Question 1

If interest rates decrease:

Accepted Answer

A) the quantity of money demanded will not change. 
B) the money demand function will shift to the right. 
C) the quantity of money demanded will decrease. 
D) the money demand function will shift to the left. 
E) the quantity of money demanded will increase. 
A) the quantity of money demanded will not change. 
B) the money demand function will shift to the right. 
C) the quantity of money demanded will decrease. 
D) the money demand function will shift to the left. 
E) the quantity of money demanded will increase.

Question 2

The table given below shows the assets and liabilities of the National Bank.Assume that this is the only bank in the economy. Table 13.2
  Refer to Table 13.2.If the reserve requirement is 10 percent, how much can the whole banking system expand the money supply?

Accepted Answer

A) $21, 500 
B) $54, 500 
C) $11, 800 
D) $16, 050 
E) $5, 450 
A) $21, 500 
B) $54, 500 
C) $11, 800 
D) $16, 050 
E) $5, 450

Question 3

Other things equal, when the Fed raises the reserve requirement, the banking system's excess reserves will fall, the deposit expansion multiplier will decline, and the money supply will decrease.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is true of the federal funds rate?

Accepted Answer

A) It is the interest rate that one bank charges another for overnight lending. 
B) It is the interest rate that the Federal Reserve Bank charges commercial banks for borrowing money. 
C) It is the interest rate you earn in your saving account. 
D) It is the interest rate the bank charges business firms for borrowing money. 
E) It is the interest rate that a domestic bank charges a foreign bank for borrowing money. 
A) It is the interest rate that one bank charges another for overnight lending. 
B) It is the interest rate that the Federal Reserve Bank charges commercial banks for borrowing money. 
C) It is the interest rate you earn in your saving account. 
D) It is the interest rate the bank charges business firms for borrowing money. 
E) It is the interest rate that a domestic bank charges a foreign bank for borrowing money.

Question 5

All members of the Federal Board of Governors are appointed by the president and confirmed by the Senate.

Accepted Answer

A) True 
 B)False

Question 6

The interest rate that banks pay for borrowing overnight from other banks is called:

Accepted Answer

A) bank rate. 
B) target rate. 
C) federal funds rate. 
D) real interest rate. 
E) prime lending rate. 
A) bank rate. 
B) target rate. 
C) federal funds rate. 
D) real interest rate. 
E) prime lending rate.

Question 7

Scenario 13.2 Assume the following conditions hold.
  Now the Federal Reserve engages in an open market operation by purchasing $1 billion worth of government bonds from private bond dealers, who then deposit the $1 billion in the banks.This acts to lower the equilibrium interest rate by 2 percent.   Refer to Scenario 13.1.What is the ultimate change in the money supply following the open market operation by the Fed?

Accepted Answer

A) -$3 billion 
B) -$0.33 billion 
C) +$1 billion 
D) +$2.01 billion 
E) +$5.2 billion 
A) -$3 billion 
B) -$0.33 billion 
C) +$1 billion 
D) +$2.01 billion 
E) +$5.2 billion

Question 8

Table 13.1   Refer to Table 13.1.Given a reserve requirement of 8 percent, what is the increase in required reserves when the government purchases $400 worth of government securities?

Accepted Answer

A) $400 
B) $224 
C) $32 
D) $256 
E) $5, 000 
A) $400 
B) $224 
C) $32 
D) $256 
E) $5, 000

Question 9

The figure given below depicts the equilibrium in the foreign exchange market. Figure 13.1   Refer to Figure 13.1.Which of the following is most likely to cause equilibrium to change from point A to point D?

Accepted Answer

A) A decrease in U.S.demand for British goods and services 
B) An increase in U.S.demand for British goods and services 
C) An increase in the supply of dollars on the foreign exchange market 
D) A decrease in the supply of British pounds on the foreign exchange market 
E) An increase in British demand for U.S.exports 
A) A decrease in U.S.demand for British goods and services 
B) An increase in U.S.demand for British goods and services 
C) An increase in the supply of dollars on the foreign exchange market 
D) A decrease in the supply of British pounds on the foreign exchange market 
E) An increase in British demand for U.S.exports

Question 10

The Fed can enhance liquidity in the U.S.economy by increasing the federal funds rate.

