Question 1

The federal funds rate is the interest rate that _______ charge(s)_______.

Accepted Answer

A)  banks;other banks 
B)  the Fed;commercial banks 
C)  banks;their best corporate customers 
D)  banks;on federal student loans 
A)  banks;other banks 
B)  the Fed;commercial banks 
C)  banks;their best corporate customers 
D)  banks;on federal student loans

Question 2

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,excess reserves in the banking system will:

Accepted Answer

A)  remain unchanged. 
B)  rise by $100. 
C)  fall by $100. 
D)  rise by $1,000. 
A)  remain unchanged. 
B)  rise by $100. 
C)  fall by $100. 
D)  rise by $1,000.

Question 3

Which of the following actions by the Fed most likely increase commercial bank lending?

Accepted Answer

A)  Raising the reserve ratio. 
B)  Increasing the federal funds rate target. 
C)  Reducing the interest paid on reserves held at the Fed. 
D)  Selling bonds to commercial banks and the public. 
A)  Raising the reserve ratio. 
B)  Increasing the federal funds rate target. 
C)  Reducing the interest paid on reserves held at the Fed. 
D)  Selling bonds to commercial banks and the public.

Question 4

The four main tools of monetary policy are:

Accepted Answer

A)  tax rate changes,the discount rate,open-market operations,and the federal funds rate. 
B)  tax rate changes,changes in government expenditures,open-market operations,and interest on reserves. 
C)  the discount rate,the reserve ratio,interest on reserves,and open-market operations. 
D)  changes in government expenditures,the reserve ratio,the federal funds rate,and the discount rate. 
A)  tax rate changes,the discount rate,open-market operations,and the federal funds rate. 
B)  tax rate changes,changes in government expenditures,open-market operations,and interest on reserves. 
C)  the discount rate,the reserve ratio,interest on reserves,and open-market operations. 
D)  changes in government expenditures,the reserve ratio,the federal funds rate,and the discount rate.

Question 5

All else equal,when the Federal Reserve Banks engage in a restrictive monetary policy,the prices of government bonds usually:

Accepted Answer

A)  fall. 
B)  rise. 
C)  remain constant. 
D)  move in the same direction as the bonds' interest rate yield. 
A)  fall. 
B)  rise. 
C)  remain constant. 
D)  move in the same direction as the bonds' interest rate yield.

Question 6

The interest rate at which the Federal Reserve Banks lend to commercial banks is called the:

Accepted Answer

A)  prime rate. 
B)  short-term rate. 
C)  discount rate. 
D)  federal funds rate. 
A)  prime rate. 
B)  short-term rate. 
C)  discount rate. 
D)  federal funds rate.

Question 7

Forward commitment by the Fed has which of the following impacts?

Accepted Answer

A)  Forward commitment encourages lending because banks do not fear that the Fed will suddenly reverse the policy. 
B)  Forward commitment encourages excessive lending as banks try to take control of as many reserves as possible before the policy is exhausted. 
C)  Forward commitment eliminates all flexibility in monetary policy. 
D)  Forward commitment creates moral hazard in lending,as banks know that the Fed will continue to pump reserves into the system. 
A)  Forward commitment encourages lending because banks do not fear that the Fed will suddenly reverse the policy. 
B)  Forward commitment encourages excessive lending as banks try to take control of as many reserves as possible before the policy is exhausted. 
C)  Forward commitment eliminates all flexibility in monetary policy. 
D)  Forward commitment creates moral hazard in lending,as banks know that the Fed will continue to pump reserves into the system.

Question 8

Which of the following will increase commercial bank reserves?

Accepted Answer

A)  The purchase of government bonds in the open market by the Federal Reserve Banks. 
B)  A decrease in the reserve ratio. 
C)  An increase in the discount rate. 
D)  The sale of government bonds in the open market by the Federal Reserve Banks. 
A)  The purchase of government bonds in the open market by the Federal Reserve Banks. 
B)  A decrease in the reserve ratio. 
C)  An increase in the discount rate. 
D)  The sale of government bonds in the open market by the Federal Reserve Banks.

