Question 1

The rate of interest that the Federal Reserve charges on loans to member banks is the:

Accepted Answer

A) open market rate. 
B) federal funds rate. 
C) discount rate. 
D) prime interest rate. 
E) reserve lending rate. 
A) open market rate. 
B) federal funds rate. 
C) discount rate. 
D) prime interest rate. 
E) reserve lending rate.

Question 2

An increase in nominal income will result in:

Accepted Answer

A) a decrease in money market equilibrium. 
B) an excess demand for bonds. 
C) an increase in bond prices. 
D) an excess supply of money. 
E) a higher interest rate. 
A) a decrease in money market equilibrium. 
B) an excess demand for bonds. 
C) an increase in bond prices. 
D) an excess supply of money. 
E) a higher interest rate.

Question 3

Which of the following is the latest short run operating target specified to the New York Fed by the FOMC directives?

Accepted Answer

A) The federal funds rate 
B) The primary lending rate 
C) Quantitative easing 
D) Legal reserves 
E) The bank rate 
A) The federal funds rate 
B) The primary lending rate 
C) Quantitative easing 
D) Legal reserves 
E) The bank rate

Question 4

Suppose that a sharp downturn in the price of a country's prime manufacturing product results in a terrible recession and a massive decline in the general income level of the citizens.Other things constant, what would be the recession's most probable effect on money demand in the country?

Accepted Answer

A) People will hold more money for any purpose, resulting in a decline in money demand. 
B) Local M1 money demand will rise. 
C) The transactions demand for money will fall such that the quantity of money demanded will be lower at any given interest rate level. 
D) The speculative demand for money will fall, causing a downward movement along the money demand curve. 
E) The precautionary demand for money will increase, causing an upward shift in the money demand curve. 
A) People will hold more money for any purpose, resulting in a decline in money demand. 
B) Local M1 money demand will rise. 
C) The transactions demand for money will fall such that the quantity of money demanded will be lower at any given interest rate level. 
D) The speculative demand for money will fall, causing a downward movement along the money demand curve. 
E) The precautionary demand for money will increase, causing an upward shift in the money demand curve.

Question 5

Assume that banks lend out all their excess reserves.Currently, the legal reserves that banks must hold equal $11.5 billion.If the Federal Reserve decreases its reserve requirement from 10 percent to 5 percent, then there is potential for the whole banking system to raise the money supply by:

Accepted Answer

A) $11.5 billion. 
B) $230 billion. 
C) $115 billion. 
D) $57.5 billion. 
E) $575 billion. 
A) $11.5 billion. 
B) $230 billion. 
C) $115 billion. 
D) $57.5 billion. 
E) $575 billion.

Question 6

Table 13.1   Refer to Table 13.1.Given a reserve requirement of 8 percent, what is the amount of excess reserves?

Accepted Answer

A) $2, 800 
B) $224 
C) $936 
D) $1, 640 
E) -$256 
A) $2, 800 
B) $224 
C) $936 
D) $1, 640 
E) -$256

Question 7

The FOMC carries out its policies through directives to the bond-trading desk at the:

Accepted Answer

A) Federal Reserve Bank of Dallas. 
B) Chicago Fed. 
C) Federal Reserve of Philadelphia. 
D) Los Angeles Fed. 
E) Federal Reserve Bank of New York. 
A) Federal Reserve Bank of Dallas. 
B) Chicago Fed. 
C) Federal Reserve of Philadelphia. 
D) Los Angeles Fed. 
E) Federal Reserve Bank of New York.

Question 8

The use of domestic open market operations to counteract the effects of a foreign exchange market intervention on the domestic money supply is known as:

Accepted Answer

A) normalization. 
B) quantitative easing. 
C) sterilization. 
D) volatilization. 
E) depreciation. 
A) normalization. 
B) quantitative easing. 
C) sterilization. 
D) volatilization. 
E) depreciation.

Question 9

The buying and selling of government bonds by the FOMC constitutes:

Accepted Answer

A) an open market operation. 
B) a federal funds adjustment. 
C) a discount rate adjustment. 
D) a change in the reserve requirement. 
E) sterilization of the money supply 
A) an open market operation. 
B) a federal funds adjustment. 
C) a discount rate adjustment. 
D) a change in the reserve requirement. 
E) sterilization of the money supply

Question 10

Table 13.1   Refer to Table 13.1.Given a reserve requirement of 8 percent, what is the maximum potential increase in the money supply?

