Question 1

The Fed increases interest rates mainly by selling government securities.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is a tool of monetary policy?

Accepted Answer

A)  Open-market operations. 
B)  Changes in banking laws. 
C)  Changes in tax rates. 
D)  Changes in government spending. 
A)  Open-market operations. 
B)  Changes in banking laws. 
C)  Changes in tax rates. 
D)  Changes in government spending.

Question 3

The opportunity cost of holding money:

Accepted Answer

A)  is zero because money is not an economic resource. 
B)  varies inversely with the interest rate. 
C)  varies directly with the interest rate. 
D)  varies inversely with the level of economic activity. 
A)  is zero because money is not an economic resource. 
B)  varies inversely with the interest rate. 
C)  varies directly with the interest rate. 
D)  varies inversely with the level of economic activity.

Question 4

An increase in the legal reserve ratio:

Accepted Answer

A)  increases the money supply by increasing excess reserves and increasing the monetary multiplier. 
B)  decreases the money supply by decreasing excess reserves and decreasing the monetary multiplier. 
C)  increases the money supply by decreasing excess reserves and decreasing the monetary multiplier. 
D)  decreases the money supply by increasing excess reserves and decreasing the monetary multiplier. 
A)  increases the money supply by increasing excess reserves and increasing the monetary multiplier. 
B)  decreases the money supply by decreasing excess reserves and decreasing the monetary multiplier. 
C)  increases the money supply by decreasing excess reserves and decreasing the monetary multiplier. 
D)  decreases the money supply by increasing excess reserves and decreasing the monetary multiplier.

Question 5

Reserves borrowed at the federal funds rate are usually repaid:

Accepted Answer

A)  in one year. 
B)  in five years. 
C)  at the end of the month. 
D)  the next day. 
A)  in one year. 
B)  in five years. 
C)  at the end of the month. 
D)  the next day.

Question 6

When the required reserve ratio is decreased,the excess reserves of member banks are:

Accepted Answer

A)  reduced,but the multiple by which the commercial banking system can lend is unaffected. 
B)  reduced and the multiple by which the commercial banking system can lend is increased. 
C)  increased and the multiple by which the commercial banking system can lend is increased. 
D)  increased and the multiple by which the commercial banking system can lend is reduced. 
A)  reduced,but the multiple by which the commercial banking system can lend is unaffected. 
B)  reduced and the multiple by which the commercial banking system can lend is increased. 
C)  increased and the multiple by which the commercial banking system can lend is increased. 
D)  increased and the multiple by which the commercial banking system can lend is reduced.

Question 7

Suppose that,for every 1-percentage-point decline of the discount rate,commercial banks collectively borrow an additional $2 billion from Federal Reserve Banks.Also assume that the reserve ratio is 20 percent.If the Fed increases the discount rate from 4.0 percent to 4.25 percent,bank reserves will:

Accepted Answer

A)  increase by $0.5 billion and the money supply will increase by $2.5 billion. 
B)  decline by $0.5 billion and the money supply will decline by $2.5 billion. 
C)  increase by $0.75 billion and the money supply will increase by $3.75 billion. 
D)  increase by $1 billion and the money supply will increase by $5 billion. 
A)  increase by $0.5 billion and the money supply will increase by $2.5 billion. 
B)  decline by $0.5 billion and the money supply will decline by $2.5 billion. 
C)  increase by $0.75 billion and the money supply will increase by $3.75 billion. 
D)  increase by $1 billion and the money supply will increase by $5 billion.

Question 8

Which of the following tools of monetary policy has not been used since 1992?

Accepted Answer

A)  Interest on reserves. 
B)  The reserve ratio. 
C)  Open-market operations. 
D)  The federal funds rate. 
A)  Interest on reserves. 
B)  The reserve ratio. 
C)  Open-market operations. 
D)  The federal funds rate.

