Question 1

Forward commitment by the Fed:

Accepted Answer

A)   was suspended during the last recession so that the Fed would have greater flexibility.
B)   removes all discretion from monetary policy.
C)   announces either the size or the duration of the Fed's open-market purchase plans,but never both.
D)   was a unique feature of QE2 designed to enhance Fed credibility and encourage lending.E) A) and C)
F) All of the above

Question 2

The federal funds rate is:

Accepted Answer

A)   higher than both the prime interest rate and the discount rate.
B)   lower than both the prime interest rate and the discount rate.
C)   higher than the prime interest rate but lower than the discount rate.
D)   lower than the prime interest rate but higher than the discount rate.E) C) and D)
F) B) and D)

Question 3

If nominal GDP is $600 billion and,on the average,each dollar is spent three times per year,then the amount of money demanded for transactions purposes will be:

Accepted Answer

A)   $1,800 billion.
B)   $600 billion.
C)   $200 billion.
D)   $1,200 billion.E) A) and C)
F) All of the above

Question 4

The equilibrium rate of interest in the market for money is determined by the intersection of the:

Accepted Answer

A)   supply-of-money curve and the asset-demand-for-money curve.
B)   supply-of-money curve and the transactions-demand-for-money curve.
C)   supply-of-money curve and the total-demand-for-money curve.
D)   investment-demand curve and the total-demand-for-money curve.E) A) and D)
F) B) and D)

Question 5

In the latter part of 2001,the Fed cut the federal funds rate several times.The Fed's purpose was to:

Accepted Answer

A)   prevent rising inflation.
B)   stop a banking crisis.
C)   stimulate economic growth.
D)   strengthen the international value of the dollar.E) None of the above
F) A) and B)

Question 6

An expansionary monetary policy may be less effective than a restrictive monetary policy because:

Accepted Answer

A)   the Federal Reserve Banks are always willing to make loans to commercial banks that are short of reserves.
B)   fiscal policy always works at cross purposes with an expansionary monetary policy.
C)   changes in exchange rates complicate an expansionary monetary policy more than they do a restrictive monetary policy.
D)   commercial banks may not be able to find good loan customers.E) None of the above
F) C) and D)

Question 7

The asset demand for money is downsloping because:

Accepted Answer

A)   the opportunity cost of holding money increases as the interest rate rises.
B)   it is more attractive to hold money at high interest rates than at low interest rates.
C)   bond prices rise as interest rates rise.
D)   the opportunity cost of holding money declines as the interest rate rises.E) A) and D)
F) C) and D)

Question 8

Other things equal,an increase in productivity will:

Accepted Answer

A)   reduce aggregate supply and increase real output.
B)   reduce both the interest rate and the international value of the dollar.
C)   increase both aggregate supply and real output.
D)   increase net exports,increase investment,and reduce aggregate demand.E) B) and C)
F) B) and D)

Question 9

(Consider This) During and immediately following the severe recession of 2007-2009,commercial bank reserves held on deposit in Federal Reserve Banks:

Accepted Answer

A)   rose to a high of 50 percent of total checkable deposits held by banks.
B)   fell significantly as commercial banks withdrew reserves to pay off heavy debt obligations.
C)   increased significantly because of Fed purchases of securities from commercial banks and the paying of interest on bank reserves.
D)   increased significantly because the Fed increased the required reserve ratio.E) All of the above
F) C) and D)

Question 10

Answer the question on the basis of the following consolidated balance sheet of the commercial banking system.Assume that the reserve requirement is 10 percent.All figures are in billions and each question should be answered independently of changes specified in any preceding ones.   Assets‾ Reserves Securities Loans Property$60140260400 Liabilities & Net Worth ‾ Checkable Deposits Stock Shares$600260\begin{array}{c}\begin{array}{lll}\quad\quad\quad\underline{	ext { Assets}}\	ext { Reserves}\	ext { Securities}\	ext { Loans}\	ext { Property} \end{array}\begin{array}{l}\\$ 60 \140 \260 \400 \end{array}\begin{array}{lll}\quad\quad \underline{	ext { Liabilities \& Net Worth }}\	ext { Checkable Deposits}\	ext {  Stock Shares}\\\\end{array}\begin{array}{lll}\\$600\260\\\\end{array}\end{array} Assets​ Reserves Securities Loans Property​$60140260400​ Liabilities & Net Worth ​ Checkable Deposits Stock Shares​$600260​​ 
 Refer to the given data.The commercial banking system has excess reserves of:

