Question 1

Which of the monetary policy tools can alter both the level of excess reserves and the money multiplier?

Accepted Answer

A)   Open-market operations.
B)   The reserve ratio.
C)   The discount rate.
D)   The federal funds rate.E) A) and C)
F) A) and B)

Question 2

Assume the legal reserve ratio is 25 percent and the Fourth National Bank borrows $10,000 from the Federal Reserve Bank in its district.As a result:

Accepted Answer

A)   commercial bank reserves are increased by $10,000.
B)   the supply of money automatically declines by $7,500.
C)   commercial bank reserves are increased by $7,500.
D)   the supply of money is automatically increased by $10,000.E) A) and B)
F) B) and D)

Question 3

Which of the following Fed policy actions left the date for completion open,based on achieving particular employment objectives?

Accepted Answer

A)   QE2.
B)   QE3.
C)   Maturity Extension Program.
D)   Operation Twist.E) B) and C)
F) A) and D)

Question 4

On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively,the total demand for money can be found by:

Accepted Answer

A)   horizontally adding the transactions and the asset demand for money.
B)   vertically subtracting the transactions demand from the asset demand for money.
C)   horizontally subtracting the asset demand from the transactions demand for money.
D)   vertically adding the transactions and the asset demand for money.E) A) and D)
F) All of the above

Question 5

Changes in the interest rate are more likely to affect investment spending than consumer spending.

Accepted Answer

A) True 
 B)False

Question 6

All else equal,when the Federal Reserve Banks engage in an expansionary monetary policy,the interest rates received on government bonds usually:

Accepted Answer

A)   fall.
B)   rise.
C)   remain constant.
D)   move in the same direction as the bonds' price.E) C) and D)
F) B) and D)

Question 7

A liquidity trap occurs when the Federal Reserve reduces reserves in the system,choking off aggregate demand.

Accepted Answer

A) True 
 B)False

Question 8

A restrictive monetary policy reduces investment spending and shifts the economy's aggregate demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is correct? When the Federal Reserve buys government securities from the public,the money supply:

Accepted Answer

A)   contracts and commercial bank reserves increase.
B)   expands and commercial bank reserves decrease.
C)   contracts and commercial bank reserves decrease.
D)   expands and commercial bank reserves increase.E) B) and D)
F) A) and B)

Question 10

Answer the question on the basis of the following table in which columns (1) and (2) indicate the transactions demand (Dt) for money and columns (1) and (3) show the asset demand (Da) for money:  (1) Interest Rate‾12%108642(2) Dt‾$100100100100100100(3) Da‾$020406080100\begin{array}{c}\begin{array}{c}(1) \\underline{	ext {Interest Rate}}\12 \% \10 \8 \6 \4 \2\end{array}\begin{array}{c}(2) \\underline{D_{t} }\ \$ 100 \100 \100 \100 \100 \100\end{array}\begin{array}{c}(3) \\underline{D_{a}} \\$ 0 \20 \40 \60 \80 \100\end{array}\end{array}(1) Interest Rate​12%108642​(2) Dt​​$100100100100100100​(3) Da​​$020406080100​​ 
 Refer to the given data.If the money supply is $160,the equilibrium interest rate will be:

Accepted Answer

A)   10 percent.
B)   8 percent.
C)   6 percent.
D)   4 percent. E) A) and B)
F) A) and C)

Question 11

Other things equal,an expansionary monetary policy will shift the economy's aggregate demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 12

Suppose that,for every 1-percentage-point decline in the discount rate,commercial banks collectively borrow an additional $2 billion from Federal Reserve Banks.Also assume that the reserve ratio is 10 percent.If the Fed lowers the discount rate from 4.0 percent to 3.5 percent,bank reserves will:

Accepted Answer

A)   increase by $1 billion and the money supply will increase by $5 billion.
B)   decline by $1 billion and the money supply will decline by $10 billion.
C)   increase by $1 billion and the money supply will increase by $10 billion.
D)   increase by $10 billion and the money supply will increase by $100 billion.E) B) and D)
F) B) and C)

Question 13

The securities held as assets by the Federal Reserve Banks consist mainly of:

Accepted Answer

A)   corporate bonds.
B)   Treasury bills,Treasury notes,and Treasury bonds.
C)   common stock.
D)   certificates of deposit.E) All of the above
F) A) and B)

Question 14

Which of the following is an asset on the consolidated balance sheet of the Federal Reserve Banks?

