Question 1

Assuming government wishes to either increase or decrease the level of aggregate demand,which of the following pairs are not consistent policy measures?

Accepted Answer

A)  A tax increase and an increase in the money supply. 
B)  A tax reduction and an increase in the money supply. 
C)  A reduction in government expenditures and a decline in the money supply. 
D)  A tax increase and an increase in the interest rate. 
A)  A tax increase and an increase in the money supply. 
B)  A tax reduction and an increase in the money supply. 
C)  A reduction in government expenditures and a decline in the money supply. 
D)  A tax increase and an increase in the interest rate.

Question 2

Other things equal,if there is an increase in nominal GDP:

Accepted Answer

A)  the demand for money will decrease. 
B)  the interest rate will rise. 
C)  bond prices will rise. 
D)  consumption spending will fall. 
A)  the demand for money will decrease. 
B)  the interest rate will rise. 
C)  bond prices will rise. 
D)  consumption spending will fall.

Question 3

Which of the following is not a tool of monetary policy?

Accepted Answer

A)  Open-market operations. 
B)  Changes in banking laws. 
C)  Changes in the rate of interest paid on reserves held at Federal Reserve Banks. 
D)  Changes in the reserve ratio. 
A)  Open-market operations. 
B)  Changes in banking laws. 
C)  Changes in the rate of interest paid on reserves held at Federal Reserve Banks. 
D)  Changes in the reserve ratio.

Question 4

The purchase of government securities from the public by the Fed will cause:

Accepted Answer

A)  commercial bank reserves to decrease. 
B)  the money supply to increase. 
C)  demand deposits to decrease. 
D)  the interest rate to increase. 
A)  commercial bank reserves to decrease. 
B)  the money supply to increase. 
C)  demand deposits to decrease. 
D)  the interest rate to increase.

Question 5

According to the Taylor rule,if inflation has risen by 6 percentage points above its target of 2 percent,the Fed should:

Accepted Answer

A)  grow the money supply at a rate of 6 percent per year. 
B)  raise the real federal funds rate by 6 percentage points. 
C)  raise the real federal funds rate by 3 percentage points. 
D)  raise the real federal funds rate by 12 percentage points. 
A)  grow the money supply at a rate of 6 percent per year. 
B)  raise the real federal funds rate by 6 percentage points. 
C)  raise the real federal funds rate by 3 percentage points. 
D)  raise the real federal funds rate by 12 percentage points.

Question 6

An expansionary monetary policy may be frustrated if the:

Accepted Answer

A)  demand-for-money curve shifts to the left. 
B)  investment-demand curve shifts to the left. 
C)  saving schedule shifts downward. 
D)  investment-demand curve shifts to the right. 
A)  demand-for-money curve shifts to the left. 
B)  investment-demand curve shifts to the left. 
C)  saving schedule shifts downward. 
D)  investment-demand curve shifts to the right.

Question 7

Other things equal,which of the following would increase the federal funds rate?

Accepted Answer

A)  A decrease in loan demand in the federal funds market. 
B)  A decrease in the reserve ratio. 
C)  Fed purchases of government securities from banks. 
D)  A decline in excess reserves in the banking system. 
A)  A decrease in loan demand in the federal funds market. 
B)  A decrease in the reserve ratio. 
C)  Fed purchases of government securities from banks. 
D)  A decline in excess reserves in the banking system.

Question 8

If the economy is operating in the relatively steep (upper)portion of its aggregate supply curve,a reduction in the money supply will:

Accepted Answer

A)  increase the interest rate and increase employment. 
B)  reduce the interest rate and increase employment. 
C)  increase the interest rate and reduce the price level,assuming it is flexible downward. 
D)  reduce the interest rate and increase the price level. 
A)  increase the interest rate and increase employment. 
B)  reduce the interest rate and increase employment. 
C)  increase the interest rate and reduce the price level,assuming it is flexible downward. 
D)  reduce the interest rate and increase the price level.

