Question 1

Assume that the price level is flexible both upward and downward and that the Fed's policy is to keep the price level from either rising or falling.If aggregate supply increases in the economy,the Fed:

Accepted Answer

A)   will have to increase interest rates to keep the price level from falling.
B)   will have to reduce the money supply to keep the price level from rising.
C)   will have to increase the money supply to keep the price level from falling.
D)   can keep the price level stable without altering the money supply or interest rate.E) C) and D)
F) None of the above

Question 2

QE3 followed QE2 and Operation Twist.Which of the following best explains how QE3 differed from the other two in order to make it more effective?

Accepted Answer

A)   QE3 promised a much larger expansion of reserves.
B)   QE3 gave a much stronger forward commitment as to when the policy would be complete.
C)   QE3 carried much more force in getting banks to lend reserves.
D)   QE3's completion was tied to economic objectives,rather than specific dates.E) A) and B)
F) B) and C)

Question 3

When the required reserve ratio is increased,the excess reserves of member banks are:

Accepted Answer

A)   reduced,but the multiple by which the commercial banking system can lend is unaffected.
B)   reduced and the multiple by which the commercial banking system can lend is increased.
C)   increased and the multiple by which the commercial banking system can lend is increased.
D)   reduced and the multiple by which the commercial banking system can lend is reduced.E) None of the above
F) B) and D)

Question 4

Federal Reserve Notes in circulation are:

Accepted Answer

A)   an asset as viewed by the Federal Reserve Banks.
B)   a liability as viewed by the Federal Reserve Banks.
C)   neither an asset nor a liability as viewed by the Federal Reserve Banks.
D)   part of M1 but not of M2.E) A) and D)
F) A) and B)

Question 5

From September 2007 to April 2008 the Fed lowered the federal funds rate from 5.25 percent to 2 percent in a series of steps.The Fed's actions were largely in response to:

Accepted Answer

A)   threats to the financial system from the mortgage default crisis.
B)   forecasts of higher inflation rates.
C)   Chinese refusal to allow their exchange rate to reflect market conditions.
D)   pressure from the president to offset contractionary effects of a tax increase.E) A) and C)
F) A) and D)

Question 6

Other things equal,if the supply of money is reduced:

Accepted Answer

A)   the demand for money will increase.
B)   the interest rates will fall.
C)   bond prices will fall.
D)   investment spending will increase.E) B) and C)
F) None of the above

Question 7

If the Fed were to reduce the legal reserve ratio,we would expect:

Accepted Answer

A)   lower interest rates,an expanded GDP,and a higher rate of inflation.
B)   lower interest rates,an expanded GDP,and a lower rate of inflation.
C)   higher interest rates,a contracted GDP,and a higher rate of inflation.
D)   higher interest rates,a contracted GDP,and a lower rate of inflation.E) B) and C)
F) A) and C)

Question 8

Generally,the prime interest rate:

Accepted Answer

A)   moves in the opposite direction as the federal funds rate.
B)   remains constant over long periods of time.
C)   is highly inflexible downward.
D)   moves in the same direction as the federal funds rate.E) A) and D)
F) B) and C)

Question 9

After falling form a peak of 138.1 million in January 2008 to a trough of 129.9 million in September 2010,employment in the U.S.economy:

Accepted Answer

A)   just reached its January 2008 peak in April 2013.
B)   had only recovered to 135.5 million by April 2013.
C)   recovered for a year,only to decline further by April 2013.
D)   rose to over 140 million by April 2013.E) A) and C)
F) A) and D)

Question 10

Answer the question on the assumption that the legal reserve ratio is 20 percent.Suppose that the Fed sells $500 of government securities to commercial banks (paid for out of commercial bank reserves) and buys $500 of securities from individuals,who deposit the cash in checking accounts. As a result of the given transactions,reserves in the banking system will:

Accepted Answer

A)   remain unchanged.
B)   rise by $100.
C)   fall by $100.
D)   rise by $1,000.E) B) and D)
F) All of the above

Question 11

Assume that the commercial banking system has checkable deposits of $10 billion and excess reserves of $1 billion at a time when the reserve requirement is 20 percent.If the reserve requirement is now raised to 30 percent,the banking system then has:

