Question 1

If the money supply is held constant as both real and nominal GDP are rising.

Accepted Answer

A)  the velocity of money will rise. 
B)  the velocity of money will fall. 
C)  interest rates will rise. 
D)  both (a) and (c) 
A)  the velocity of money will rise. 
B)  the velocity of money will fall. 
C)  interest rates will rise. 
D)  both (a) and (c)

Question 2

Which of the following is not a function of the Federal Reserve System?

Accepted Answer

A)  limiting the national debt 
B)  setting the required reserve ratio for the deposit holdings of depository institutions 
C)  buying and selling government bonds to control the size and growth rate of the money supply 
D)  controlling inflation 
A)  limiting the national debt 
B)  setting the required reserve ratio for the deposit holdings of depository institutions 
C)  buying and selling government bonds to control the size and growth rate of the money supply 
D)  controlling inflation

Question 3

Which of the following actions of the Fed is likely to lead to a decrease in the money supply?

Accepted Answer

A)  A decrease in the discount rate 
B)  An increase in reserve requirements 
C)  A decrease in reserve requirements 
D)  A purchase of government securities by the Fed in the open market 
A)  A decrease in the discount rate 
B)  An increase in reserve requirements 
C)  A decrease in reserve requirements 
D)  A purchase of government securities by the Fed in the open market

Question 4

The problem of time lags in making policy changes is less acute for monetary policy than it is for fiscal policy.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is a definition of velocity?

Accepted Answer

A)  Velocity = value of final goods and services produced/money supply 
B)  Velocity = real GDP/M 
C)  Velocity = nominal GDP/real GDP 
D)  Velocity = (P ´ Q)/(M ´ V) 
A)  Velocity = value of final goods and services produced/money supply 
B)  Velocity = real GDP/M 
C)  Velocity = nominal GDP/real GDP 
D)  Velocity = (P ´ Q)/(M ´ V)

Question 6

A combination of Fed purchases of government securities and an increase in reserve requirements would:

Accepted Answer

A)  increase the money supply. 
B)  decrease the money supply. 
C)  leave the money supply unchanged. 
D)  have an indeterminate effect on the money supply. 
A)  increase the money supply. 
B)  decrease the money supply. 
C)  leave the money supply unchanged. 
D)  have an indeterminate effect on the money supply.

Question 7

Open market operations directly change the rate of interest at which banks can borrow funds from the Fed.

Accepted Answer

A) True 
 B)False

Question 8

The Open Market Committee oversees the money supply through the Fed's sale and purchase of government securities.

Accepted Answer

A) True 
 B)False

Question 9

The interest rate that the Fed charges banks for borrowing funds is called the federal funds rate.

Accepted Answer

A) True 
 B)False

Question 10

You have the assignment of making a recommendation to the Chairman of the Fed during a period of persistent,high inflation.What could you do to restore stable prices?

Accepted Answer

In order to restore price stab

Question 11

An increase in the money supply:

Accepted Answer

A)  will definitely result in inflation if unemployment is high and there is much unused industrial capacity. 
B)  shifts the aggregate demand curve to the left. 
C)  will probably result in inflation if the economy is fully employed. 
D)  causes interest rates to rise. 
A)  will definitely result in inflation if unemployment is high and there is much unused industrial capacity. 
B)  shifts the aggregate demand curve to the left. 
C)  will probably result in inflation if the economy is fully employed. 
D)  causes interest rates to rise.

Question 12

When the Fed wants to expand the money supply through open market operations,it:

Accepted Answer

A)  sells government securities. 
B)  purchases government securities. 
C)  increase the Fed Funds rate. 
D)  decrease reserve requirements. 
A)  sells government securities. 
B)  purchases government securities. 
C)  increase the Fed Funds rate. 
D)  decrease reserve requirements.

Question 13

If money supply increases,P will rise as long as V and Q remain constant.

Accepted Answer

A) True 
 B)False

Question 14

If inflation is the major problem in the economy,which of the following would be an appropriate monetary policy response?

Accepted Answer

A)  decreasing government spending 
B)  decreasing the discount rate 
C)  decreasing reserve requirements 
D)  none of the above 
A)  decreasing government spending 
B)  decreasing the discount rate 
C)  decreasing reserve requirements 
D)  none of the above

Question 15

Most of the key decisions of the Federal Reserve are actually made by its Federal Open Market Committee.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is true about the equation of exchange?

Accepted Answer

A)  The equation of exchange can be presented as: M ´ V = P ´ Q. 
B)  Velocity represents the average number of times that a dollar is used in purchasing final goods or services in a one-year period. 
C)  If M increases, and V remains constant, then P must rise and/or Q must rise. 
D)  All of the above are true about the equation of exchange. 
A)  The equation of exchange can be presented as: M ´ V = P ´ Q. 
B)  Velocity represents the average number of times that a dollar is used in purchasing final goods or services in a one-year period. 
C)  If M increases, and V remains constant, then P must rise and/or Q must rise. 
D)  All of the above are true about the equation of exchange.

Question 17

Higher rates of interest increase the opportunity cost of holding money balances.

Accepted Answer

A) True 
 B)False

Question 18

In order to determine the velocity of money,we need to know:

Accepted Answer

A)  the money supply and the price level. 
B)  nominal GDP and real GDP. 
C)  the money supply and nominal GDP. 
D)  the interest rate and nominal GDP. 
A)  the money supply and the price level. 
B)  nominal GDP and real GDP. 
C)  the money supply and nominal GDP. 
D)  the interest rate and nominal GDP.

Question 19

If the economy's real GDP is growing at 3 percent each year and velocity is constant,for the price level to increase:

Accepted Answer

A)  the money supply would have to grow at more than 3 percent per year. 
B)  the money supply would have to grow at exactly 3 percent per year. 
C)  the money supply would have to grow at less than 3 percent per year. 
D)  the money supply would have to remain stable. 
A)  the money supply would have to grow at more than 3 percent per year. 
B)  the money supply would have to grow at exactly 3 percent per year. 
C)  the money supply would have to grow at less than 3 percent per year. 
D)  the money supply would have to remain stable.

Question 20

The money supply is very sensitive to changes in the rate of interest.

Accepted Answer

A) True 
 B)False

Exam 26: The Federal Reserve System and Monetary Policy

If the money supply is held constant as both real and nominal GDP are rising.

Which of the following is not a function of the Federal Reserve System?

Which of the following actions of the Fed is likely to lead to a decrease in the money supply?

The problem of time lags in making policy changes is less acute for monetary policy than it is for fiscal policy.

Which of the following is a definition of velocity?

A combination of Fed purchases of government securities and an increase in reserve requirements would:

Open market operations directly change the rate of interest at which banks can borrow funds from the Fed.

The Open Market Committee oversees the money supply through the Fed's sale and purchase of government securities.

The interest rate that the Fed charges banks for borrowing funds is called the federal funds rate.

You have the assignment of making a recommendation to the Chairman of the Fed during a period of persistent,high inflation.What could you do to restore stable prices?

An increase in the money supply:

When the Fed wants to expand the money supply through open market operations,it:

If money supply increases,P will rise as long as V and Q remain constant.

If inflation is the major problem in the economy,which of the following would be an appropriate monetary policy response?

Most of the key decisions of the Federal Reserve are actually made by its Federal Open Market Committee.

Which of the following is true about the equation of exchange?

Higher rates of interest increase the opportunity cost of holding money balances.

In order to determine the velocity of money,we need to know:

If the economy's real GDP is growing at 3 percent each year and velocity is constant,for the price level to increase:

The money supply is very sensitive to changes in the rate of interest.

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

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