Question 1

When the Fed alters the types of assets it owns,it is engaging in

Accepted Answer

A) credit easing. 
B) forward guidance. 
C) quantitative easing. 
D) changing the discount rate. 
A) credit easing. 
B) forward guidance. 
C) quantitative easing. 
D) changing the discount rate.

Question 2

Which of the following statements would Milton Friedman agree with concerning the conduct of monetary policy?

Accepted Answer

A) Information lags are short,enabling the central bank to respond quickly to changes in the economy. 
B) There is little uncertainty over the effect of a change in the money supply on the economy. 
C) There are long and variable lags between monetary policy actions and their economic results. 
D) Wage and price adjustments are relatively slow,so changing the money supply will have a minimal impact on the real economy. 
A) Information lags are short,enabling the central bank to respond quickly to changes in the economy. 
B) There is little uncertainty over the effect of a change in the money supply on the economy. 
C) There are long and variable lags between monetary policy actions and their economic results. 
D) Wage and price adjustments are relatively slow,so changing the money supply will have a minimal impact on the real economy.

Question 3

Describe the difference between a primary credit discount rate and the secondary credit discount rate,including who can borrow at which rate and how such lending is managed by the Fed.

Accepted Answer

Banks in good condition can take out a p

Question 4

The money supply is $12.5 million,currency held by the nonbank public is $2.5 million,and the reserve-deposit ratio is 0.25.
(a)What is the quantity of bank deposits?
(b)What is the quantity of bank reserves?
(c)What is the quantity of the monetary base?
(d)What is the money multiplier (give a number)?

Accepted Answer

(a)Since M = C + D,D = $10 mil

Question 5

Who determines the open-market operations of the Federal Reserve System?

Accepted Answer

A) Board of Governors 
B) FDIC 
C) FHLBB 
D) FOMC 
A) Board of Governors 
B) FDIC 
C) FHLBB 
D) FOMC

Question 6

If the public is not sure about the central bank's motives,then

Accepted Answer

A) initial releases of data may be less accurate than later data releases. 
B) the predominant source of shocks to the economy must be shocks to the LM curve. 
C) central bankers should try to stabilize the inflation rate. 
D) modern macroeconomic modeling techniques will fail. 
A) initial releases of data may be less accurate than later data releases. 
B) the predominant source of shocks to the economy must be shocks to the LM curve. 
C) central bankers should try to stabilize the inflation rate. 
D) modern macroeconomic modeling techniques will fail.

Question 7

Banks hold some deposits on reserve at the Fed because

Accepted Answer

A) the Fed requires every bank to hold at least $100 million on deposit at all times. 
B) the Fed will insure those deposits,but will not insure regular bank deposits. 
C) these are membership dues for being a member bank. 
D) these deposits meet the reserve requirements of the Fed. 
A) the Fed requires every bank to hold at least $100 million on deposit at all times. 
B) the Fed will insure those deposits,but will not insure regular bank deposits. 
C) these are membership dues for being a member bank. 
D) these deposits meet the reserve requirements of the Fed.

Question 8

A liquidity trap occurs when

Accepted Answer

A) any additions to the monetary base are held as cash by people or reserves at banks. 
B) the Fed increases the money supply,causing the expected inflation rate to rise more than the real interest rate declines,so that the nominal interest rate increases. 
C) there are runs on banks that are solvent but illiquid. 
D) the demand for loans increases in a country on the gold standard,so that the monetary supply is not able to increase and interest rates rise dramatically. 
A) any additions to the monetary base are held as cash by people or reserves at banks. 
B) the Fed increases the money supply,causing the expected inflation rate to rise more than the real interest rate declines,so that the nominal interest rate increases. 
C) there are runs on banks that are solvent but illiquid. 
D) the demand for loans increases in a country on the gold standard,so that the monetary supply is not able to increase and interest rates rise dramatically.

Question 9

Which of the Fed's instruments is most frequently used?

Accepted Answer

A) Changing reserve requirements 
B) Open-market operations 
C) Changing the discount rate 
D) Changing margin requirements for the stock market 
A) Changing reserve requirements 
B) Open-market operations 
C) Changing the discount rate 
D) Changing margin requirements for the stock market

Question 10

Suppose that in Mysore,the reserve-deposit ratio is
Res = 0.5 - 2i,
Where i is the nominal interest rate.The currency-deposit ratio is 0.2 and the monetary base equals 100.The real quantity of money demanded is given by the money demand function
L(Y,i)= 0.5Y - 10i,
Where Y is real output.Currently,the real interest rate is 5% and the economy expects an inflation rate of 5%.The money supply equals

Accepted Answer

A) 200. 
B) 240. 
C) 300. 
D) 400. 
A) 200. 
B) 240. 
C) 300. 
D) 400.

Question 11

Assume that the reserve-deposit ratio is 0.4.The Federal Reserve carries out open-market operations,purchasing $1,000,000 worth of bonds from banks.This action increased the money supply by $1,750,000.What is the reserve-deposit ratio?

Accepted Answer

A) 0)2 
B) 0)3 
C) 0)4 
D) 0)5 
A) 0)2 
B) 0)3 
C) 0)4 
D) 0)5

When the Fed alters the types of assets it owns,it is engaging in

Which of the following statements would Milton Friedman agree with concerning the conduct of monetary policy?

Describe the difference between a primary credit discount rate and the secondary credit discount rate,including who can borrow at which rate and how such lending is managed by the Fed.

Who determines the open-market operations of the Federal Reserve System?

If the public is not sure about the central bank's motives,then

Banks hold some deposits on reserve at the Fed because

A liquidity trap occurs when

Which of the Fed's instruments is most frequently used?

Assume that the reserve-deposit ratio is 0.4.The Federal Reserve carries out open-market operations,purchasing $1,000,000 worth of bonds from banks.This action increased the money supply by $1,750,000.What is the reserve-deposit ratio?

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, Output, and Employment

Consumption, Saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, Money, and Prices

Business Cycles

The IS-LM/AD-AS Model

Classical Business Cycle Analysis

Keynesianism: The Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Exchange Rates,Business Cycles,and Macroeconomic Policy in the Open Economy

Government Spending and Its Financing

Filters

Exam 14: Monetary Policy and the Federal Reserve System

When the Fed alters the types of assets it owns,it is engaging in

Which of the following statements would Milton Friedman agree with concerning the conduct of monetary policy?

Describe the difference between a primary credit discount rate and the secondary credit discount rate,including who can borrow at which rate and how such lending is managed by the Fed.

Who determines the open-market operations of the Federal Reserve System?

If the public is not sure about the central bank's motives,then

Banks hold some deposits on reserve at the Fed because

A liquidity trap occurs when

Which of the Fed's instruments is most frequently used?

Assume that the reserve-deposit ratio is 0.4.The Federal Reserve carries out open-market operations,purchasing $1,000,000 worth of bonds from banks.This action increased the money supply by $1,750,000.What is the reserve-deposit ratio?

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, Output, and Employment

Consumption, Saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, Money, and Prices

Business Cycles

The IS-LM/AD-AS Model

Classical Business Cycle Analysis

Keynesianism: The Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Exchange Rates,Business Cycles,and Macroeconomic Policy in the Open Economy

Government Spending and Its Financing

Filters