Question 9

(Consider This)The Fed is like a sponge in that it can:

Accepted Answer

A)  clean up economic problems just as one would wash dirt off a car. 
B)  squeeze new reserves into the banking system,or soak up reserves if the banking reserve "bowl" is too full. 
C)  wipe away inflation when used with the "soap" of fiscal policy. 
D)  wash the "windows" of the banking system so that monetary policy is more transparent. 
A)  clean up economic problems just as one would wash dirt off a car. 
B)  squeeze new reserves into the banking system,or soak up reserves if the banking reserve "bowl" is too full. 
C)  wipe away inflation when used with the "soap" of fiscal policy. 
D)  wash the "windows" of the banking system so that monetary policy is more transparent.

Question 10

Beginning in 2008,the Fed was allowed to:

Accepted Answer

A)  lend directly to consumers. 
B)  alter tax rates. 
C)  pay interest on reserves deposited at Fed banks. 
D)  require commercial banks to loan a certain percentage of their excess reserves. 
A)  lend directly to consumers. 
B)  alter tax rates. 
C)  pay interest on reserves deposited at Fed banks. 
D)  require commercial banks to loan a certain percentage of their excess reserves.

Question 11

A federal funds rate reduction that is caused by monetary policy will:

Accepted Answer

A)  increase the prime interest rate. 
B)  decrease the size of the monetary multiplier. 
C)  increase the Fed's discount rate. 
D)  decrease the prime interest rate. 
A)  increase the prime interest rate. 
B)  decrease the size of the monetary multiplier. 
C)  increase the Fed's discount rate. 
D)  decrease the prime interest rate.

Question 12

Answer the question on the basis of the information in the following table. $\begin{array}{c}
\begin{array}{c}
\
\text {Money}\
\underline{\text { Supply}}\
 \$ 400 \
400\
400\
400\
400
\end{array}
\begin{array}{c}
\
\text { Money }\
\underline{\text { Demanc }} \
 \$ 600 \
500 \
400 \
300 \
200
\end{array}
\begin{array}{c}
\
\text { Interest}\
\underline{\text { Rate }} \
 2 \% \
3 \
4 \
5 \
6
\end{array}
\begin{array}{c}
\text {Investment }\
\text {(at Interest}\
\underline{\text { Rate Shown)}}\
\$ 700 \
600 \
500 \
300 \
200
\end{array}
\end{array}$
 Refer to the table.Suppose the legal reserve requirement is 10 percent and initially there are no excess reserves in the banking system.If the Fed wished to reduce the interest rate by 1 percentage point,it would:

Accepted Answer

A)  sell $10 of government bonds in the open market. 
B)  buy $100 of government bonds in the open market. 
C)  sell $100 of government bonds in the open market. 
D)  buy $10 of government bonds in the open market. 
A)  sell $10 of government bonds in the open market. 
B)  buy $100 of government bonds in the open market. 
C)  sell $100 of government bonds in the open market. 
D)  buy $10 of government bonds in the open market.

Question 13

Answer the question on the basis of the following table: $\begin{array}{c}
\begin{array}{c}
\
\text { Interest }\
\text { Rate } \
\hline 2 \% \
4 \
6 \
8 \
10 
\end{array}
\begin{array}{c}
\text {Transaction}\
\text {Demand for}\
\underline{\text {Money}}\
 \$ 220 \
220\
220\
220\
220
\end{array}
\begin{array}{c}
\
\text {Asset Demand }\
\underline{\text {for Money}}\
\$ 300 \
280 \
260 \
240 \
220
\end{array}
\begin{array}{c}
\
\text {Money}\
\underline{\text {Supply}}\
\$ 460 \
460\
460\
460\
460
\end{array}
\end{array}$

Refer to the given table.The equilibrium interest rate is:

Accepted Answer

A)  2 percent. 
B)  4 percent. 
C)  6 percent. 
D)  8 percent. 
A)  2 percent. 
B)  4 percent. 
C)  6 percent. 
D)  8 percent.

