Question 1

(Consider This)In March 2010,total bank reserves held at the Fed exceeded total checkable deposits held by the banks.

Accepted Answer

A) True 
 B)False

Question 2

The asset demand for money:

Accepted Answer

A)  is unrelated to both the interest rate and the level of GDP. 
B)  varies inversely with the rate of interest. 
C)  varies inversely with the level of real GDP. 
D)  varies directly with the level of nominal GDP. 
A)  is unrelated to both the interest rate and the level of GDP. 
B)  varies inversely with the rate of interest. 
C)  varies inversely with the level of real GDP. 
D)  varies directly with the level of nominal GDP.

Question 3

Big Bucks Bank currently holds $20 million in excess reserves.If the Fed increases the rate of interest it pays on reserves held at the Fed,we would expect Big Bucks Bank to:

Accepted Answer

A)  use those excess reserves to increase its lending. 
B)  not change its lending activity,as excess reserves are not eligible to receive interest paid on reserve accounts. 
C)  move a portion of those excess reserves into its required reserve account. 
D)  hold more of those excess reserves in its reserve account at the Fed,reducing the amount it is willing to lend. 
A)  use those excess reserves to increase its lending. 
B)  not change its lending activity,as excess reserves are not eligible to receive interest paid on reserve accounts. 
C)  move a portion of those excess reserves into its required reserve account. 
D)  hold more of those excess reserves in its reserve account at the Fed,reducing the amount it is willing to lend.

Question 4

The objective of Operation Twist was to:

Accepted Answer

A)  stimulate aggregate demand by lowering long-term interest rates. 
B)  stimulate aggregate demand by lowering short-term interest rates. 
C)  reduce inflationary pressure by raising long-term interest rates. 
D)  reduce inflationary pressure by raising short-term interest rates. 
A)  stimulate aggregate demand by lowering long-term interest rates. 
B)  stimulate aggregate demand by lowering short-term interest rates. 
C)  reduce inflationary pressure by raising long-term interest rates. 
D)  reduce inflationary pressure by raising short-term interest rates.

Question 5

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.The amount of investment that will be forthcoming in this economy at equilibrium is:

Accepted Answer

A)  $700. 
B)  $600. 
C)  $500. 
D)  $300. 
A)  $700. 
B)  $600. 
C)  $500. 
D)  $300.

Question 6

Suppose the demand for money and the supply of money increase simultaneously.We can:

Accepted Answer

A)  expect the interest rate to rise and bond prices to fall. 
B)  expect the interest rate to fall and bond prices to rise. 
C)  the nominal GDP to expand. 
D)  not accurately predict what will happen to interest rates or bond prices. 
A)  expect the interest rate to rise and bond prices to fall. 
B)  expect the interest rate to fall and bond prices to rise. 
C)  the nominal GDP to expand. 
D)  not accurately predict what will happen to interest rates or bond prices.

Question 7

A commercial bank can add to its actual reserves by:

Accepted Answer

A)  lending money to bank customers. 
B)  buying government securities from the public. 
C)  buying government securities from a Federal Reserve Bank. 
D)  borrowing from a Federal Reserve Bank. 
A)  lending money to bank customers. 
B)  buying government securities from the public. 
C)  buying government securities from a Federal Reserve Bank. 
D)  borrowing from a Federal Reserve Bank.

Question 8

According to the Taylor rule,if real GDP falls by 1 percent below potential GDP,the Fed should lower the federal funds rate by one-half a percentage point.

Accepted Answer

A) True 
 B)False

Question 9

When the reserve requirement is increased:

Accepted Answer

A)  required reserves are changed into excess reserves. 
B)  the excess reserves of member banks are increased. 
C)  a single commercial bank can no longer lend dollar-for-dollar with its excess reserves. 
D)  the excess reserves of member banks are reduced. 
A)  required reserves are changed into excess reserves. 
B)  the excess reserves of member banks are increased. 
C)  a single commercial bank can no longer lend dollar-for-dollar with its excess reserves. 
D)  the excess reserves of member banks are reduced.

Question 10

The transactions 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.

