding assets in the form of money.What are they? Provide an example of each.

Accepted Answer

There are three main reasons for holding

Question 8

If the amount of money in circulation is $50 million and nominal GDP is $150 million,then the velocity of money is:

Accepted Answer

A)  0.33. 
B)  2. 
C)  3. 
D)  impossible to determine from the information provided. 
A)  0.33. 
B)  2. 
C)  3. 
D)  impossible to determine from the information provided.

Question 9

In the long run,a sustained increase in money supply growth relative to the growth rate of potential real output will most likely:

Accepted Answer

A)  cause the nominal interest rate to fall. 
B)  cause the real interest rate to fall. 
C)  reduce the natural rate of unemployment. 
D)  none of the above 
A)  cause the nominal interest rate to fall. 
B)  cause the real interest rate to fall. 
C)  reduce the natural rate of unemployment. 
D)  none of the above

Question 10

If the Fed buys a U.S.government bond from a member of the public,

Accepted Answer

A)  the banking system has more reserves and the money supply tends to grow. 
B)  the banking system has less reserves and the money supply tends to grow. 
C)  the banking system has more reserves and the money supply tends to fall. 
D)  the banking system has less reserves and the money supply tends to fall. 
A)  the banking system has more reserves and the money supply tends to grow. 
B)  the banking system has less reserves and the money supply tends to grow. 
C)  the banking system has more reserves and the money supply tends to fall. 
D)  the banking system has less reserves and the money supply tends to fall.

Question 11

Which of the following is true?

Accepted Answer

A)  Velocity is not constant over time. 
B)  The best way to study economic activity is to start with the equation and then integrate the money supply and the volume of international trade. 
C)  Control over the money supply implies that the Fed has precise control over real GDP. 
D)  All of the above are true. 
A)  Velocity is not constant over time. 
B)  The best way to study economic activity is to start with the equation and then integrate the money supply and the volume of international trade. 
C)  Control over the money supply implies that the Fed has precise control over real GDP. 
D)  All of the above are true.

Question 12

Which of the following is false?

Accepted Answer

A)  The money supply times velocity equals the price level times real GDP. 
B)  If individuals are writing lots of checks on their checking accounts and spending currency as fast as they receive it, velocity will tend to be high. 
C)  The magnitude of velocity does not depend on the definition of money that is used. 
D)  Velocity equals nominal GDP divided by the money supply. 
A)  The money supply times velocity equals the price level times real GDP. 
B)  If individuals are writing lots of checks on their checking accounts and spending currency as fast as they receive it, velocity will tend to be high. 
C)  The magnitude of velocity does not depend on the definition of money that is used. 
D)  Velocity equals nominal GDP divided by the money supply.

Question 13

Which of the following would constitute contractionary monetary policy by the Fed?

Accepted Answer

A)  An increase in income tax rates, a cut in government spending, and an elimination of the investment tax credit 
B)  Open market sales of government securities, an increase in the discount rate, and an increase in reserve requirements 
C)  An increase in tariffs on imported goods and a decrease in foreign aid 
D)  Open market purchases of government securities, a cut in the discount rate, and an increase in reserve requirements 
A)  An increase in income tax rates, a cut in government spending, and an elimination of the investment tax credit 
B)  Open market sales of government securities, an increase in the discount rate, and an increase in reserve requirements 
C)  An increase in tariffs on imported goods and a decrease in foreign aid 
D)  Open market purchases of government securities, a cut in the discount rate, and an increase in reserve requirements

Question 14

Which of the following is false?

Accepted Answer

A)  If the Fed wants to expand the money supply, it could lower the discount rate. 
B)  The discount rate is a relatively unimportant monetary policy tool, mainly because member banks do not rely heavily on the Fed for borrowed funds. 
C)  Changes in required reserve ratios are such a potent monetary policy tool that they are frequently used. 
D)  If the Federal Reserve wanted to induce monetary expansion, it could reduce reserve requirements, but it cannot force the banks to make loans, thereby creating new money. 
A)  If the Fed wants to expand the money supply, it could lower the discount rate. 
B)  The discount rate is a relatively unimportant monetary policy tool, mainly because member banks do not rely heavily on the Fed for borrowed funds. 
C)  Changes in required reserve ratios are such a potent monetary policy tool that they are frequently used. 
D)  If the Federal Reserve wanted to induce monetary expansion, it could reduce reserve requirements, but it cannot force the banks to make loans, thereby creating new money.

