Question 1

What is the monetary base? What role does it play in macroeconomic policy?

Accepted Answer

The monetary base consists of vault cash...

Question 2

If real income increases by 4 percent and the price level increases by 3 percent, nominal income must:

Accepted Answer

A)  increase by 7 percent.
B)  increase by 1 percent.
C)  decrease by 1 percent.
D)  decrease by 7 percent.

Question 3

Suppose banks hold no excess reserves,the reserve requirement is 20%.
(a)If banks have $10 million in reserves what will the money supply be?
(b)How will your answer to (a)change if the Fed increases the reserve requirement to 30%?

Accepted Answer

(a)To determine the amount of the money ...

Question 4

Explain the difference between real and nominal interest rates.How are they related?

Accepted Answer

Nominal interest rates are the rates you...

Question 5

Explain the difference between the Fed's offensive and defensive actions as parts of its control over monetary policy.Give an example of each type of action.

Accepted Answer

Any attempt by the Fed to control the cu...

Question 6

The discount rate refers to the:

Accepted Answer

A)  lower price large institutions pay for government bonds.
B)  rate of interest the Fed charges for loans to banks.
C)  rate of interest the Fed charges for loans to individuals.
D)  rate of interest the Fed charges for loans to government.

Question 7

According to the AS/AD model, if the economy is in a recession and the Fed wants to increase output and employment, it should:

Accepted Answer

A)  act to increase the money supply.
B)  act to decrease the money supply.
C)  raise interest rates.
D)  raise reserve requirements.

Question 8

If the Fed wants to increase the money supply, it can:

Accepted Answer

A)  buy bonds.
B)  sell bonds.
C)  pass a law that interest rates rise.
D)  pass a law that interest rates fall.

Question 9

Unlike the practice in many other countries, in the United States:

Accepted Answer

A)  only monetary policy is used to influence the economy, and fiscal policy is not allowed.
B)  only fiscal policy is used to influence the economy, and monetary policy is not allowed.
C)  the agency responsible for monetary policy is not directly controlled by the government.
D)  the agency responsible for fiscal policy is not directly controlled by the government.

Question 10

The body that directly oversees the 12 regional Federal Reserve banks is the:

Accepted Answer

A)  Federal Open Market Committee.
B)  Board of Governors.
C)  U.S. Congress.
D)  Federal Advisory Council.

Question 11

A monetary policy that reduces both real and nominal income:

Accepted Answer

A)  must be expansionary.
B)  must be contractionary.
C)  cannot be expansionary or contractionary.
D)  could be expansionary or contractionary.

Question 12

Suppose the reserve requirement is 20 percent and banks hold no excess reserves. A $1 billion purchase of government securities by the Fed will:

Accepted Answer

A)  increase the potential amount of checkable deposits in the banking system by $5 billion.
B)  increase the potential amount of checkable deposits in the banking system by $1 billion.
C)  reduce the potential amount of checkable deposits in the banking system by $1 billion.
D)  reduce the potential amount of checkable deposits in the banking system by $5 billion.

Question 13

The Federal Reserve kept interest rates low from 2002 through 2016 because they:

Accepted Answer

A)  wanted to reduce the value of the dollar and help domestic exporters.
B)  were worried about inflation creeping into the economy.
C)  wanted to avoid deflation and the resulting recession.
D)  wanted to follow the Taylor Rule.

Question 14

Most decisions about implementing monetary policy are made by the:

Accepted Answer

A)  chairman of the Fed only.
B)  president.
C)  president and Congress.
D)  Federal Open Market Committee.

Question 15

When the Fed increases the reserve requirement, it:

Accepted Answer

A)  expands the money supply because banks have more available to lend.
B)  expands the money supply because banks have less available to lend.
C)  contracts the money supply because banks have more available to lend.
D)  contracts the money supply because banks have less available to lend.

Question 16

Monetary regimes

Accepted Answer

A)  involve feedback rules.
B)  allow the greatest policy flexibility.
C)  follow the Taylor rule.
D)  are created to undermine expectations.