Accepted Answer

A) $20, 500 
B) $2, 800 
C) $224 
D) $11, 700 
E) $35, 000 
A) $20, 500 
B) $2, 800 
C) $224 
D) $11, 700 
E) $35, 000

Question 11

In the figure given below panel A represents money market equilibrium, panel B represents investment demand, and panel C represents equilibrium real GDP. Figure 13.3   Refer to Figure 13.3.Other things equal, if real GDP is equal to $900 billion, then:

Accepted Answer

A) the money demand curve will be to the left of the one shown in the figure above. 
B) the quantity of money demanded will be less than $400 billion and can be illustrated by a downward movement along the money demand curve. 
C) the quantity of money demanded will be greater than $400 billion and can be illustrated by an upward movement along the money demand curve. 
D) the investment demand curve will be to the left of the one illustrated in Panel (
A) of the figure. 
E) the money demand curve will be to the right of the one illustrated in Panel (
A) of the figure. 
A) the money demand curve will be to the left of the one shown in the figure above. 
B) the quantity of money demanded will be less than $400 billion and can be illustrated by a downward movement along the money demand curve. 
C) the quantity of money demanded will be greater than $400 billion and can be illustrated by an upward movement along the money demand curve. 
D) the investment demand curve will be to the left of the one illustrated in Panel (
A) of the figure. 
E) the money demand curve will be to the right of the one illustrated in Panel (
A) of the figure.

Question 12

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.Given a target exchange rate of MXP 11 = $1 with S1 the relevant supply curve and a decline in Mexican demand for U.S.dollars from D1 to D2 the Fed intervenes in the foreign exchange market by:

Accepted Answer

A) selling Q3 amount of pesos. 
B) selling Q3 amount of U.S.dollars. 
C) buying (Q2 - Q1)amount of pesos. 
D) buying (Q1 - Q3)amount of U.S.dollars. 
E) buying (Q2 - Q3)amount of U.S dollars. 
A) selling Q3 amount of pesos. 
B) selling Q3 amount of U.S.dollars. 
C) buying (Q2 - Q1)amount of pesos. 
D) buying (Q1 - Q3)amount of U.S.dollars. 
E) buying (Q2 - Q3)amount of U.S dollars.

Question 13

If the FOMC purchases government bonds priced at $5, 000 from a bond dealer who banks at National Bank, and if the reserve requirement is 20 percent, then the required reserves of National Bank:

Accepted Answer

A) increase by $5, 000. 
B) increase by $4, 000. 
C) increase by $1, 000. 
D) decrease by $5, 000. 
E) decrease by $1, 000. 
A) increase by $5, 000. 
B) increase by $4, 000. 
C) increase by $1, 000. 
D) decrease by $5, 000. 
E) decrease by $1, 000.

Question 14

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.When the Mexican demand for U.S.dollars rises from D2 to D1 and the relevant supply curve is S1:

Accepted Answer

A) the U.S.dollar depreciates in value relative to the peso. 
B) the Mexican peso depreciates in value relative to the U.S.dollar. 
C) the Mexican peso appreciates in value relative to the U.S.dollar 
D) U.S.imports from Mexico decreases. 
E) Mexican net exports to the United States becomes positive. 
A) the U.S.dollar depreciates in value relative to the peso. 
B) the Mexican peso depreciates in value relative to the U.S.dollar. 
C) the Mexican peso appreciates in value relative to the U.S.dollar 
D) U.S.imports from Mexico decreases. 
E) Mexican net exports to the United States becomes positive.

Question 15

The sale of U.S.currency and purchase of foreign currency by the Federal Reserve would shift the demand curve for U.S.dollars to the left.

Accepted Answer

A) True 
 B)False

Question 16

Suppose you hold $5, 000 in cash when the interest rate on bonds is 4 percent.Other things equal, as the bond interest rate declines to 3 percent, you will want to hold more money because the opportunity cost of holding money has decreased.