Accepted Answer

A) True 
 B)False

Question 11

If the money supply is $80 billion, the velocity of money is 5, and real GDP is $320 billion, then the price level equals:

Accepted Answer

A) 51.20. 
B) 20. 
C) 4. 
D) 2.75. 
E) 1.25. 
A) 51.20. 
B) 20. 
C) 4. 
D) 2.75. 
E) 1.25.

Question 12

When the government raises spending to promote economic growth, the Fed sells government bonds on the open market.This implies that the Federal Reserve and the federal government are following different policy goals.

Accepted Answer

A) True 
 B)False

Question 13

During the Christmas holiday season, the Fed increases the supply of currency to:

Accepted Answer

A) ensure that checks are cleared quickly. 
B) meet the demand for cash withdrawals from banks. 
C) stabilize the value of the dollar against other currencies. 
D) decrease the value of bonds. 
E) control inflation. 
A) ensure that checks are cleared quickly. 
B) meet the demand for cash withdrawals from banks. 
C) stabilize the value of the dollar against other currencies. 
D) decrease the value of bonds. 
E) control inflation.

Question 14

The table given below shows the assets and liabilities of the National Bank.Assume that this is the only bank in the economy. Table 13.2
  Refer to Table 13.2.If the Fed increased the reserve requirement from 10 percent to 25 percent, the money supply in the whole banking system could now potentially:

Accepted Answer

A) decrease by $12, 900. 
B) decrease by $1, 272.50. 
C) increase by $7, 875. 
D) decrease by $7, 875. 
E) increase by $3, 150. 
A) decrease by $12, 900. 
B) decrease by $1, 272.50. 
C) increase by $7, 875. 
D) decrease by $7, 875. 
E) increase by $3, 150.

Question 15

Each district bank of the Fed comprises of nine board of directors of which three are appointed by the:

Accepted Answer

A) Federal Reserve System member banks. 
B) President. 
C) Attorney General. 
D) Board of Governors of the Fed. 
E) Congress. 
A) Federal Reserve System member banks. 
B) President. 
C) Attorney General. 
D) Board of Governors of the Fed. 
E) Congress.

Question 16

The figure given below depicts the equilibrium in the foreign exchange market. Figure 13.1   Refer to Figure 13.1.If the current equilibrium exchange rate is E1 what action would the Fed have to take to achieve a target exchange rate of E2?

Accepted Answer

A) Sell (Q2 - Q1)amount of U.S.dollars. 
B) Buy (Q1 - Q3)amount of U.S.dollars. 
C) Buy (Q2 - Q3)amount of U.S.dollars. 
D) Buy (Q2 - Q1)amount of U.S.dollars. 
E) Sell (Q1 - Q3)amount of U.S.dollars. 
A) Sell (Q2 - Q1)amount of U.S.dollars. 
B) Buy (Q1 - Q3)amount of U.S.dollars. 
C) Buy (Q2 - Q3)amount of U.S.dollars. 
D) Buy (Q2 - Q1)amount of U.S.dollars. 
E) Sell (Q1 - Q3)amount of U.S.dollars.

Question 17

There is an inverse relationship between the interest rate and the quantity of money demanded.

Accepted Answer

A) True 
 B)False

Question 18

The supply of the U.S.dollar on the foreign exchange market is generated by:

Accepted Answer

A) demand for U.S.exports. 
B) the U.S.demand for the products and financial assets of other countries. 
C) the U.S.demand for domestic goods and services. 
D) foreign demand for U.S.products. 
E) foreign demand for U.S.financial assets. 
A) demand for U.S.exports. 
B) the U.S.demand for the products and financial assets of other countries. 
C) the U.S.demand for domestic goods and services. 
D) foreign demand for U.S.products. 
E) foreign demand for U.S.financial assets.

