Question 1

In terms of the mechanics of quantitative easing,

Accepted Answer

A)  quantitative easing formally changes interest rates; open-market operations only influence rates.
B)  it works the same as open-market operations.
C)  it differs from open-market operations in that the securities purchases occur directly from households.
D)  it only changes the interest rate; it doesn't influence bank reserves.E) None of the above
F) C) and D)

Question 2

The asset demand for money varies inversely with the nominal GDP.

Accepted Answer

A) True 
 B)False

Question 3

The commercial banking system borrows from the Federal Reserve 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) C) and D)
F) A) and C)

Question 4

The problem of cyclical asymmetry refers to the idea that

Accepted Answer

A)  a restrictive monetary policy can force a contraction of the money supply, but an expansionary monetary policy may not achieve an increase in the money supply.
B)  the monetary authorities have been less willing to use an expansionary monetary policy than they have a restrictive monetary policy.
C)  cyclical downswings are typically of longer duration than cyclical upswings.
D)  an expansionary monetary policy can force an expansion of the money supply, but a restrictive monetary policy may not achieve a contraction of the money supply.E) B) and C)
F) A) and B)

Question 5

If, in the market for money, the quantity of money demanded exceeds the money supply, the interest rate will

Accepted Answer

A)  fall, causing households and businesses to hold less money.
B)  rise, causing households and businesses to hold less money.
C)  rise, causing households and businesses to hold more money.
D)  fall, causing households and businesses to hold more money.E) All of the above
F) A) and B)

Question 6

Disequilibrium in the money market is mainly corrected via a change in

Accepted Answer

A)  bond prices.
B)  the price level.
C)  saving levels.
D)  the money supply.E) B) and C)
F) All of the above

Question 7

In 2008, the Fed acquired a fourth tool of monetary policy, which is the

Accepted Answer

A)  open-market operation.
B)  discount rate.
C)  paying of interest on excess reserves held at Fed banks.
D)  reserve ratio.E) A) and C)
F) B) and C)

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

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) C) and D)
F) B) and D)

Question 10

If the demand for money increases and the Fed wants interest rates to remain unchanged, which of the following would be appropriate policy?

Accepted Answer

A)  recall Federal Reserve Notes from circulation
B)  raise the legal reserve requirement
C)  buy bonds in the open market
D)  raise the discount rateE) A) and D)
F) None of the above

Question 11

The interest rate that banks charge one another for the loan of excess reserves is the

Accepted Answer

A)  prime interest rate.
B)  federal funds rate.
C)  discount rate.
D)  interest on reserves.E) A) and B)
F) A) and C)

Question 12

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 B)

Question 13

Other things equal, if there is an increase in nominal GDP,

Accepted Answer

A)  the demand for money will decrease.
B)  the interest rate will rise.
C)  bond prices will rise.
D)  consumption spending will fall.E) All of the above
F) A) and B)

Question 14

A newspaper headline reads, "Fed Raises Discount Rate for Third Time This Year." This headline indicates that the Federal Reserve is most likely trying to

Accepted Answer

A)  stimulate the economy.
B)  increase the money supply.
C)  reduce the cost of credit.
D)  reduce inflationary pressures in the economy.E) All of the above
F) A) and D)

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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 increasesE) B) and C)
F) A) and C)

Question 17

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 rateE) None of the above
F) A) and B)

Question 18

If the Federal funds rate

Accepted Answer

A)  increases, the prime interest rate will decrease.
B)  decreases, the prime interest rate will increase.
C)  increases, the prime interest rate will increase.
D)  decreases, the prime interest rate will not change.E) A) and B)
F) B) and D)

Question 19

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

Accepted Answer

A)  a line parallel to the horizontal axis.
B)  a vertical line.
C)  a downsloping line or curve from left to right.
D)  an upsloping line or curve from left to right.E) C) and D)
F) B) and D)

Question 20

Which of the following actions by the Fed most likely increase commercial bank lending?

Accepted Answer

A)  raising the reserve ratio
B)  increasing the federal funds rate target
C)  reducing the interest paid on excess reserves held at the Fed
D)  selling bonds to commercial banks and the publicE) A) and D)
F) A) and C)

Exam 36: Interest Rates and Monetary Policy

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

Correct AnswerverifiedShow Answer

A newspaper headline reads, "Fed Raises Discount Rate for Third Time This Year." This headline indicates that the Federal Reserve is most likely trying to

Correct AnswerverifiedShow Answer

In terms of the mechanics of quantitative easing,

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

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If, in the market for money, the quantity of money demanded exceeds the money supply, the interest rate will

Correct AnswerverifiedShow Answer

If the Federal funds rate

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The problem of cyclical asymmetry refers to the idea that

Correct AnswerverifiedShow Answer

The interest rate that banks charge one another for the loan of excess reserves is the

Correct AnswerverifiedShow Answer

Other things equal, if there is an increase in nominal GDP,

Correct AnswerverifiedShow Answer

The commercial banking system borrows from the Federal Reserve Banks.As a result, the checkable deposits

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

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

Correct AnswerverifiedShow Answer

In 2008, the Fed acquired a fourth tool of monetary policy, which is the

Correct AnswerverifiedShow Answer

Which of the following actions by the Fed most likely increase commercial bank lending?

Correct AnswerverifiedShow Answer

The asset demand for money varies inversely with the nominal GDP.

Correct AnswerverifiedShow Answer

If the demand for money increases and the Fed wants interest rates to remain unchanged, which of the following would be appropriate policy?

Correct AnswerverifiedShow Answer

Disequilibrium in the money market is mainly corrected via a change in

Correct AnswerverifiedShow Answer

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