Accepted Answer

A)   Loans to commercial banks.
B)   Federal Reserve Notes in circulation.
C)   Treasury deposits.
D)   Reserves of commercial banks.E) A) and B)
F) A) and C)

Question 15

The total demand for money curve will shift to the right as a result of:

Accepted Answer

A)   an increase in nominal GDP.
B)   an increase in the interest rate.
C)   a decline in the interest rate.
D)   a decline in nominal GDP.E) None of the above
F) C) and D)

Question 16

An increase in the money supply will:

Accepted Answer

A)   lower interest rates and lower the equilibrium GDP.
B)   lower interest rates and increase the equilibrium GDP.
C)   increase interest rates and increase the equilibrium GDP.
D)   increase interest rates and lower the equilibrium GDP.E) None of the above
F) A) and B)

Question 17

If the Federal Reserve authorities were attempting to reduce demand-pull inflation,the proper policies would be to:

Accepted Answer

A)   sell government securities,raise reserve requirements,raise the discount rate,and increase the interest paid on reserves held at the Fed banks.
B)   buy government securities,raise reserve requirements,raise the discount rate,and reduce the amount of interest paid on reserves held at the Fed banks.
C)   sell government securities,lower reserve requirements,lower the discount rate,and increase the interest paid on reserves held at the Fed banks.
D)   sell government securities,raise reserve requirements,lower the discount rate,and increase the interest paid on reserves held at the Fed banks.E) B) and C)
F) B) and D)

Question 18

Assume that a single commercial bank has no excess reserves and that the reserve ratio is 20 percent.If this bank sells a bond for $1,000 to a Federal Reserve Bank,it can expand its loans by a maximum of:

Accepted Answer

A)   $1,000.
B)   $2,000.
C)   $800.
D)   $5,000.E) B) and C)
F) B) and D)

Question 19

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.Suppose the Fed wants to increase the money supply by $400 billion to drive down interest rates and stimulate the economy.Assuming that the money multiplier is operating to full effect,to accomplish the desired increase,the Fed could:

Accepted Answer

A)   sell $20 billion of U.S.securities to the banks.
B)   buy $20 billion of U.S.securities from the banks.
C)   sell $40 billion of U.S.securities to the banks.
D)   buy $40 billion of U.S.securities from the banks. E) C) and D)
F) B) and C)

Question 20

The possible asymmetry of monetary policy is the central idea of the:

Accepted Answer

A)   invisible hand concept.
B)   ratchet analogy.
C)   pushing-on-a-string analogy.
D)   bandwagon effect.E) A) and D)
F) A) and C)

Exam 35: Interest Rates and Monetary Policy

Suppose that,for every 1-percentage-point decline in the discount rate,commercial banks collectively borrow an additional $2 billion from Federal Reserve Banks.Also assume that the reserve ratio is 10 percent.If the Fed lowers the discount rate from 4.0 percent to 3.5 percent,bank reserves will:

Correct Answer
verified

On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively,the total demand for money can be found by:

Correct Answer
verified

The possible asymmetry of monetary policy is the central idea of the:

Correct Answer
verified

Assume the legal reserve ratio is 25 percent and the Fourth National Bank borrows $10,000 from the Federal Reserve Bank in its district.As a result:

Correct Answer
verified

If the Federal Reserve authorities were attempting to reduce demand-pull inflation,the proper policies would be to:

Correct Answer
verified

Which of the following is correct? When the Federal Reserve buys government securities from the public,the money supply:

Correct Answer
verified

A restrictive monetary policy reduces investment spending and shifts the economy's aggregate demand curve to the right.

