Exam 16: Interest Rates and Monetary Policy

A decrease in the interest rate will cause a(n):

In which case would the quantity of money demanded by the public tend to increase by the greatest amount?

Assume that there is a 25 percent reserve ratio and that the Federal Reserve buys $4 billion worth of government securities. If the securities are purchased from the non-bank public, this action has the potential to increase money supply by a maximum of:

The Federal Reserve could reduce the money supply by:

If the monetary authority wishes to rein in inflation, it would buy government securities in the open market.

The main tools that the Fed can use to alter the reserves of commercial banks are the required-reserve ratio and the following, except:

When the Federal Reserve acts to tighten money and credit in the economy, it is trying to reduce:

The transactions demand for money will shift to the:

Assuming that the Federal Reserve Banks sell $40 million in government securities to commercial banks and the reserve ratio is 20 percent, then the effect will be to reduce:

What policy tool of the Federal Reserve relies on bank borrowing to be effective?

In the cause-effect chain linking changes in the banks' excess reserves and the resulting changes in output and employment in the economy:

Assume the economy faces high unemployment but stable prices. Which combination of government policies is most likely to reduce unemployment?

In response to the financial crisis and the Great Recession, the Fed took the following actions, except:

The major purpose of the Federal Reserve buying government securities in open market operations is to:

In the cause-effect chain of monetary policy an autonomous increase in investment spending when the economy is at full employment will cause the Fed to seek a lower target for the federal funds rate by buying securities in the open market.

Assume that the MPC is 0.75 and that the price level is "sticky". If the Federal Reserve increases the money supply and investment spending increases by $8 billion, then aggregate demand is likely to:

The zero interest rate policy (ZIRP) presented a policy problem when the economy remained weak, and that problem is known as the zero bound problem.

Answer the question based on the information given in the table below that shows the items and figures taken from a consolidated balance sheet of the twelve Federal Reserve Banks. All figures are in billions of dollars. In the balance sheet above for the Federal Reserve, there would be assets of:

The largest liability item in the Federal Reserve Banks' consolidated balance sheet (as illustrated in the book, for April 2013) is:

Refer to the graphs above, in which the numbers in parentheses near the AD₁, AD₂, and AD₃ labels indicate the level of investment spending associated with each curve. All figures are in billions. The interest rate in the economy is 4 percent. What should the Fed do to achieve a noninflationary full-employment level of real GDP?