Question 1

If the Fed was to use all of its three most common tools to increase the money supply,it would:

Accepted Answer

A)  buy bonds, reduce the discount rate, and reduce reserve requirements. 
B)  sell bonds, reduce the discount rate, and reduce reserve requirements. 
C)  sell bonds, reduce the discount rate, and increase reserve requirements. 
D)  sell bonds, increase the discount rate, and increase reserve requirements. 
A)  buy bonds, reduce the discount rate, and reduce reserve requirements. 
B)  sell bonds, reduce the discount rate, and reduce reserve requirements. 
C)  sell bonds, reduce the discount rate, and increase reserve requirements. 
D)  sell bonds, increase the discount rate, and increase reserve requirements.

Question 2

Which of the following would the Fed increase in order increase the supply of money?

Accepted Answer

A)  open market purchases of government bonds 
B)  reserve requirements 
C)  discount rate 
D)  all of the above 
A)  open market purchases of government bonds 
B)  reserve requirements 
C)  discount rate 
D)  all of the above

Question 3

Which of the following would tend to increase unemployment in the short run?

Accepted Answer

A)  commercial banks calling in loans to build up their excess reserves 
B)  an increase in reserve requirements 
C)  an increase in the discount rate 
D)  all of the above 
A)  commercial banks calling in loans to build up their excess reserves 
B)  an increase in reserve requirements 
C)  an increase in the discount rate 
D)  all of the above

Question 4

An increase in the required reserve ratio,say from 10 to 12 percent would:

Accepted Answer

A)  decrease the money supply by a substantial amount. 
B)  decrease the money supply by a small amount. 
C)  increase the money supply by a substantial amount. 
D)  increase the money supply by a small amount. 
A)  decrease the money supply by a substantial amount. 
B)  decrease the money supply by a small amount. 
C)  increase the money supply by a substantial amount. 
D)  increase the money supply by a small amount.

Question 5

Which of the following is not a limitation to monetary policy?

Accepted Answer

A)  The fact that fiscal policy is sometimes at odds with monetary. 
B)  The world has become global in all markets including financial markets, and the Fed does not have control over international banks or non-member banks. 
C)  Because the Federal Reserve System is made up of twelve branches, it is essentially very difficult to get a decision enacted by the Board of Governors. 
D)  Monetary policy has to be carried out through the commercial banking system. 
A)  The fact that fiscal policy is sometimes at odds with monetary. 
B)  The world has become global in all markets including financial markets, and the Fed does not have control over international banks or non-member banks. 
C)  Because the Federal Reserve System is made up of twelve branches, it is essentially very difficult to get a decision enacted by the Board of Governors. 
D)  Monetary policy has to be carried out through the commercial banking system.

Question 6

The major objective of the Federal Reserve System is to:

Accepted Answer

A)  make substantial profits for its member banks. 
B)  help in generating stabilization policies for the economy. 
C)  distribute paper money and coins to banks and retail stores. 
D)  prevent closure (failure) of individual member banks. 
A)  make substantial profits for its member banks. 
B)  help in generating stabilization policies for the economy. 
C)  distribute paper money and coins to banks and retail stores. 
D)  prevent closure (failure) of individual member banks.

Question 7

When interest rates are higher:

Accepted Answer

A)  the opportunity cost of holding monetary assets is higher, and the quantity of money demanded, but not the demand for money, is lower. 
B)  the opportunity cost of holding monetary assets is higher, and the demand for money increases. 
C)  the opportunity cost of holding monetary assets is lower, and the quantity of money demanded, but not the demand for money, is greater. 
D)  the opportunity cost of holding monetary assets is lower, and the demand for money increases. 
A)  the opportunity cost of holding monetary assets is higher, and the quantity of money demanded, but not the demand for money, is lower. 
B)  the opportunity cost of holding monetary assets is higher, and the demand for money increases. 
C)  the opportunity cost of holding monetary assets is lower, and the quantity of money demanded, but not the demand for money, is greater. 
D)  the opportunity cost of holding monetary assets is lower, and the demand for money increases.

Question 8

Which of the following will tend to decrease the excess reserves of the commercial banking system?

Accepted Answer

A)  The central bank buys bonds from the public. 
B)  The central bank sells bonds to a commercial bank. 
C)  The central bank reduces its discount rate. 
D)  The central bank decreases the required reserve ratio. 
A)  The central bank buys bonds from the public. 
B)  The central bank sells bonds to a commercial bank. 
C)  The central bank reduces its discount rate. 
D)  The central bank decreases the required reserve ratio.

Question 9

If policies of the Fed cause the money supply to increase,and velocity is held constant,the expected outcome would be:

Accepted Answer

A)  P ´ Q would increase, and the general price level would increase if Q remained constant. 
B)  P ´ Q would decrease, and the general price level would decrease if Q remained constant. 
C)  P ´ Q would decrease, and the general price level would increase if Q increased. 
D)  insufficient information is available to arrive at a conclusion. 
A)  P ´ Q would increase, and the general price level would increase if Q remained constant. 
B)  P ´ Q would decrease, and the general price level would decrease if Q remained constant. 
C)  P ´ Q would decrease, and the general price level would increase if Q increased. 
D)  insufficient information is available to arrive at a conclusion.