Accepted Answer

A)   $10 billion.
B)   $5 billion.
C)   $2 billion.
D)   zero. E) None of the above
F) All of the above

Question 11

Ben Bernanke is the current (2013)chair of the Board of Governors.

Accepted Answer

A) True 
 B)False

Question 12

In which of the following situations is it certain that the quantity of money demanded by the public will decrease?

Accepted Answer

A)   Nominal GDP decreases and the interest rate decreases.
B)   Nominal GDP increases and the interest rate decreases.
C)   Nominal GDP decreases and the interest rate increases.
D)   Nominal GDP increases and the interest rate increases.E) A) and B)
F) All of the above

Question 13

Answer the question on the basis of the information in the following table.  Money Supply‾$400400400400400 Money  Demanc ‾$600500400300200 Interest Rate ‾2%3456Investment (at Interest Rate Shown) ‾$700600500300200\begin{array}{c}\begin{array}{c}\	ext {Money}\\underline{	ext { Supply}}\ \$ 400 \400\400\400\400\end{array}\begin{array}{c}\	ext { Money }\\underline{	ext { Demanc }} \ \$ 600 \500 \400 \300 \200\end{array}\begin{array}{c}\	ext { Interest}\\underline{	ext { Rate }} \ 2 \% \3 \4 \5 \6\end{array}\begin{array}{c}	ext {Investment }\	ext {(at Interest}\\underline{	ext { Rate Shown) }}\\$ 700 \600 \500 \300 \200\end{array}\end{array}Money Supply​$400400400400400​ Money  Demanc ​$600500400300200​ Interest Rate ​2%3456​Investment (at Interest Rate Shown) ​$700600500300200​​ 
 Refer to the table.An interest rate of 2 percent is not sustainable because:

Accepted Answer

A)   the demand for bonds in the bond market will fall and the interest rate will fall.
B)   the demand for bonds in the bond market will rise and the interest rate will fall.
C)   the supply of bonds in the bond market will decline and the interest rate will rise.
D)   the supply of bonds in the bond market will rise and the interest rate will rise. E) None of the above
F) A) and B)

Question 14

To reduce the federal funds rate,the Fed can:

Accepted Answer

A)   buy government bonds from the public.
B)   increase the discount rate.
C)   increase the prime interest rate.
D)   sell government bonds to commercial banks.E) A) and B)
F) A) and C)

Question 15

If the demand for money and the supply of money both decrease,the equilibrium:

Accepted Answer

A)   interest rate will decline,but we cannot predict the change in the equilibrium quantity of money.
B)   quantity of money and the equilibrium interest rate will both increase.
C)   quantity of money will increase,but we cannot predict the change in the equilibrium interest rate.
D)   quantity of money will decline,but we cannot predict the change in the equilibrium interest rate.E) C) and D)
F) A) and D)

Question 16

Answer the question on the basis of the following table:   Interest  Rate 2%46810TransactionDemand forMoney‾$220220220220220Asset Demand for Money‾$300280260240220MoneySupply‾$460460460460460\begin{array}{c}\begin{array}{c}\	ext { Interest }\	ext { Rate } \\hline 2 \% \4 \6 \8 \10 \end{array}\begin{array}{c}	ext {Transaction}\	ext {Demand for}\\underline{	ext {Money}}\ \$ 220 \220\220\220\220\end{array}\begin{array}{c}\	ext {Asset Demand }\\underline{	ext {for Money}}\\$ 300 \280 \260 \240 \220\end{array}\begin{array}{c}\	ext {Money}\\underline{	ext {Supply}}\\$ 460 \460\460\460\460\end{array}\end{array} Interest  Rate 2%46810​​TransactionDemand forMoney​$220220220220220​Asset Demand for Money​$300280260240220​MoneySupply​$460460460460460​​