Correct Answer
verified

Assume that a single commercial bank has no excess reserves and that the reserve ratio is 20 percent.If this bank sells a bond for $1,000 to a Federal Reserve Bank,it can expand its loans by a maximum of:

Correct Answer
verified

Which of the following is an asset on the consolidated balance sheet of the Federal Reserve Banks?

Correct Answer
verified

Other things equal,an expansionary monetary policy will shift the economy's aggregate demand curve to the right.

Correct Answer
verified

All else equal,when the Federal Reserve Banks engage in an expansionary monetary policy,the interest rates received on government bonds usually:

Correct Answer
verified

The total demand for money curve will shift to the right as a result of:

Correct Answer
verified

Which of the monetary policy tools can alter both the level of excess reserves and the money multiplier?

Correct Answer
verified

Which of the following Fed policy actions left the date for completion open,based on achieving particular employment objectives?

Correct Answer
verified

Changes in the interest rate are more likely to affect investment spending than consumer spending.

Correct Answer
verified

The securities held as assets by the Federal Reserve Banks consist mainly of:

Correct Answer
verified

Correct Answer
verified

A liquidity trap occurs when the Federal Reserve reduces reserves in the system,choking off aggregate demand.

Correct Answer
verified

Correct Answer
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An increase in the money supply will:

Correct Answer
verified

Exam 35: Interest Rates and Monetary Policy

Suppose that,for every 1-percentage-point decline in the discount rate,commercial banks collectively borrow an additional $2 billion from Federal Reserve Banks.Also assume that the reserve ratio is 10 percent.If the Fed lowers the discount rate from 4.0 percent to 3.5 percent,bank reserves will:

Correct AnswerverifiedShow Answer

On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively,the total demand for money can be found by:

Correct AnswerverifiedShow Answer

The possible asymmetry of monetary policy is the central idea of the:

Correct AnswerverifiedShow Answer

Assume the legal reserve ratio is 25 percent and the Fourth National Bank borrows $10,000 from the Federal Reserve Bank in its district.As a result:

Correct AnswerverifiedShow Answer

If the Federal Reserve authorities were attempting to reduce demand-pull inflation,the proper policies would be to:

Correct AnswerverifiedShow Answer

Which of the following is correct? When the Federal Reserve buys government securities from the public,the money supply:

Correct AnswerverifiedShow Answer

A restrictive monetary policy reduces investment spending and shifts the economy's aggregate demand curve to the right.

Correct AnswerverifiedShow Answer

Assume that a single commercial bank has no excess reserves and that the reserve ratio is 20 percent.If this bank sells a bond for $1,000 to a Federal Reserve Bank,it can expand its loans by a maximum of:

Correct AnswerverifiedShow Answer

Which of the following is an asset on the consolidated balance sheet of the Federal Reserve Banks?

Correct AnswerverifiedShow Answer

Other things equal,an expansionary monetary policy will shift the economy's aggregate demand curve to the right.

Correct AnswerverifiedShow Answer

All else equal,when the Federal Reserve Banks engage in an expansionary monetary policy,the interest rates received on government bonds usually:

Correct AnswerverifiedShow Answer

The total demand for money curve will shift to the right as a result of:

Correct AnswerverifiedShow Answer

Which of the monetary policy tools can alter both the level of excess reserves and the money multiplier?

Correct AnswerverifiedShow Answer

Which of the following Fed policy actions left the date for completion open,based on achieving particular employment objectives?

Correct AnswerverifiedShow Answer

Changes in the interest rate are more likely to affect investment spending than consumer spending.

Correct AnswerverifiedShow Answer

The securities held as assets by the Federal Reserve Banks consist mainly of:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A liquidity trap occurs when the Federal Reserve reduces reserves in the system,choking off aggregate demand.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An increase in the money supply will:

Correct AnswerverifiedShow Answer

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