Question 11

According to the Taylor rule,when real GDP is at its potential and inflation is at its target rate of 2 percent,the Fed should:

Accepted Answer

A)  carefully lower the federal funds rate in an attempt to stimulate noninflationary real GDP growth. 
B)  raise the federal funds rate in an attempt to eliminate the remaining inflation. 
C)  lower the federal funds rate to lower borrowing costs for the federal government. 
D)  keep the federal funds rate at 4 percent. 
A)  carefully lower the federal funds rate in an attempt to stimulate noninflationary real GDP growth. 
B)  raise the federal funds rate in an attempt to eliminate the remaining inflation. 
C)  lower the federal funds rate to lower borrowing costs for the federal government. 
D)  keep the federal funds rate at 4 percent.

Question 12

Which of the following tools of monetary policy is flexible and able to affect bank reserves quickly and by relatively specific amounts?

Accepted Answer

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

Question 13

Which of the following is true about the effects of ZIRP,QE,and Operation Twist?

Accepted Answer

A)  The massive monetary stimulus created high rates of inflation. 
B)  They were unsuccessful at lowering interest rates. 
C)  By lowering borrowing costs,they encouraged expansion of federal budget deficits. 
D)  Pension plan and retirement fund returns increased dramatically. 
A)  The massive monetary stimulus created high rates of inflation. 
B)  They were unsuccessful at lowering interest rates. 
C)  By lowering borrowing costs,they encouraged expansion of federal budget deficits. 
D)  Pension plan and retirement fund returns increased dramatically.

Question 14

Answer the question on the assumption that the legal reserve ratio is 20 percent.Suppose that the Fed sells $500 of government securities to commercial banks (paid for out of commercial bank reserves)and buys $500 of securities from individuals,who deposit the cash in checking accounts. As a result of the given transactions,the supply of money in the economy will:

Accepted Answer

A)  remain unchanged. 
B)  rise by $500. 
C)  fall by $100. 
D)  fall by $500. 
A)  remain unchanged. 
B)  rise by $500. 
C)  fall by $100. 
D)  fall by $500.

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 wants to reduce the money supply by $400 billion to drive up interest rates and dampen inflation.Assuming that the money multiplier is operating to full effect,to accomplish the desired reduction,the Fed could:

Accepted Answer

A)  sell $20 billion of U.S.securities to the banks. 
B)  buy $20 billion of U.S.securities from the banks. 
C)  sell $40 billion of U.S.securities to the banks. 
D)  buy $40 billion of U.S.securities from the banks. 
A)  sell $20 billion of U.S.securities to the banks. 
B)  buy $20 billion of U.S.securities from the banks. 
C)  sell $40 billion of U.S.securities to the banks. 
D)  buy $40 billion of U.S.securities from the banks.

Question 16

Which of the following statements is correct? Other things equal:

Accepted Answer

A)  a decline in real output will shift both the transactions demand curve for money and the total money demand curve to the right. 
B)  a decline in the interest rate will shift the asset demand curve for money to the right but leave the total money demand curve unchanged. 
C)  deflation will shift both the transactions demand curve for money and the total money demand curve to the left. 
D)  inflation will shift the transactions demand curve for money to the right but leave the total money demand curve unchanged. 
A)  a decline in real output will shift both the transactions demand curve for money and the total money demand curve to the right. 
B)  a decline in the interest rate will shift the asset demand curve for money to the right but leave the total money demand curve unchanged. 
C)  deflation will shift both the transactions demand curve for money and the total money demand curve to the left. 
D)  inflation will shift the transactions demand curve for money to the right but leave the total money demand curve unchanged.

Question 17

According to the Taylor rule:

Accepted Answer

A)  if real GDP rises by 2 percent above potential GDP,the Fed should raise the real federal funds rate by 1 percentage point. 
B)  when real GDP is equal to potential GDP and inflation is equal to its target of 4 percent,the federal funds rate should be kept at 2 percent. 
C)  if inflation falls by 1 percentage point below its target of 2 percent,then the Fed should raise the real federal funds rate by one-half a percentage point. 
D)  all of these are appropriate Fed actions. 
A)  if real GDP rises by 2 percent above potential GDP,the Fed should raise the real federal funds rate by 1 percentage point. 
B)  when real GDP is equal to potential GDP and inflation is equal to its target of 4 percent,the federal funds rate should be kept at 2 percent. 
C)  if inflation falls by 1 percentage point below its target of 2 percent,then the Fed should raise the real federal funds rate by one-half a percentage point. 
D)  all of these are appropriate Fed actions.