Refer to the given table.An increase in the money supply of $20 billion will cause the equilibrium interest rate to:

Accepted Answer

A)   fall by 4 percentage points.
B)   fall by 2 percentage points.
C)   rise by 4 percentage points.
D)   rise by 2 percentage points. E) A) and C)
F) A) and D)

Question 17

In an effort to stabilize the banking sector and keep banks lending,from October 2008 to September 2009,the Fed:

Accepted Answer

A)   raised reserve requirements.
B)   raised the amount of interest paid on reserves held at Fed banks.
C)   declared a series of bank holidays to give banks a chance to recover from excessive withdrawals from customer accounts.
D)   lowered the federal funds target rate.E) B) and C)
F) A) and D)

Exam 35: Interest Rates and Monetary Policy

Correct Answer
verified

In an effort to stabilize the banking sector and keep banks lending,from October 2008 to September 2009,the Fed:

Correct Answer
verified

Forward commitment by the Fed:

Correct Answer
verified

The asset demand for money is downsloping because:

Correct Answer
verified

Correct Answer
verified

The federal funds rate is:

Correct Answer
verified

An expansionary monetary policy may be less effective than a restrictive monetary policy because:

Correct Answer
verified

Other things equal,an increase in productivity will:

Correct Answer
verified

The equilibrium rate of interest in the market for money is determined by the intersection of the:

Correct Answer
verified

Ben Bernanke is the current (2013)chair of the Board of Governors.

Correct Answer
verified

In the latter part of 2001,the Fed cut the federal funds rate several times.The Fed's purpose was to:

Correct Answer
verified

In which of the following situations is it certain that the quantity of money demanded by the public will decrease?

Correct Answer
verified

If the demand for money and the supply of money both decrease,the equilibrium:

Correct Answer
verified

Correct Answer
verified

(Consider This) During and immediately following the severe recession of 2007-2009,commercial bank reserves held on deposit in Federal Reserve Banks:

Correct Answer
verified

If nominal GDP is $600 billion and,on the average,each dollar is spent three times per year,then the amount of money demanded for transactions purposes will be:

Correct Answer
verified

To reduce the federal funds rate,the Fed can:

Correct Answer
verified

Exam 35: Interest Rates and Monetary Policy

Correct AnswerverifiedShow Answer

In an effort to stabilize the banking sector and keep banks lending,from October 2008 to September 2009,the Fed:

Correct AnswerverifiedShow Answer

Forward commitment by the Fed:

Correct AnswerverifiedShow Answer

The asset demand for money is downsloping because:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The federal funds rate is:

Correct AnswerverifiedShow Answer

An expansionary monetary policy may be less effective than a restrictive monetary policy because:

Correct AnswerverifiedShow Answer

Other things equal,an increase in productivity will:

Correct AnswerverifiedShow Answer

The equilibrium rate of interest in the market for money is determined by the intersection of the:

Correct AnswerverifiedShow Answer

Ben Bernanke is the current (2013)chair of the Board of Governors.

Correct AnswerverifiedShow Answer

In the latter part of 2001,the Fed cut the federal funds rate several times.The Fed's purpose was to:

Correct AnswerverifiedShow Answer

In which of the following situations is it certain that the quantity of money demanded by the public will decrease?

Correct AnswerverifiedShow Answer

If the demand for money and the supply of money both decrease,the equilibrium:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

(Consider This) During and immediately following the severe recession of 2007-2009,commercial bank reserves held on deposit in Federal Reserve Banks:

Correct AnswerverifiedShow Answer

If nominal GDP is $600 billion and,on the average,each dollar is spent three times per year,then the amount of money demanded for transactions purposes will be:

Correct AnswerverifiedShow Answer

To reduce the federal funds rate,the Fed can:

Correct AnswerverifiedShow Answer

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verified

Correct Answer
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Correct Answer
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Correct Answer
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