Accepted Answer

A)   excess reserves of $2 billion.
B)   neither an excess nor a deficiency of reserves.
C)   a deficiency of reserves of $.5 billion.
D)   excess reserves of only $.5 billion.E) C) and D)
F) All of the above

Question 12

Answer the question on the basis of the following information.For transactions,households and businesses want to hold an amount of money equal to one-half of nominal GDP.The table shows the amounts of money they want to hold as an asset at various interest rates.   Interest Rate‾ Amount of Money Demanded ‾10%$208406604802100\begin{array}{l}\begin{array}{cc}\underline{	ext { Interest Rate} } & \underline{	ext { Amount of Money Demanded }}\10 \% & \$ 20 \8 & 40 \6 & 60 \4 & 80 \2 & 100\end{array}\end{array} Interest Rate​10%8642​ Amount of Money Demanded ​$20406080100​​  Refer to the given information.If nominal GDP is $300 and the supply of money is $230,the equilibrium interest rate will be:

Accepted Answer

A)   8 percent.
B)   6 percent.
C)   4 percent.
D)   2 percent. E) None of the above
F) All of the above

Question 13

The Federal Reserve Banks buy government securities from commercial banks.As a result,the checkable deposits:

Accepted Answer

A)   of commercial banks are unchanged,but their reserves increase.
B)   and reserves of commercial banks both decrease.
C)   of commercial banks are unchanged,but their reserves decrease.
D)   and reserves of commercial banks are both unchanged.E) B) and D)
F) B) and C)

Question 14

When the Fed raises the interest rate paid on reserves,it discourages bank lending.

Accepted Answer

A) True 
 B)False

Question 15

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​​ 
 At equilibrium in the given market for money,the total amount of money demanded is:

Accepted Answer

A)   $500.
B)   $480.
C)   $460.
D)   $440. E) All of the above
F) C) and D)

Question 16

The desire to hold money for transactions purposes arises because:

Accepted Answer

A)   receipts of income and expenditures are not perfectly synchronized.
B)   people fear that prices will rise.
C)   households want money on hand in case a good financial investment opportunity arises.
D)   low interest rates reduce the opportunity cost of holding money.E) None of the above
F) A) and C)

Question 17

In the 1990s and early 2000s,Japan's central bank reduced real interest rates to zero percent,but investment spending did not respond enough to bring the economy out of recession.Japan's experience is an illustration of:

Accepted Answer

A)   the crowding-out effect.
B)   "pulling on a string."
C)   the Taylor rule.
D)   the liquidity trap.E) None of the above
F) A) and B)

Question 18

Projecting that it might temporarily fall short of legally required reserves in the coming days,the Bank of Beano decides to borrow money from its regional Federal Reserve Bank.The interest rate on the loan is called the:

Accepted Answer

A)   prime rate.
B)   federal funds rate.
C)   Treasury bill rate.
D)   discount rate.E) A) and D)
F) B) and D)

Question 19

The prime interest rate:

Accepted Answer

A)   affects investment spending while the federal funds rate affects consumption spending.
B)   affects consumption spending while the federal funds rate affects investment spending.
C)   has no effect on exchange rates and net exports.
D)   affects investment spending while the federal funds rate affects overnight borrowing of bank reserves.E) B) and D)
F) B) and C)

Question 20

The benchmark interest rate that banks use as a reference point for a variety of consumer and business loans is the:

Accepted Answer

A)   federal funds rate.
B)   prime interest rate.
C)   discount rate.
D)   Treasury bill rate.E) None of the above
F) B) and C)

Exam 35: Interest Rates and Monetary Policy

After falling form a peak of 138.1 million in January 2008 to a trough of 129.9 million in September 2010,employment in the U.S.economy:

Correct Answer
verified

Federal Reserve Notes in circulation are:

Correct Answer
verified

The benchmark interest rate that banks use as a reference point for a variety of consumer and business loans is the:

Correct Answer
verified

Correct Answer
verified

Generally,the prime interest rate:

Correct Answer
verified

Assume that the price level is flexible both upward and downward and that the Fed's policy is to keep the price level from either rising or falling.If aggregate supply increases in the economy,the Fed:

Correct Answer
verified

The Federal Reserve Banks buy government securities from commercial banks.As a result,the checkable deposits:

Correct Answer
verified

Other things equal,if the supply of money is reduced:

Correct Answer
verified

If the Fed were to reduce the legal reserve ratio,we would expect:

Correct Answer
verified

The desire to hold money for transactions purposes arises because:

Correct Answer
verified

When the required reserve ratio is increased,the excess reserves of member banks are:

Correct Answer
verified

QE3 followed QE2 and Operation Twist.Which of the following best explains how QE3 differed from the other two in order to make it more effective?

Correct Answer
verified

Assume that the commercial banking system has checkable deposits of $10 billion and excess reserves of $1 billion at a time when the reserve requirement is 20 percent.If the reserve requirement is now raised to 30 percent,the banking system then has:

Correct Answer
verified

In the 1990s and early 2000s,Japan's central bank reduced real interest rates to zero percent,but investment spending did not respond enough to bring the economy out of recession.Japan's experience is an illustration of:

Correct Answer
verified

From September 2007 to April 2008 the Fed lowered the federal funds rate from 5.25 percent to 2 percent in a series of steps.The Fed's actions were largely in response to:

Correct Answer
verified

When the Fed raises the interest rate paid on reserves,it discourages bank lending.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Projecting that it might temporarily fall short of legally required reserves in the coming days,the Bank of Beano decides to borrow money from its regional Federal Reserve Bank.The interest rate on the loan is called the:

Correct Answer
verified

The prime interest rate:

Correct Answer
verified

Exam 35: Interest Rates and Monetary Policy

After falling form a peak of 138.1 million in January 2008 to a trough of 129.9 million in September 2010,employment in the U.S.economy:

Correct AnswerverifiedShow Answer

Federal Reserve Notes in circulation are:

Correct AnswerverifiedShow Answer

The benchmark interest rate that banks use as a reference point for a variety of consumer and business loans is the:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Generally,the prime interest rate:

Correct AnswerverifiedShow Answer

Assume that the price level is flexible both upward and downward and that the Fed's policy is to keep the price level from either rising or falling.If aggregate supply increases in the economy,the Fed:

Correct AnswerverifiedShow Answer

The Federal Reserve Banks buy government securities from commercial banks.As a result,the checkable deposits:

Correct AnswerverifiedShow Answer

Other things equal,if the supply of money is reduced:

Correct AnswerverifiedShow Answer

If the Fed were to reduce the legal reserve ratio,we would expect:

Correct AnswerverifiedShow Answer

The desire to hold money for transactions purposes arises because:

Correct AnswerverifiedShow Answer

When the required reserve ratio is increased,the excess reserves of member banks are:

Correct AnswerverifiedShow Answer

QE3 followed QE2 and Operation Twist.Which of the following best explains how QE3 differed from the other two in order to make it more effective?

Correct AnswerverifiedShow Answer

Assume that the commercial banking system has checkable deposits of $10 billion and excess reserves of $1 billion at a time when the reserve requirement is 20 percent.If the reserve requirement is now raised to 30 percent,the banking system then has:

Correct AnswerverifiedShow Answer

In the 1990s and early 2000s,Japan's central bank reduced real interest rates to zero percent,but investment spending did not respond enough to bring the economy out of recession.Japan's experience is an illustration of:

Correct AnswerverifiedShow Answer

From September 2007 to April 2008 the Fed lowered the federal funds rate from 5.25 percent to 2 percent in a series of steps.The Fed's actions were largely in response to:

Correct AnswerverifiedShow Answer

When the Fed raises the interest rate paid on reserves,it discourages bank lending.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Projecting that it might temporarily fall short of legally required reserves in the coming days,the Bank of Beano decides to borrow money from its regional Federal Reserve Bank.The interest rate on the loan is called the:

Correct AnswerverifiedShow Answer

The prime interest rate:

Correct AnswerverifiedShow Answer

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