Question 9

The demand for federal funds is:

Accepted Answer

A)  horizontal. 
B)  downsloping. 
C)  upsloping. 
D)  vertical. 
A)  horizontal. 
B)  downsloping. 
C)  upsloping. 
D)  vertical.

Question 10

Answer the question on the basis of the following table in which columns (1)and (2)indicate the transactions demand (Dt)for money and columns (1)and (3)show the asset demand (Da)for money: $\begin{array}{c}
\begin{array}{c}
(1)\
\underline{\text {Interest Rate}}\
12 \% \
10 \
8 \
6 \
4 \
2
\end{array}
\begin{array}{c}
(2)\
\underline{D_{t} }\
 \$ 100 \
100 \
100 \
100 \
100 \
100
\end{array}
\begin{array}{c}
(3)\
\underline{D_{a}} \
\$ 0 \
20 \
40 \
60 \
80 \
100
\end{array}
\end{array}$
 The given data suggest that the amount of money demanded for transactions:

Accepted Answer

A)  varies directly with the interest rate. 
B)  varies inversely with the interest rate. 
C)  varies inversely with nominal GDP. 
D)  is independent of the interest rate. 
A)  varies directly with the interest rate. 
B)  varies inversely with the interest rate. 
C)  varies inversely with nominal GDP. 
D)  is independent of the interest rate.

Question 11

When QE2 and Operation Twist were implemented,the Fed suspended its policy of forward commitment.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following will happen when the Federal Reserve buys bonds from the public in the open market and the amount of cash held by the public does not change?

Accepted Answer

A)  The required reserve ratio will increase. 
B)  The money supply will decrease. 
C)  The deposits of commercial banks will decline. 
D)  Commercial bank reserves will increase. 
A)  The required reserve ratio will increase. 
B)  The money supply will decrease. 
C)  The deposits of commercial banks will decline. 
D)  Commercial bank reserves will increase.

Question 13

If the Fed wants to discourage commercial bank lending,it will:

Accepted Answer

A)  increase the interest paid on reserves held at the Fed. 
B)  decrease the interest paid on reserves held at the Fed. 
C)  buy government securities from commercial banks. 
D)  lower the federal funds rate target. 
A)  increase the interest paid on reserves held at the Fed. 
B)  decrease the interest paid on reserves held at the Fed. 
C)  buy government securities from commercial banks. 
D)  lower the federal funds rate target.

Question 14

From 2004 to 2006 the Fed raised the federal funds rate gradually in a series of steps.The Fed's purpose was to raise the prime interest rate so that:

Accepted Answer

A)  high inflation rates would fall. 
B)  aggregate demand would continue to grow consistently and with low inflation. 
C)  aggregate supply would grow,increasing output and lowering the price level. 
D)  banks would reduce lending that was building up unmanageable consumer debt. 
A)  high inflation rates would fall. 
B)  aggregate demand would continue to grow consistently and with low inflation. 
C)  aggregate supply would grow,increasing output and lowering the price level. 
D)  banks would reduce lending that was building up unmanageable consumer debt.

Question 15

Answer the question on the basis of the following consolidated balance sheet of the commercial banking system.Assume that the reserve requirement is 10 percent.All figures are in billions and each question should be answered independently of changes specified in any preceding ones. $\begin{array}{c}
\begin{array}{lll}
\quad\quad\quad\underline{\text { Assets}}\
\text { Reserves}\
\text { Securities}\
\text { Loans}\
\text { Property} 
\end{array}
\begin{array}{l}
\
\$ 60 \
140 \
260 \
400 
\end{array}
\begin{array}{lll}
\quad\quad \underline{\text { Liabilities \& Net Worth }}\
\text { Checkable Deposits}\
\text {  Stock Shares}\
\
\
\end{array}
\begin{array}{lll}
\
\$600\
260\
\
\
\end{array}
\end{array}$