Question 18

The discount rate is the rate of interest at which:

Accepted Answer

A)  Federal Reserve Banks lend to commercial banks. 
B)  savings and loan associations lend to some builders. 
C)  Federal Reserve Banks lend to large corporations. 
D)  commercial banks lend to large corporations. 
A)  Federal Reserve Banks lend to commercial banks. 
B)  savings and loan associations lend to some builders. 
C)  Federal Reserve Banks lend to large corporations. 
D)  commercial banks lend to large corporations.

Question 19

In recent years,the Fed has communicated changes in its monetary policy by announcing changes in its policy targets for the:

Accepted Answer

A)  growth of the money supply. 
B)  federal funds rate. 
C)  prime interest rate. 
D)  U.S.dollar-foreign currency exchange rate. 
A)  growth of the money supply. 
B)  federal funds rate. 
C)  prime interest rate. 
D)  U.S.dollar-foreign currency exchange rate.

Question 20

The commercial banking system borrows from the Federal Reserve Banks.As a result,the checkable deposits:

Accepted Answer

A)  of commercial banks are unchanged,but their reserves increase. 
B)  and reserves of commercial banks both decrease. 
C)  of commercial banks are unchanged,but their reserves decrease. 
D)  and reserves of commercial banks are both unchanged. 
A)  of commercial banks are unchanged,but their reserves increase. 
B)  and reserves of commercial banks both decrease. 
C)  of commercial banks are unchanged,but their reserves decrease. 
D)  and reserves of commercial banks are both unchanged.

(Consider This)In March 2010,total bank reserves held at the Fed exceeded total checkable deposits held by the banks.

The asset demand for money:

Big Bucks Bank currently holds $20 million in excess reserves.If the Fed increases the rate of interest it pays on reserves held at the Fed,we would expect Big Bucks Bank to:

The objective of Operation Twist was to:

Suppose the demand for money and the supply of money increase simultaneously.We can:

A commercial bank can add to its actual reserves by:

According to the Taylor rule,if real GDP falls by 1 percent below potential GDP,the Fed should lower the federal funds rate by one-half a percentage point.

When the reserve requirement is increased:

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

According to the Taylor rule,when real GDP is at its potential and inflation is at its target rate of 2 percent,the Fed should:

Which of the following tools of monetary policy is flexible and able to affect bank reserves quickly and by relatively specific amounts?

Which of the following is true about the effects of ZIRP,QE,and Operation Twist?

Which of the following statements is correct? Other things equal:

According to the Taylor rule:

The discount rate is the rate of interest at which:

In recent years,the Fed has communicated changes in its monetary policy by announcing changes in its policy targets for the:

The commercial banking system borrows from the Federal Reserve Banks.As a result,the checkable deposits:

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

(Consider This)In March 2010,total bank reserves held at the Fed exceeded total checkable deposits held by the banks.

The asset demand for money:

Big Bucks Bank currently holds $20 million in excess reserves.If the Fed increases the rate of interest it pays on reserves held at the Fed,we would expect Big Bucks Bank to:

The objective of Operation Twist was to:

Suppose the demand for money and the supply of money increase simultaneously.We can:

A commercial bank can add to its actual reserves by:

According to the Taylor rule,if real GDP falls by 1 percent below potential GDP,the Fed should lower the federal funds rate by one-half a percentage point.

When the reserve requirement is increased:

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

According to the Taylor rule,when real GDP is at its potential and inflation is at its target rate of 2 percent,the Fed should:

Which of the following tools of monetary policy is flexible and able to affect bank reserves quickly and by relatively specific amounts?

Which of the following is true about the effects of ZIRP,QE,and Operation Twist?

Which of the following statements is correct? Other things equal:

According to the Taylor rule:

The discount rate is the rate of interest at which:

In recent years,the Fed has communicated changes in its monetary policy by announcing changes in its policy targets for the:

The commercial banking system borrows from the Federal Reserve Banks.As a result,the checkable deposits:

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