Question 14

Answer the question on the basis of the following information for a bond having no expiration date: bond price = $1,000;bond fixed annual interest payment = $100;bond annual interest rate = 10 percent. Refer to the given information.If the price of this bond falls by $200,the interest rate will:

Accepted Answer

A)  rise by 2.5 percentage points. 
B)  rise by 5 percentage points. 
C)  fall by 2.5 percentage points. 
D)  fall by 5 percentage points. 
A)  rise by 2.5 percentage points. 
B)  rise by 5 percentage points. 
C)  fall by 2.5 percentage points. 
D)  fall by 5 percentage points.

Question 15

If the economy were encountering a severe recession,proper monetary and fiscal policies would call for:

Accepted Answer

A)  selling government securities,raising the reserve ratio,lowering the discount rate,increasing interest paid on reserves held at Fed banks,and a budgetary surplus. 
B)  buying government securities,reducing the reserve ratio,reducing the discount rate,reducing interest paid on reserves held at Fed banks,and a budgetary deficit. 
C)  buying government securities,raising the reserve ratio,raising the discount rate,reducing interest paid on reserves held at Fed banks,and a budgetary surplus. 
D)  buying government securities,reducing the reserve ratio,raising the discount rate,reducing interest paid on reserves held at Fed banks,and a budgetary deficit. 
A)  selling government securities,raising the reserve ratio,lowering the discount rate,increasing interest paid on reserves held at Fed banks,and a budgetary surplus. 
B)  buying government securities,reducing the reserve ratio,reducing the discount rate,reducing interest paid on reserves held at Fed banks,and a budgetary deficit. 
C)  buying government securities,raising the reserve ratio,raising the discount rate,reducing interest paid on reserves held at Fed banks,and a budgetary surplus. 
D)  buying government securities,reducing the reserve ratio,raising the discount rate,reducing interest paid on reserves held at Fed banks,and a budgetary deficit.

Question 16

When the Fed lends money to a commercial bank,the bank:

Accepted Answer

A)  increases its reserves and enhances its ability to extend credit to bank customers. 
B)  decreases its reserves and reduces its ability to extend credit to bank customers. 
C)  pays the federal funds interest rate on the loan. 
D)  pays the prime interest rate on the loan. 
A)  increases its reserves and enhances its ability to extend credit to bank customers. 
B)  decreases its reserves and reduces its ability to extend credit to bank customers. 
C)  pays the federal funds interest rate on the loan. 
D)  pays the prime interest rate on the loan.

Question 17

When the Fed pays interest on reserves held at Fed banks,the interest rate used is the discount rate.

Accepted Answer

A) True 
 B)False

Question 18

(Consider This)The Fed's ability to alter the level of reserves in the banking system is the main idea of the:

Accepted Answer

A)  sponge analogy. 
B)  squeegee analogy. 
C)  pushing-on-a-string analogy. 
D)  hose analogy. 
A)  sponge analogy. 
B)  squeegee analogy. 
C)  pushing-on-a-string analogy. 
D)  hose analogy.

Question 19

The pushing-on-a-string analogy makes the point that monetary policy may be better at:

Accepted Answer

A)  controlling demand-pull inflation than cost-push inflation. 
B)  pulling the aggregate demand curve leftward than pushing it rightward. 
C)  pulling the unemployment rate downward than pushing the economic growth rate upward. 
D)  keeping rapid inflation from occurring than reducing it once it has begun. 
A)  controlling demand-pull inflation than cost-push inflation. 
B)  pulling the aggregate demand curve leftward than pushing it rightward. 
C)  pulling the unemployment rate downward than pushing the economic growth rate upward. 
D)  keeping rapid inflation from occurring than reducing it once it has begun.

Question 20

Which of the following tools of monetary policy is considered the most important on a day-to-day basis?