Question 19

The figure given below depicts the equilibrium exchange rate between the U.S dollar and the Mexican peso. Figure 13.2   Refer to Figure 13.2.Assume that the exchange rate is fixed at MXP 11 = $1 and the free market equilibrium rate is MXP 10 = $1.This means that at MXP 11 = $1,

Accepted Answer

A) there will be a permanent shortage of U.S.dollars. 
B) there will be a surplus of Mexican pesos. 
C) there will be a permanent surplus of U.S.dollars. 
D) U.S.net exports to Mexico will be positive. 
E) the U.S.budget deficit will fall. 
A) there will be a permanent shortage of U.S.dollars. 
B) there will be a surplus of Mexican pesos. 
C) there will be a permanent surplus of U.S.dollars. 
D) U.S.net exports to Mexico will be positive. 
E) the U.S.budget deficit will fall.

Question 20

Which of the following will be observed if the Fed raises the reserve requirement?

Accepted Answer

A) The deposit expansion multiplier will fall 
B) The discount rate will decline 
C) The interest rate ceilings will fall 
D) Excess reserves will increase 
E) Money supply will increase 
A) The deposit expansion multiplier will fall 
B) The discount rate will decline 
C) The interest rate ceilings will fall 
D) Excess reserves will increase 
E) Money supply will increase

Exam 22: Monetary Policy

If interest rates decrease:

The table given below shows the assets and liabilities of the National Bank.Assume that this is the only bank in the economy. Table 13.2 Refer to Table 13.2.If the reserve requirement is 10 percent, how much can the whole banking system expand the money supply?

Other things equal, when the Fed raises the reserve requirement, the banking system's excess reserves will fall, the deposit expansion multiplier will decline, and the money supply will decrease.

Which of the following is true of the federal funds rate?

All members of the Federal Board of Governors are appointed by the president and confirmed by the Senate.

The interest rate that banks pay for borrowing overnight from other banks is called:

Table 13.1 Refer to Table 13.1.Given a reserve requirement of 8 percent, what is the increase in required reserves when the government purchases $400 worth of government securities?

The figure given below depicts the equilibrium in the foreign exchange market. Figure 13.1 Refer to Figure 13.1.Which of the following is most likely to cause equilibrium to change from point A to point D?

The Fed can enhance liquidity in the U.S.economy by increasing the federal funds rate.

If the money supply is $80 billion, the velocity of money is 5, and real GDP is $320 billion, then the price level equals:

When the government raises spending to promote economic growth, the Fed sells government bonds on the open market.This implies that the Federal Reserve and the federal government are following different policy goals.

During the Christmas holiday season, the Fed increases the supply of currency to:

Each district bank of the Fed comprises of nine board of directors of which three are appointed by the:

The figure given below depicts the equilibrium in the foreign exchange market. Figure 13.1 Refer to Figure 13.1.If the current equilibrium exchange rate is E1 what action would the Fed have to take to achieve a target exchange rate of E2?

There is an inverse relationship between the interest rate and the quantity of money demanded.

The supply of the U.S.dollar on the foreign exchange market is generated by:

The figure given below depicts the equilibrium exchange rate between the U.S dollar and the Mexican peso. Figure 13.2 Refer to Figure 13.2.Assume that the exchange rate is fixed at MXP 11 = $1 and the free market equilibrium rate is MXP 10 = $1.This means that at MXP 11 = $1,

Which of the following will be observed if the Fed raises the reserve requirement?

Economics: The World Around You

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an Introduction to the Foreign Exchange Market and the Balance of Payments

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Profit Maximization

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The figure given below depicts the equilibrium in the foreign exchange market. Figure 13.1 Refer to Figure 13.1.If the current equilibrium exchange rate is E₁ what action would the Fed have to take to achieve a target exchange rate of E₂?