Refer to the given data.Suppose the Fed bought $20 billion of U.S.securities from the banks.This would:

Accepted Answer

A)  increase bank reserves to $80 billion,reduce bank-held securities to $120 billion,and,assuming a full money multiplier effect,increase the money supply (checkable deposits)by $200 billion. 
B)  increase bank reserves to $80 billion,reduce bank-held securities to $120 billion,and,assuming a full money multiplier effect,decrease the money supply (checkable deposits)by $200 billion. 
C)  reduce bank reserves to $40 billion,increase bank-held securities to $160 billion,and,assuming a full money multiplier effect,increase the money supply (checkable deposits)by $200 billion. 
D)  reduce bank reserves to $40 billion,increase bank-held securities to $160 billion,and,assuming a full money multiplier effect,decrease the money supply (checkable deposits)by $200 billion. 
A)  increase bank reserves to $80 billion,reduce bank-held securities to $120 billion,and,assuming a full money multiplier effect,increase the money supply (checkable deposits)by $200 billion. 
B)  increase bank reserves to $80 billion,reduce bank-held securities to $120 billion,and,assuming a full money multiplier effect,decrease the money supply (checkable deposits)by $200 billion. 
C)  reduce bank reserves to $40 billion,increase bank-held securities to $160 billion,and,assuming a full money multiplier effect,increase the money supply (checkable deposits)by $200 billion. 
D)  reduce bank reserves to $40 billion,increase bank-held securities to $160 billion,and,assuming a full money multiplier effect,decrease the money supply (checkable deposits)by $200 billion.

Question 16

Answer the question on the basis of the following consolidated balance sheet of the commercial banking system.Assume that the reserve requirement is 10 percent.All figures are in billions and each question should be answered independently of changes specified in any preceding ones. $\begin{array}{c}
\begin{array}{lll}
\quad\quad\quad\underline{\text { Assets}}\
\text { Reserves}\
\text { Securities}\
\text { Loans}\
\text { Property} 
\end{array}
\begin{array}{l}
\
\$ 60 \
140 \
260 \
400 
\end{array}
\begin{array}{lll}
\quad\quad \underline{\text { Liabilities \& Net Worth }}\
\text { Checkable Deposits}\
\text {  Stock Shares}\
\
\
\end{array}
\begin{array}{lll}
\
\$600\
260\
\
\
\end{array}
\end{array}$
  Refer to the given data.The monetary multiplier for the commercial banking system is:

Accepted Answer

A)  5. 
B)  10. 
C)  12.5. 
D)  20. 
A)  5. 
B)  10. 
C)  12.5. 
D)  20.

Question 17

Which of the following actions by the Fed would cause the money supply to increase?

Accepted Answer

A)  Purchases of government bonds from banks. 
B)  An increase in the reserve requirement. 
C)  An increase in the discount rate. 
D)  Sales of government bonds to the public. 
A)  Purchases of government bonds from banks. 
B)  An increase in the reserve requirement. 
C)  An increase in the discount rate. 
D)  Sales of government bonds to the public.

Question 18

Answer the question on the basis of the following information.For transactions,households and businesses want to hold an amount of money equal to one-half of nominal GDP.The table shows the amounts of money they want to hold as an asset at various interest rates. $\begin{array}{l}
\begin{array}{cc}
\underline{\text { Interest Rate} } & \underline{\text { Amount of Money Demanded }}\
10 \% & \$ 20 \
8 & 40 \
6 & 60 \
4 & 80 \
2 & 100
\end{array}
\end{array}$ Refer to the given information.If nominal GDP is $200 and the interest rate is 6 percent,the total amount of money that households and businesses will want to hold is:

Accepted Answer

A)  $120. 
B)  $140. 
C)  $160. 
D)  $180. 
A)  $120. 
B)  $140. 
C)  $160. 
D)  $180.

