Exam 16: The Federal Reserve System and Monetary Policy

Which of the following is true?

In the equation of exchange, PQ represents:

If the Fed buys a U.S.government bond from a member of the public,

One uniquely American aspect of central banking is that:

If the economy's real GDP is growing at 3 percent each year and velocity is constant, for the price level to increase:

The equation of exchange states that:

Assume the Fed purchases $5,000 worth of U.S.Treasury bonds from Bill Gates, who promptly deposits the money in Microsoft Rules National Bank.Assuming that the required reserve ratio is 25 percent and banks keep zero excess reserves, then the money supply will:

Explain how the Fed's structure provides a high degree of independence from the U.S.government.What are some of the benefits of this independence?

If money supply increases, P will rise as long as V and Q remain constant.

If the money supply increased by 4 percent and velocity increased by 4 percent:

Higher rates of interest increase the opportunity cost of holding money balances.

When the economy is in a recession,

A combination of a decrease in the discount rate and an increase in reserve requirements would:

There are 12 Federal Reserve Banks in the Federal Reserve System.

If you sell your economics professor a U.S.government bond, the effect will be to ____ banking reserves and ____ the money supply.

Changing reserve requirements is the most important method the Federal Reserve uses to change the supply of money.

In order to determine the velocity of money, we need to know:

If the Federal Open Market Committee (FOMC) decides to expand the money supply, then:

The combination of a decrease in the discount rate and decrease in the required reserve ratio will tend to result in:

Which among the following is the primary cause of hyperinflation?