Question 10

If the Federal Open Market Committee (FOMC)decides to expand the money supply,then:

Accepted Answer

A)  it will issue directions to sell U.S. government securities, thus increasing the velocity of circulation of the money supply. 
B)  it will issue directions to purchase U.S. government securities, thus putting more reserves in the hands of banks. 
C)  it will order new Federal Reserve notes delivered to member banks. 
D)  it will raise the discount rate to member banks. 
A)  it will issue directions to sell U.S. government securities, thus increasing the velocity of circulation of the money supply. 
B)  it will issue directions to purchase U.S. government securities, thus putting more reserves in the hands of banks. 
C)  it will order new Federal Reserve notes delivered to member banks. 
D)  it will raise the discount rate to member banks.

Question 11

Other things equal.an open market purchase of government securities by the Fed will not result in which of the following?

Accepted Answer

A)  increased bond prices 
B)  a reduced volume of loans issued by the commercial banking system 
C)  decreased interest rates 
D)  an increase in the price level 
A)  increased bond prices 
B)  a reduced volume of loans issued by the commercial banking system 
C)  decreased interest rates 
D)  an increase in the price level

Question 12

The most likely impact of an unanticipated increase in the money supply is a(n):

Accepted Answer

A)  increase in the real interest rate, which in turn stimulates investment and GDP. 
B)  decrease in the real interest rate, which in turn stimulates investment and GDP. 
C)  decrease in real output, which causes the real interest rate to decline and in turn stimulate investment and GDP. 
D)  increase in real output, which causes the real interest rate to decline. 
A)  increase in the real interest rate, which in turn stimulates investment and GDP. 
B)  decrease in the real interest rate, which in turn stimulates investment and GDP. 
C)  decrease in real output, which causes the real interest rate to decline and in turn stimulate investment and GDP. 
D)  increase in real output, which causes the real interest rate to decline.

Question 13

Which among the following is the primary cause of hyperinflation?

Accepted Answer

A)  decreased government purchases 
B)  excessive money growth 
C)  high interest rates 
D)  high levels of taxation 
A)  decreased government purchases 
B)  excessive money growth 
C)  high interest rates 
D)  high levels of taxation

Question 14

What can the Fed do to decrease the supply of money?

Accepted Answer

A)  open market purchases of government bonds 
B)  increase reserve requirements 
C)  decrease the discount rate 
D)  any of the above 
A)  open market purchases of government bonds 
B)  increase reserve requirements 
C)  decrease the discount rate 
D)  any of the above

Question 15

To what extent should monetary policy be used to fine-tune the economy?

Accepted Answer

As a fine-tuning strategy,it is unlikely

Question 16

Which is potentially the most powerful tool available to the Fed to control the supply of money?

Accepted Answer

A)  open market operations 
B)  moral suasion 
C)  changes in reserve requirements 
D)  discount rate changes 
A)  open market operations 
B)  moral suasion 
C)  changes in reserve requirements 
D)  discount rate changes

Question 17

An increase in the interest rates will

Accepted Answer

A)  cause people to hold less money, which, in turn, means that the velocity of money increases. 
B)  cause people to hold less money, which, in turn, means that the velocity of money decreases. 
C)  cause people to hold more money, which, in turn, means that the velocity of money increases. 
D)  cause people to hold more money, which, in turn, means that the velocity of money decreases. 
A)  cause people to hold less money, which, in turn, means that the velocity of money increases. 
B)  cause people to hold less money, which, in turn, means that the velocity of money decreases. 
C)  cause people to hold more money, which, in turn, means that the velocity of money increases. 
D)  cause people to hold more money, which, in turn, means that the velocity of money decreases.

Question 18

The Fed would engage in ____ it wanted to address an inflationary gap.

Accepted Answer

A)  expansionary monetary policy 
B)  contractionary monetary policy 
C)  contractionary fiscal policy 
D)  expansionary fiscal policy 
A)  expansionary monetary policy 
B)  contractionary monetary policy 
C)  contractionary fiscal policy 
D)  expansionary fiscal policy

Question 19

If V falls faster than M increases:

Accepted Answer

A)  nominal GDP increases. 
B)  nominal GDP decreases. 
C)  nominal GDP stays the same. 
D)  there is an indeterminate effect on nominal GDP. 
A)  nominal GDP increases. 
B)  nominal GDP decreases. 
C)  nominal GDP stays the same. 
D)  there is an indeterminate effect on nominal GDP.

Question 20

Velocity represents the average number of times that a dollar is used in purchasing final goods and services in a one-year period.

Accepted Answer

A) True 
 B)False

Exam 26: The Federal Reserve System and Monetary Policy

If the Fed was to use all of its three most common tools to increase the money supply,it would:

Which of the following would the Fed increase in order increase the supply of money?

Which of the following would tend to increase unemployment in the short run?

An increase in the required reserve ratio,say from 10 to 12 percent would:

Which of the following is not a limitation to monetary policy?

The major objective of the Federal Reserve System is to:

When interest rates are higher:

Which of the following will tend to decrease the excess reserves of the commercial banking system?

If policies of the Fed cause the money supply to increase,and velocity is held constant,the expected outcome would be:

If the Federal Open Market Committee (FOMC)decides to expand the money supply,then:

Other things equal.an open market purchase of government securities by the Fed will not result in which of the following?

The most likely impact of an unanticipated increase in the money supply is a(n):

Which among the following is the primary cause of hyperinflation?

What can the Fed do to decrease the supply of money?

To what extent should monetary policy be used to fine-tune the economy?

Which is potentially the most powerful tool available to the Fed to control the supply of money?

An increase in the interest rates will

The Fed would engage in ____ it wanted to address an inflationary gap.

If V falls faster than M increases:

Velocity represents the average number of times that a dollar is used in purchasing final goods and services in a one-year period.

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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