Question 1

Banks with excellent credit can borrow ______ from the Federal Reserve.

Accepted Answer

A) $1,000,000 per year 
B) $1,000,000 per day 
C) only an amount equal to their deposits 
D) an unlimited amount 
A) $1,000,000 per year 
B) $1,000,000 per day 
C) only an amount equal to their deposits 
D) an unlimited amount

Question 2

The evidence is that central bank decision makers

Accepted Answer

A) should be elected. 
B) should have Congress dictate their actions to them. 
C) should be independent of and insulated from political pressures. 
D) are corrupt. 
A) should be elected. 
B) should have Congress dictate their actions to them. 
C) should be independent of and insulated from political pressures. 
D) are corrupt.

Question 3

Open Market Operations refer to the buying and selling of

Accepted Answer

A) corporate equities. 
B) gold. 
C) government securities. 
D) commodities. 
A) corporate equities. 
B) gold. 
C) government securities. 
D) commodities.

Question 4

When engaging in open market operations to stimulate the economy the Federal Reserve will

Accepted Answer

A) buy short term U.S. Treasuries. 
B) sell short term U.S. Treasuries. 
C) buy gold. 
D) sell gold. 
A) buy short term U.S. Treasuries. 
B) sell short term U.S. Treasuries. 
C) buy gold. 
D) sell gold.

Question 5

During 2003 the Federal Reserve began to openly discuss deflation. Their comments suggested they

Accepted Answer

A) were enthusiastic about the possibility. 
B) were neutral about whether deflation would be a good thing. 
C) knew it was something to watch because of the Japanese experience of the 1990s, but did not alter policy significantly to combat it. 
D) knew it would be a disaster, so they immediately cut the target federal funds rate by 5 percentage points to avoid the possibility. 
A) were enthusiastic about the possibility. 
B) were neutral about whether deflation would be a good thing. 
C) knew it was something to watch because of the Japanese experience of the 1990s, but did not alter policy significantly to combat it. 
D) knew it would be a disaster, so they immediately cut the target federal funds rate by 5 percentage points to avoid the possibility.

Question 6

New tools of monetary policy created in 2008 included

Accepted Answer

A) restoration of individual income tax rates to their pre-2001 levels. 
B) elimination of the requirement that banks hold reserves against deposits. 
C) open market purchases and sales of short-term U.S. government securities. 
D) Fed purchase of corporate paper and a new discount window for investment banks. 
A) restoration of individual income tax rates to their pre-2001 levels. 
B) elimination of the requirement that banks hold reserves against deposits. 
C) open market purchases and sales of short-term U.S. government securities. 
D) Fed purchase of corporate paper and a new discount window for investment banks.

Question 7

Federal Reserve increases in the Federal Funds rate in 2005 had little immediate impact upon the overheated housing market, because

Accepted Answer

A) long-term interest increased as short-term interest rates increased. 
B) long-term interest rates and short-term interest rates do not always move in lockstep. 
C) the yield curve became more steeply upward-sloping. 
D) all of the options are correct. 
A) long-term interest increased as short-term interest rates increased. 
B) long-term interest rates and short-term interest rates do not always move in lockstep. 
C) the yield curve became more steeply upward-sloping. 
D) all of the options are correct.

Question 8

When the Federal Reserve wishes to, in the short run, increase real GDP it

Accepted Answer

A) will increase the money supply by buying bonds. 
B) will increase the money supply by selling bonds. 
C) will decrease the money supply by selling bonds. 
D) has no policy options that will accomplish this. 
A) will increase the money supply by buying bonds. 
B) will increase the money supply by selling bonds. 
C) will decrease the money supply by selling bonds. 
D) has no policy options that will accomplish this.

Question 9

If the Federal Reserve wished to engage in contractionary monetary policy it could

Accepted Answer

A) increase the primary credit rate. 
B) purchase government debt. 
C) lower the reserve ratio. 
D) lower the Federal Funds rate target. 
A) increase the primary credit rate. 
B) purchase government debt. 
C) lower the reserve ratio. 
D) lower the Federal Funds rate target.

Question 10

Expansionary monetary policy would shift the

Accepted Answer

A) aggregate demand curve to the right. 
B) aggregate demand curve to the left. 
C) aggregate supply curve up and to the left. 
D) aggregate supply curve down and to the right. 
A) aggregate demand curve to the right. 
B) aggregate demand curve to the left. 
C) aggregate supply curve up and to the left. 
D) aggregate supply curve down and to the right.

Question 11

The point of Open Market Operations is to

Accepted Answer

A) influence stock prices. 
B) increase or decrease the money supply so as to influence interest rates. 
C) increase or decrease the value of gold as to influence the value of foreign currency. 
D) influence oil prices. 
A) influence stock prices. 
B) increase or decrease the money supply so as to influence interest rates. 
C) increase or decrease the value of gold as to influence the value of foreign currency. 
D) influence oil prices.