Question 17

Suppose you are a borrower and you expect inflation to be 6 percent over the next year because inflation was 6 percent in the last year. If you do not want to pay more than 2 percent in real terms for any loan you take out, you will not borrow if the interest rate is greater than:

Accepted Answer

A)  2 percent.
B)  6 percent.
C)  8 percent.
D)  30 percent.

Question 18

Assume that the federal funds rate is at its target, 2 percent, output is about 1 percent beneath potential, and inflation is roughly 1.5 percent. If the Taylor rule is accurate, the Fed's desired rate of inflation at this time would be:

Accepted Answer

A)  1 percent.
B)  2.5 percent.
C)  3.5 percent.
D)  5 percent.

Question 19

Who determines U.S. monetary policy?

Accepted Answer

A)  Congress
B)  The president
C)  The Internal Revenue Service
D)  The Federal Reserve

Question 20

Fed watchers are:

Accepted Answer

A)  financial advisers for the government, telling them when raising taxes will raise revenue and when it won't.
B)  part of the Fed governor system and are given voting power on the FOMC.
C)  individuals or organizations whose sole occupation is to follow the Fed's FOMC.
D)  individuals or organizations whose sole occupation is to predict the future of the interest rates.

Exam 29: Monetary Policy

The body that directly oversees the 12 regional Federal Reserve banks is the:

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If the Fed wants to increase the money supply, it can:

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Suppose you are a borrower and you expect inflation to be 6 percent over the next year because inflation was 6 percent in the last year. If you do not want to pay more than 2 percent in real terms for any loan you take out, you will not borrow if the interest rate is greater than:

Correct AnswerverifiedShow Answer

Assume that the federal funds rate is at its target, 2 percent, output is about 1 percent beneath potential, and inflation is roughly 1.5 percent. If the Taylor rule is accurate, the Fed's desired rate of inflation at this time would be:

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Fed watchers are:

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Suppose banks hold no excess reserves,the reserve requirement is 20%. (a)If banks have $10 million in reserves what will the money supply be? (b)How will your answer to (a)change if the Fed increases the reserve requirement to 30%?

Correct Answerverified(a)To determine the amount of the money ...View AnswerShow Answer

The Federal Reserve kept interest rates low from 2002 through 2016 because they:

Correct AnswerverifiedShow Answer

Suppose the reserve requirement is 20 percent and banks hold no excess reserves. A $1 billion purchase of government securities by the Fed will:

Correct AnswerverifiedShow Answer

What is the monetary base? What role does it play in macroeconomic policy?

Correct AnswerverifiedThe monetary base consists of vault cash...View AnswerShow Answer

According to the AS/AD model, if the economy is in a recession and the Fed wants to increase output and employment, it should:

Correct AnswerverifiedShow Answer

The discount rate refers to the:

Correct AnswerverifiedShow Answer

A monetary policy that reduces both real and nominal income:

Correct AnswerverifiedShow Answer

Monetary regimes

Correct AnswerverifiedShow Answer

Unlike the practice in many other countries, in the United States:

Correct AnswerverifiedShow Answer

Explain the difference between real and nominal interest rates.How are they related?

Correct AnswerverifiedNominal interest rates are the rates you...View AnswerShow Answer

If real income increases by 4 percent and the price level increases by 3 percent, nominal income must:

Correct AnswerverifiedShow Answer

Who determines U.S. monetary policy?

Correct AnswerverifiedShow Answer

Explain the difference between the Fed's offensive and defensive actions as parts of its control over monetary policy.Give an example of each type of action.

Correct AnswerverifiedAny attempt by the Fed to control the cu...View AnswerShow Answer

When the Fed increases the reserve requirement, it:

Correct AnswerverifiedShow Answer

Most decisions about implementing monetary policy are made by the:

Correct AnswerverifiedShow Answer

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(a)To determine the amount of the money ...
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Correct Answer
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Correct Answer
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The monetary base consists of vault cash...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Nominal interest rates are the rates you...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Any attempt by the Fed to control the cu...
View Answer

Correct Answer
verified

Correct Answer
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