Question 1

Which of the following is most frequently used when the Fed is attempting to adjust the money supply?

Accepted Answer

A)  Changing reserve requirements 
B)  Open market operations 
C)  Changing the discount rate 
D)  Moral suasion 
A)  Changing reserve requirements 
B)  Open market operations 
C)  Changing the discount rate 
D)  Moral suasion

Question 2

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

Accepted Answer

A)  Because of unpredictable changes in reserve requirements 
B)  Because the public responds to open market operations in unpredictable fashions 
C)  Because the Fed does not know how much reserves will change when it buys or sells securities 
D)  Because of unpredictable changes in public desire to hold cash and banks' desires to hold reserves 
A)  Because of unpredictable changes in reserve requirements 
B)  Because the public responds to open market operations in unpredictable fashions 
C)  Because the Fed does not know how much reserves will change when it buys or sells securities 
D)  Because of unpredictable changes in public desire to hold cash and banks' desires to hold reserves

Question 3

A contractionary policy can be thought of as:

Accepted Answer

A)  a decrease in the money supply 
B)  an increase in the money supply 
C)  an increase in the interest rate. 
D)  either (a) or (c). 
A)  a decrease in the money supply 
B)  an increase in the money supply 
C)  an increase in the interest rate. 
D)  either (a) or (c).

Question 4

The supply-of-money curve is almost perfectly inelastic because:

Accepted Answer

A)  as interest rates rise, people will want to be supplied with more loans. 
B)  the Fed makes more money available in response to higher interest rates. 
C)  banks generally find loans more profitable than keeping their assets as cash in their vaults or reserve deposits at the Fed, whether interest rates are 4% or 40%. 
D)  the Fed lowers the discount rate as interest rates rise. 
A)  as interest rates rise, people will want to be supplied with more loans. 
B)  the Fed makes more money available in response to higher interest rates. 
C)  banks generally find loans more profitable than keeping their assets as cash in their vaults or reserve deposits at the Fed, whether interest rates are 4% or 40%. 
D)  the Fed lowers the discount rate as interest rates rise.

Question 5

If M increases,and V remains constant:

Accepted Answer

A)  P must rise. 
B)  Q must rise. 
C)  P and Q must each rise. 
D)  Any of the above may happen, but none of the above must happen. 
A)  P must rise. 
B)  Q must rise. 
C)  P and Q must each rise. 
D)  Any of the above may happen, but none of the above must happen.

Question 6

A combination of a decrease in the discount rate 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

What is the equation of exchange? What are the variables,which are in it,and how do they relate to each other?

Accepted Answer

The equation of exchange can be written

Question 8

If the Fed sells bonds,the short run impact of this policy will tend to include:

Accepted Answer

A)  an increase in the inflation rate. 
B)  a reduction in unemployment. 
C)  an increase in real output. 
D)  an increase in real interest rates. 
A)  an increase in the inflation rate. 
B)  a reduction in unemployment. 
C)  an increase in real output. 
D)  an increase in real interest rates.

Question 9

The Federal Reserve banks are owned by:

Accepted Answer

A)  the citizens of each Federal Reserve district. 
B)  the American people as a whole. 
C)  the Federal Government. 
D)  commercial banks. 
A)  the citizens of each Federal Reserve district. 
B)  the American people as a whole. 
C)  the Federal Government. 
D)  commercial banks.

Question 10

An open market purchase of government securities by the Fed will tend to result in which of the following,other things being equal?

Accepted Answer

A)  increased bond prices 
B)  an increase in real output 
C)  decreased interest rates 
D)  all of the above 
A)  increased bond prices 
B)  an increase in real output 
C)  decreased interest rates 
D)  all of the above

Question 11

An unexpected change in nominal interest rate changes real interest rate by ____ in the short run.

Accepted Answer

A)  a smaller amount 
B)  a larger amount 
C)  the same amount 
D)  an indeterminate percent 
A)  a smaller amount 
B)  a larger amount 
C)  the same amount 
D)  an indeterminate percent

Question 12

When the economy is initially at full employment:

Accepted Answer

A)  expansionary monetary policy will tend to increase the price level in the short run and the long run. 
B)  expansionary monetary policy will tend to increase the price level in the short run but not the long run. 
C)  expansionary monetary policy will tend to increase the price level in the long run but not the short run. 
D)  expansionary monetary policy will not tend to increase the price level in the short run or the long run. 
A)  expansionary monetary policy will tend to increase the price level in the short run and the long run. 
B)  expansionary monetary policy will tend to increase the price level in the short run but not the long run. 
C)  expansionary monetary policy will tend to increase the price level in the long run but not the short run. 
D)  expansionary monetary policy will not tend to increase the price level in the short run or the long run.

Question 13

The quantity of money demanded varies ____ with the nominal interest rate,but the supply of money is almost perfectly ____ with respect to nominal interest rates.