Accepted Answer

A)  The discount rate. 
B)  The reserve ratio. 
C)  Open-market operations. 
D)  Paying interest on reserves. 
A)  The discount rate. 
B)  The reserve ratio. 
C)  Open-market operations. 
D)  Paying interest on reserves.

The Fed increases interest rates mainly by selling government securities.

Which of the following is a tool of monetary policy?

The opportunity cost of holding money:

An increase in the legal reserve ratio:

Reserves borrowed at the federal funds rate are usually repaid:

When the required reserve ratio is decreased,the excess reserves of member banks are:

Suppose that,for every 1-percentage-point decline of the discount rate,commercial banks collectively borrow an additional $2 billion from Federal Reserve Banks.Also assume that the reserve ratio is 20 percent.If the Fed increases the discount rate from 4.0 percent to 4.25 percent,bank reserves will:

Which of the following tools of monetary policy has not been used since 1992?

(Consider This)The Fed is like a sponge in that it can:

Beginning in 2008,the Fed was allowed to:

A federal funds rate reduction that is caused by monetary policy will:

Answer the question on the basis of the following table: Interest Rate 2\% 4 6 8 10 Transaction Demand for \ 220 220 220 220 220 Asset Demand \ 300 280 260 240 220 Money \ 460 460 460 460 460 Refer to the given table.The equilibrium interest rate is:

Answer the question on the basis of the following information for a bond having no expiration date: bond price = $1,000;bond fixed annual interest payment = $100;bond annual interest rate = 10 percent. Refer to the given information.If the price of this bond falls by $200,the interest rate will:

If the economy were encountering a severe recession,proper monetary and fiscal policies would call for:

When the Fed lends money to a commercial bank,the bank:

When the Fed pays interest on reserves held at Fed banks,the interest rate used is the discount rate.

(Consider This)The Fed's ability to alter the level of reserves in the banking system is the main idea of the:

The pushing-on-a-string analogy makes the point that monetary policy may be better at:

Which of the following tools of monetary policy is considered the most important on a day-to-day basis?

Income Inequality Poverty and Discrimination

Health Care

Immigration

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

The Balance of Payments, Exchange Rates, and Trade Deficits

Money, Banking, and Financial Institutions

Money Creation

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

The United States and the Global Economy

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Exam 35: Interest Rates and Monetary Policy

The Fed increases interest rates mainly by selling government securities.

Which of the following is a tool of monetary policy?

The opportunity cost of holding money:

An increase in the legal reserve ratio:

Reserves borrowed at the federal funds rate are usually repaid:

When the required reserve ratio is decreased,the excess reserves of member banks are:

Which of the following tools of monetary policy has not been used since 1992?

(Consider This)The Fed is like a sponge in that it can:

Beginning in 2008,the Fed was allowed to:

A federal funds rate reduction that is caused by monetary policy will:

Answer the question on the basis of the following table: Interest Rate 2\% 4 6 8 10 Transaction Demand for \ 220 220 220 220 220 Asset Demand \ 300 280 260 240 220 Money \ 460 460 460 460 460 Refer to the given table.The equilibrium interest rate is:

Answer the question on the basis of the following information for a bond having no expiration date: bond price = $1,000;bond fixed annual interest payment = $100;bond annual interest rate = 10 percent. Refer to the given information.If the price of this bond falls by $200,the interest rate will:

If the economy were encountering a severe recession,proper monetary and fiscal policies would call for:

When the Fed lends money to a commercial bank,the bank:

When the Fed pays interest on reserves held at Fed banks,the interest rate used is the discount rate.

(Consider This)The Fed's ability to alter the level of reserves in the banking system is the main idea of the:

The pushing-on-a-string analogy makes the point that monetary policy may be better at:

Which of the following tools of monetary policy is considered the most important on a day-to-day basis?

Income Inequality Poverty and Discrimination

Health Care

Immigration

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

The Balance of Payments, Exchange Rates, and Trade Deficits

Money, Banking, and Financial Institutions

Money Creation

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

The United States and the Global Economy

Filters