Question 12

An increase in the monetary base (the supply of overnight money)will shift the

Accepted Answer

A) supply of loanable funds to the right. 
B) supply of loanable funds to the left. 
C) demand for loanable funds to the right. 
D) demand for loanable funds to the left. 
A) supply of loanable funds to the right. 
B) supply of loanable funds to the left. 
C) demand for loanable funds to the right. 
D) demand for loanable funds to the left.

Question 13

The Federal Reserve governs U.S.

Accepted Answer

A) monetary policy. 
B) discretionary fiscal policy. 
C) nondiscretionary fiscal policy. 
D) Supreme Court nominations. 
A) monetary policy. 
B) discretionary fiscal policy. 
C) nondiscretionary fiscal policy. 
D) Supreme Court nominations.

Question 14

Through the taking of deposits and making loans banks

Accepted Answer

A) create more money that physically exists. 
B) destroy money that would physically exist if they were not part of the process. 
C) leave the system with exactly the same amount of money as physically exists. 
D) have no role in the money creation process. 
A) create more money that physically exists. 
B) destroy money that would physically exist if they were not part of the process. 
C) leave the system with exactly the same amount of money as physically exists. 
D) have no role in the money creation process.

Question 15

The monetary base includes

Accepted Answer

A) cash held by banks and by the public plus deposits at the Federal Reserve. 
B) currency plus checkable accounts and traveler's checks. 
C) currency plus checkable accounts plus traveler's checks plus small CDs and money market accounts. 
D) just cash held by the public. 
A) cash held by banks and by the public plus deposits at the Federal Reserve. 
B) currency plus checkable accounts and traveler's checks. 
C) currency plus checkable accounts plus traveler's checks plus small CDs and money market accounts. 
D) just cash held by the public.

Question 16

Which monetary aggregate is the least broad

Accepted Answer

A) cash held by the public. 
B) the monetary base. 
C) M1. 
D) M2. 
A) cash held by the public. 
B) the monetary base. 
C) M1. 
D) M2.

Question 17

The primary credit rate refers to the rate at which

Accepted Answer

A) banks lend to one another to meet reserve requirements. 
B) the Federal Reserve charges banks (with excellent credit)for loans. 
C) banks lend to their best customers. 
D) none of these options are correct. 
A) banks lend to one another to meet reserve requirements. 
B) the Federal Reserve charges banks (with excellent credit)for loans. 
C) banks lend to their best customers. 
D) none of these options are correct.

Question 18

Between 2004 and 2005 the Federal Reserve raised interest rates 11 times. This is an example of

Accepted Answer

A) discretionary fiscal policy. 
B) nondiscretionary fiscal policy. 
C) expansionary monetary policy. 
D) contractionary monetary policy. 
A) discretionary fiscal policy. 
B) nondiscretionary fiscal policy. 
C) expansionary monetary policy. 
D) contractionary monetary policy.

Question 19

The Federal Open Market Committee

Accepted Answer

A) decides what mortgage interest rates will be. 
B) decides what the Federal Funds rate target will be. 
C) submits recommendations on Federal Funds Rates to Congress. 
D) submits recommendations on Federal Funds Rates to the President. 
A) decides what mortgage interest rates will be. 
B) decides what the Federal Funds rate target will be. 
C) submits recommendations on Federal Funds Rates to Congress. 
D) submits recommendations on Federal Funds Rates to the President.

Question 20

If the Federal Reserve wished to engage in contractionary monetary policy it could

Accepted Answer

A) increase the primary credit rate. 
B) sell government debt. 
C) increase the reserve ratio. 
D) all of the above. 
A) increase the primary credit rate. 
B) sell government debt. 
C) increase the reserve ratio. 
D) all of the above.

Exam 10: Monetary Policy

Banks with excellent credit can borrow ______ from the Federal Reserve.

The evidence is that central bank decision makers

Open Market Operations refer to the buying and selling of

When engaging in open market operations to stimulate the economy the Federal Reserve will

During 2003 the Federal Reserve began to openly discuss deflation. Their comments suggested they

New tools of monetary policy created in 2008 included

Federal Reserve increases in the Federal Funds rate in 2005 had little immediate impact upon the overheated housing market, because

When the Federal Reserve wishes to, in the short run, increase real GDP it

If the Federal Reserve wished to engage in contractionary monetary policy it could

Expansionary monetary policy would shift the

The point of Open Market Operations is to

An increase in the monetary base (the supply of overnight money)will shift the

The Federal Reserve governs U.S.

Through the taking of deposits and making loans banks

The monetary base includes

Which monetary aggregate is the least broad

The primary credit rate refers to the rate at which

Between 2004 and 2005 the Federal Reserve raised interest rates 11 times. This is an example of

The Federal Open Market Committee

If the Federal Reserve wished to engage in contractionary monetary policy it could

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