Question 9

The impact of monetary policy on investment spending may be weakened:

Accepted Answer

A)  because of the Treasury's desire for high interest rates. 
B)  if the rate at which dollars are spent changes in the same direction as the money supply. 
C)  if the investment-demand curve shifts to the right during inflation and to the left during recession. 
D)  if the investment-demand curve is very flat. 
A)  because of the Treasury's desire for high interest rates. 
B)  if the rate at which dollars are spent changes in the same direction as the money supply. 
C)  if the investment-demand curve shifts to the right during inflation and to the left during recession. 
D)  if the investment-demand curve is very flat.

Question 10

Which of the following statements is correct?

Accepted Answer

A)  Interest rates and bond prices vary directly. 
B)  Interest rates and bond prices vary inversely. 
C)  Interest rates and bond prices are unrelated. 
D)  Interest rates and bond prices vary directly during inflations and inversely during recessions. 
A)  Interest rates and bond prices vary directly. 
B)  Interest rates and bond prices vary inversely. 
C)  Interest rates and bond prices are unrelated. 
D)  Interest rates and bond prices vary directly during inflations and inversely during recessions.

Question 11

(Advanced analysis)Assume the equation for the total demand for money is L = 0.4Y + 80 - 4i,where L is the amount of money demanded,Y is gross domestic product,and i is the interest rate.If gross domestic product is $200 and the interest rate is 10 (percent),what amount of money will society want to hold?

Accepted Answer

A)  $200. 
B)  $120. 
C)  $320. 
D)  $160. 
A)  $200. 
B)  $120. 
C)  $320. 
D)  $160.

Question 12

Bond prices and interest rates are directly or positively related.

Accepted Answer

A) True 
 B)False

Question 13

On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively,the asset demand for money can be represented by:

Accepted Answer

A)  a line parallel to the horizontal axis. 
B)  a vertical line. 
C)  a downsloping line or curve from left to right. 
D)  an upsloping line or curve from left to right. 
A)  a line parallel to the horizontal axis. 
B)  a vertical line. 
C)  a downsloping line or curve from left to right. 
D)  an upsloping line or curve from left to right.

Question 14

If,in the market for money,the amount of money supplied exceeds the amount of money households and businesses want to hold,the interest rate will:

Accepted Answer

A)  fall,causing households and businesses to hold less money. 
B)  rise,causing households and businesses to hold less money. 
C)  rise,causing households and businesses to hold more money. 
D)  fall,causing households and businesses to hold more money. 
A)  fall,causing households and businesses to hold less money. 
B)  rise,causing households and businesses to hold less money. 
C)  rise,causing households and businesses to hold more money. 
D)  fall,causing households and businesses to hold more money.

Question 15

One of the strengths of monetary policy relative to fiscal policy is that monetary policy:

Accepted Answer

A)  can be implemented more quickly. 
B)  is subject to closer political scrutiny. 
C)  does not produce a net export effect. 
D)  entails a larger spending income multiplier effect on real GDP. 
A)  can be implemented more quickly. 
B)  is subject to closer political scrutiny. 
C)  does not produce a net export effect. 
D)  entails a larger spending income multiplier effect on real GDP.

Question 16

Monetary policy is thought to be:

Accepted Answer

A)  equally effective in moving the economy out of a depression as in controlling demand-pull inflation. 
B)  more effective in moving the economy out of a depression than in controlling demand-pull inflation. 
C)  more effective in controlling demand-pull inflation than in moving the economy out of a recession. 
D)  only effective in moving the economy out of a depression. 
A)  equally effective in moving the economy out of a depression as in controlling demand-pull inflation. 
B)  more effective in moving the economy out of a depression than in controlling demand-pull inflation. 
C)  more effective in controlling demand-pull inflation than in moving the economy out of a recession. 
D)  only effective in moving the economy out of a depression.