Accepted Answer

A)  inversely; elastic 
B)  directly; elastic 
C)  inversely; inelastic 
D)  directly; inelastic 
A)  inversely; elastic 
B)  directly; elastic 
C)  inversely; inelastic 
D)  directly; inelastic

Question 14

One uniquely American aspect of central banking is that:

Accepted Answer

A)  the United States has 12 central banks rather than one. 
B)  the Federal Reserve is a private institution with no governmental supervision. 
C)  the dual banking system created two parallel central banks. 
D)  the U.S. Treasury runs the Federal Reserve as an extension of the Executive Branch. 
A)  the United States has 12 central banks rather than one. 
B)  the Federal Reserve is a private institution with no governmental supervision. 
C)  the dual banking system created two parallel central banks. 
D)  the U.S. Treasury runs the Federal Reserve as an extension of the Executive Branch.

Question 15

An increase in M or an increase in V,other things equal,would definitely increase:

Accepted Answer

A)  the price level. 
B)  real GDP. 
C)  nominal GDP. 
D)  unemployment. 
A)  the price level. 
B)  real GDP. 
C)  nominal GDP. 
D)  unemployment.

Question 16

Suppose the banking system as a whole has $600 billion in deposits and $66 billion in reserves,with a reserve ratio of 11 percent.What happens to the stock of money if the Fed lowers reserve requirements by changing the reserve ratio to 10 percent?

Accepted Answer

Under the revised reserve requirements,b

Question 17

The equation of exchange states that:

Accepted Answer

A)  government spending = taxes plus the federal budget deficit. 
B)  the reciprocal of the reserve requirement = the deposit expansion multiplier. 
C)  the money supply times the velocity of money = the price level times the quantity of goods and services produced. 
D)  the price level times the velocity of money = the money supply times the quantity of goods and services produced. 
A)  government spending = taxes plus the federal budget deficit. 
B)  the reciprocal of the reserve requirement = the deposit expansion multiplier. 
C)  the money supply times the velocity of money = the price level times the quantity of goods and services produced. 
D)  the price level times the velocity of money = the money supply times the quantity of goods and services produced.

Question 18

All decisions of the Fed are subject to approval by:

Accepted Answer

A)  the President of the United States. 
B)  the U.S. Congress. 
C)  the FDIC 
D)  none of the above 
A)  the President of the United States. 
B)  the U.S. Congress. 
C)  the FDIC 
D)  none of the above

Question 19

If velocity is growing by 2 percent per year and real output is growing 6 percent per year,according to the equation of exchange,in order to maintain stable prices,the money supply would have to:

Accepted Answer

A)  grow by 3 percent. 
B)  grow by 4 percent. 
C)  grow by 8 percent. 
D)  grow by 12 percent. 
A)  grow by 3 percent. 
B)  grow by 4 percent. 
C)  grow by 8 percent. 
D)  grow by 12 percent.

Question 20

When the Fed buys a U.S.government security:

Accepted Answer

A)  the volume of loans issued by the banking system increases and investment will tend to increase. 
B)  the volume of loans issued by the banking system increases and investment will tend to decrease. 
C)  the volume of loans issued by the banking system decreases and investment will tend to increase. 
D)  the volume of loans issued by the banking system decreases and investment will tend to decrease. 
A)  the volume of loans issued by the banking system increases and investment will tend to increase. 
B)  the volume of loans issued by the banking system increases and investment will tend to decrease. 
C)  the volume of loans issued by the banking system decreases and investment will tend to increase. 
D)  the volume of loans issued by the banking system decreases and investment will tend to decrease.

Exam 26: The Federal Reserve System and Monetary Policy

Which of the following is most frequently used when the Fed is attempting to adjust the money supply?

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

A contractionary policy can be thought of as:

The supply-of-money curve is almost perfectly inelastic because:

If M increases,and V remains constant:

A combination of a decrease in the discount rate and an increase in reserve requirements would:

What is the equation of exchange? What are the variables,which are in it,and how do they relate to each other?

If the Fed sells bonds,the short run impact of this policy will tend to include:

The Federal Reserve banks are owned by:

An open market purchase of government securities by the Fed will tend to result in which of the following,other things being equal?

An unexpected change in nominal interest rate changes real interest rate by ____ in the short run.

When the economy is initially at full employment:

The quantity of money demanded varies ____ with the nominal interest rate,but the supply of money is almost perfectly ____ with respect to nominal interest rates.

One uniquely American aspect of central banking is that:

An increase in M or an increase in V,other things equal,would definitely increase:

Suppose the banking system as a whole has $600 billion in deposits and $66 billion in reserves,with a reserve ratio of 11 percent.What happens to the stock of money if the Fed lowers reserve requirements by changing the reserve ratio to 10 percent?

The equation of exchange states that:

All decisions of the Fed are subject to approval by:

If velocity is growing by 2 percent per year and real output is growing 6 percent per year,according to the equation of exchange,in order to maintain stable prices,the money supply would have to:

When the Fed buys a U.S.government security:

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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The quantity of money demanded varies with the nominal interest rate,but the supply of money is almost perfectly with respect to nominal interest rates.