Question 19

Answer the question on the basis of the following consolidated balance sheet of the commercial banking system.Assume that the reserve requirement is 20 percent.All figures are in billions and each question should be answered independently of changes specified in all preceding ones. $\begin{array}{c}
\begin{array}{lll}
\quad\quad\quad\underline{\text { Assets}}\
\text { Reserves}\
\text { Securities}\
\text { Loans}\
\text { Property} 
\end{array}
\begin{array}{l}
\
\$ 200 \
300 \
500 \
400 
\end{array}
\begin{array}{lll}
\quad\quad \underline{\text { Liabilities \& Net Worth }}\
\text { Checkable Deposits}\
\text {  Stock Shares}\
\
\
\end{array}
\begin{array}{lll}
\
\$1,100\
400\
\
\
\end{array}
\end{array}$

Refer to the given data.If the Fed increased the reserve requirement from 20 percent to 25 percent,a deficiency of reserves in the commercial banking system of _____ would occur and the monetary multiplier would fall to ____.

Accepted Answer

A)  $50 billion;5 
B)  $10 billion;4 
C)  $50 billion;4 
D)  $10 billion;8 
A)  $50 billion;5 
B)  $10 billion;4 
C)  $50 billion;4 
D)  $10 billion;8

Question 20

The asset demand for money is most closely related to money functioning as a:

Accepted Answer

A)  unit of account. 
B)  medium of exchange. 
C)  store of value. 
D)  measure of value. 
A)  unit of account. 
B)  medium of exchange. 
C)  store of value. 
D)  measure of value.

Assuming government wishes to either increase or decrease the level of aggregate demand,which of the following pairs are not consistent policy measures?

Other things equal,if there is an increase in nominal GDP:

Which of the following is not a tool of monetary policy?

The purchase of government securities from the public by the Fed will cause:

According to the Taylor rule,if inflation has risen by 6 percentage points above its target of 2 percent,the Fed should:

An expansionary monetary policy may be frustrated if the:

Other things equal,which of the following would increase the federal funds rate?

If the economy is operating in the relatively steep (upper)portion of its aggregate supply curve,a reduction in the money supply will:

The demand for federal funds is:

When QE2 and Operation Twist were implemented,the Fed suspended its policy of forward commitment.

Which of the following will happen when the Federal Reserve buys bonds from the public in the open market and the amount of cash held by the public does not change?

If the Fed wants to discourage commercial bank lending,it will:

From 2004 to 2006 the Fed raised the federal funds rate gradually in a series of steps.The Fed's purpose was to raise the prime interest rate so that:

Which of the following actions by the Fed would cause the money supply to increase?

The asset demand for money is most closely related to money functioning as a:

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

Exam 35: Interest Rates and Monetary Policy

Assuming government wishes to either increase or decrease the level of aggregate demand,which of the following pairs are not consistent policy measures?

Other things equal,if there is an increase in nominal GDP:

Which of the following is not a tool of monetary policy?

The purchase of government securities from the public by the Fed will cause:

According to the Taylor rule,if inflation has risen by 6 percentage points above its target of 2 percent,the Fed should:

An expansionary monetary policy may be frustrated if the:

Other things equal,which of the following would increase the federal funds rate?

If the economy is operating in the relatively steep (upper)portion of its aggregate supply curve,a reduction in the money supply will:

The demand for federal funds is:

When QE2 and Operation Twist were implemented,the Fed suspended its policy of forward commitment.

Which of the following will happen when the Federal Reserve buys bonds from the public in the open market and the amount of cash held by the public does not change?

If the Fed wants to discourage commercial bank lending,it will:

From 2004 to 2006 the Fed raised the federal funds rate gradually in a series of steps.The Fed's purpose was to raise the prime interest rate so that:

Which of the following actions by the Fed would cause the money supply to increase?

The asset demand for money is most closely related to money functioning as a:

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