Question 17

On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively,the transactions demand for money can be represented by:

Accepted Answer

A)  a line parallel to the horizontal axis. 
B)  a vertical line. 
C)  a downsloping line or curve from left to right. 
D)  an upsloping line or curve from left to right. 
A)  a line parallel to the horizontal axis. 
B)  a vertical line. 
C)  a downsloping line or curve from left to right. 
D)  an upsloping line or curve from left to right.

Question 18

If the demand for money increases and the Fed wants interest rates to remain unchanged,which of the following would be appropriate policy?

Accepted Answer

A)  Recall Federal Reserve Notes from circulation. 
B)  Raise the legal reserve requirement. 
C)  Buy bonds in the open market. 
D)  Raise the discount rate. 
A)  Recall Federal Reserve Notes from circulation. 
B)  Raise the legal reserve requirement. 
C)  Buy bonds in the open market. 
D)  Raise the discount rate.

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.The commercial banking system has excess reserves of:

Accepted Answer

A)  zero. 
B)  $2 billion. 
C)  $5 billion. 
D)  $10 billion. 
A)  zero. 
B)  $2 billion. 
C)  $5 billion. 
D)  $10 billion.

Question 20

The purpose of a restrictive monetary policy is to:

Accepted Answer

A)  alleviate recessions. 
B)  raise interest rates and restrict the availability of bank credit. 
C)  increase aggregate demand and GDP. 
D)  increase investment spending. 
A)  alleviate recessions. 
B)  raise interest rates and restrict the availability of bank credit. 
C)  increase aggregate demand and GDP. 
D)  increase investment spending.

The federal funds rate is the interest rate that _ charge(s)_.

Which of the following actions by the Fed most likely increase commercial bank lending?

The four main tools of monetary policy are:

All else equal,when the Federal Reserve Banks engage in a restrictive monetary policy,the prices of government bonds usually:

The interest rate at which the Federal Reserve Banks lend to commercial banks is called the:

Forward commitment by the Fed has which of the following impacts?

Which of the following will increase commercial bank reserves?

The impact of monetary policy on investment spending may be weakened:

Which of the following statements is correct?

Bond prices and interest rates are directly or positively related.

On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively,the asset demand for money can be represented by:

If,in the market for money,the amount of money supplied exceeds the amount of money households and businesses want to hold,the interest rate will:

One of the strengths of monetary policy relative to fiscal policy is that monetary policy:

Monetary policy is thought to be:

On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively,the transactions demand for money can be represented by:

If the demand for money increases and the Fed wants interest rates to remain unchanged,which of the following would be appropriate policy?

The purpose of a restrictive monetary policy is to:

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 federal funds rate is the interest rate that _______ charge(s)_______.

Which of the following actions by the Fed most likely increase commercial bank lending?

The four main tools of monetary policy are:

All else equal,when the Federal Reserve Banks engage in a restrictive monetary policy,the prices of government bonds usually:

The interest rate at which the Federal Reserve Banks lend to commercial banks is called the:

Forward commitment by the Fed has which of the following impacts?

Which of the following will increase commercial bank reserves?

The impact of monetary policy on investment spending may be weakened:

Which of the following statements is correct?

Bond prices and interest rates are directly or positively related.

On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively,the asset demand for money can be represented by:

If,in the market for money,the amount of money supplied exceeds the amount of money households and businesses want to hold,the interest rate will:

One of the strengths of monetary policy relative to fiscal policy is that monetary policy:

Monetary policy is thought to be:

On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively,the transactions demand for money can be represented by:

If the demand for money increases and the Fed wants interest rates to remain unchanged,which of the following would be appropriate policy?

The purpose of a restrictive monetary policy is to:

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

The federal funds rate is the interest rate that _ charge(s)_.