Question 15

The chief function of the Federal Reserve is to be the federal government's tax collection institution.

Accepted Answer

A) True 
 B)False

Question 16

Based on the situation depicted in the graph below,which of the following would be an appropriate monetary policy response?

Accepted Answer

A)  increase reserve requirements 
B)  increase the discount rate 
C)  sell government bonds 
D)  none of the above 
A)  increase reserve requirements 
B)  increase the discount rate 
C)  sell government bonds 
D)  none of the above

Question 17

If the Fed sells a U.S.government bond to a bank,what is the effect on the money supply?

Accepted Answer

A)  It will increase. 
B)  It will not change. 
C)  It will decrease. 
D)  It will be uncertain. 
A)  It will increase. 
B)  It will not change. 
C)  It will decrease. 
D)  It will be uncertain.

Question 18

Which of the following pairs of policies have inconsistent effects on aggregate demand?

Accepted Answer

A)  A tax increase and an increase in the money supply. 
B)  A transfer payment increase and an increase in the money supply. 
C)  A reduction in government purchases and a reduction of the money supply. 
D)  none of the above 
A)  A tax increase and an increase in the money supply. 
B)  A transfer payment increase and an increase in the money supply. 
C)  A reduction in government purchases and a reduction of the money supply. 
D)  none of the above

Question 19

Which of the following would cause the U.S.money supply to expand?

Accepted Answer

A)  a commercial bank using excess reserves to extend a loan to a customer 
B)  a commercial bank purchasing U.S. securities from the Fed as an investment 
C)  an increase in reserve requirements 
D)  an increase in the discount rate 
A)  a commercial bank using excess reserves to extend a loan to a customer 
B)  a commercial bank purchasing U.S. securities from the Fed as an investment 
C)  an increase in reserve requirements 
D)  an increase in the discount rate

Question 20

The Fed's purchases and sales of government securities are called:

Accepted Answer

A)  margin operations. 
B)  open market operations. 
C)  small-dealer transactions. 
D)  intermediary transactions. 
A)  margin operations. 
B)  open market operations. 
C)  small-dealer transactions. 
D)  intermediary transactions.

Exam 26: The Federal Reserve System and Monetary Policy

If the Fed conducted an open market sale of government bonds and raised the discount rate:

In the equation of exchange,an increase in M of 8 percent could be accompanied by changes in velocity,the price level and real GDP of:

If the monetary authorities persistently expand the money supply at a rapid rate,the probable result will be:

If policy makers wanted to use both monetary and fiscal policy to stimulate demand and reduce a high rate of unemployment,which of the following would be most appropriate?

If the Fed raises the discount rate,it:

There are several motives for holding assets in the form of money.What are they? Provide an example of each.

If the amount of money in circulation is $50 million and nominal GDP is $150 million,then the velocity of money is:

In the long run,a sustained increase in money supply growth relative to the growth rate of potential real output will most likely:

If the Fed buys a U.S.government bond from a member of the public,

Which of the following is true?

Which of the following is false?

Which of the following would constitute contractionary monetary policy by the Fed?

Which of the following is false?

The chief function of the Federal Reserve is to be the federal government's tax collection institution.

Based on the situation depicted in the graph below,which of the following would be an appropriate monetary policy response?

If the Fed sells a U.S.government bond to a bank,what is the effect on the money supply?

Which of the following pairs of policies have inconsistent effects on aggregate demand?

Which of the following would cause the U.S.money supply to expand?

The Fed's purchases and sales of government securities are called:

The Role and Method of Economics

Economics: Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Markets in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Market Failure

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Income, Poverty, and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Aggregate Demand and Aggregate Supply

The Aggregate Expenditure Model

Monetary Institutions

Issues in Macroeconomic Theory and Policy

International Trade

International Finance

Filters