Accepted Answer

A) True 
 B)False

Question 17

If a bond pays a fixed return of $500 a year and the current interest rate has risen from 5 percent to 10 percent, then the bond price must have:

Accepted Answer

A) risen from $25 to $50. 
B) fallen from $50 to $25. 
C) risen from $5, 000 to $10, 000. 
D) fallen from $10, 000 to $5, 000. 
E) risen from $1, 000 to $5, 000. 
A) risen from $25 to $50. 
B) fallen from $50 to $25. 
C) risen from $5, 000 to $10, 000. 
D) fallen from $10, 000 to $5, 000. 
E) risen from $1, 000 to $5, 000.

Question 18

If a depreciation of the British pound is to be prevented, the U.S.Federal Reserve has to buy British pounds and sell U.S.dollars.

Accepted Answer

A) True 
 B)False

Question 19

As the velocity of money rises, the amount of money being held by individuals also rises.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is the ultimate goal of monetary policy?

Accepted Answer

A) Complete removal of income inequality 
B) Economic growth with price stability 
C) Free trade 
D) Balanced budget 
E) Economic welfare 
A) Complete removal of income inequality 
B) Economic growth with price stability 
C) Free trade 
D) Balanced budget 
E) Economic welfare

Exam 22: Monetary Policy

The rate of interest that the Federal Reserve charges on loans to member banks is the:

An increase in nominal income will result in:

Which of the following is the latest short run operating target specified to the New York Fed by the FOMC directives?

Suppose that a sharp downturn in the price of a country's prime manufacturing product results in a terrible recession and a massive decline in the general income level of the citizens.Other things constant, what would be the recession's most probable effect on money demand in the country?

Assume that banks lend out all their excess reserves.Currently, the legal reserves that banks must hold equal $11.5 billion.If the Federal Reserve decreases its reserve requirement from 10 percent to 5 percent, then there is potential for the whole banking system to raise the money supply by:

Table 13.1 Refer to Table 13.1.Given a reserve requirement of 8 percent, what is the amount of excess reserves?

The FOMC carries out its policies through directives to the bond-trading desk at the:

The use of domestic open market operations to counteract the effects of a foreign exchange market intervention on the domestic money supply is known as:

The buying and selling of government bonds by the FOMC constitutes:

Table 13.1 Refer to Table 13.1.Given a reserve requirement of 8 percent, what is the maximum potential increase in the money supply?

In the figure given below panel A represents money market equilibrium, panel B represents investment demand, and panel C represents equilibrium real GDP. Figure 13.3 Refer to Figure 13.3.Other things equal, if real GDP is equal to $900 billion, then:

If the FOMC purchases government bonds priced at $5, 000 from a bond dealer who banks at National Bank, and if the reserve requirement is 20 percent, then the required reserves of National Bank:

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.When the Mexican demand for U.S.dollars rises from D2 to D1 and the relevant supply curve is S1:

The sale of U.S.currency and purchase of foreign currency by the Federal Reserve would shift the demand curve for U.S.dollars to the left.

Suppose you hold $5, 000 in cash when the interest rate on bonds is 4 percent.Other things equal, as the bond interest rate declines to 3 percent, you will want to hold more money because the opportunity cost of holding money has decreased.

If a bond pays a fixed return of $500 a year and the current interest rate has risen from 5 percent to 10 percent, then the bond price must have:

If a depreciation of the British pound is to be prevented, the U.S.Federal Reserve has to buy British pounds and sell U.S.dollars.

As the velocity of money rises, the amount of money being held by individuals also rises.

Which of the following is the ultimate goal of monetary policy?

Economics: The World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

National Income Accounting

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

Consumer Choice

Supply: The Costs of Doing Business

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Profit Maximization

Aggregate Expenditures

Perfect Competition

Income and Expenditures Equilibrium

Monopoly

Fiscal Policy

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Money and Banking

Market Failures, Government Failures, and Rent Seeking

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Resource Markets

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

The Labor Market

Capital Markets

Economic Growth

Development Economics

the Land Market and Natural Resources

Aging, Social Security and Health Care

Globalization

Elasticity: Demand and Supply

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

Consumer Choice

International Trade Restrictions

World Trade Equilibrium

Exchange Rates and Financial Links Between Countries

International Trade Restrictions

Supply: the Costs of Doing Business

Exchange Rates and Financial Links Between Countries

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

Filters

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.When the Mexican demand for U.S.dollars rises from D₂ to D₁ and the relevant supply curve is S₁: