Question 1

If the Fed raises the reserve requirement on deposits from 15 percent to 20 percent, what would happen to the money supply?

Accepted Answer

A)   It would decrease.
B)   It would increase.
C)   It would remain unchanged.
D)   It depends on the value of interest rates.

Question 2

How does an open market purchase by the Fed affect the level of bank reserves and the interest rate? Illustrate the interest rate effect by drawing the appropriate graph.

Accepted Answer

When the Fed buys government securities ...

Question 3

The actual control of the Federal Reserve System resides in the

Accepted Answer

A)   Congress of the United States.
B)   member banks.
C)   Senate Banking Committee.
D)   Board of Governors.

Question 4

The Fed cannot predict the effects of open market operations with perfect accuracy because of

Accepted Answer

A)   changes in people's desires for cash.
B)   foreigners desire to hold U.S.dollars.
C)   banks' desires to hold excess reserves.
D)   All of the above are correct.

Question 5

When the Fed wants to expand the money supply, it

Accepted Answer

A)   buys government securities.
B)   sells government securities.
C)   buys common stock.
D)   sells common stock.

Question 6

The opportunity cost of holding excess reserves will be lower at an 8 percent federal funds rate in comparison to a 10 percent federal funds rate.

Accepted Answer

A) True 
 B)False

Question 7

We should expect to see home construction activity decrease when interest rates increase.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following will cause movement along the reserve demand schedule?

Accepted Answer

A)   a change in the price level
B)   a change in real GDP
C)   a change in tax rates
D)   a change in interest rates

Question 9

If the Fed reduces the required reserve ratio, how will this affect excess reserves and the money supply?

Accepted Answer

A)   Both will increase.
B)   Excess reserves increase and the money supply decreases.
C)   Both will decrease.
D)   Excess reserves decrease and the money supply increases.

Question 10

The Fed can drive up interest rates by selling government securities and decreasing the money supply.

Accepted Answer

A) True 
 B)False

Question 11

The Fed has control over bank reserves and complete control over the money supply.

Accepted Answer

A) True 
 B)False

Question 12

Most power in the Federal Reserve System is held by the

Accepted Answer

A)   president and Congress.
B)   Secretary of the Treasury, who appoints the members of the Board of Governors.
C)   Board of Governors of the system.
D)   member banks of the system.

Question 13

Describe the origins of the Fed and the arguments about the independence of the Fed.

Accepted Answer

The Fed was established in 1914 as a res...

Question 14

Assume the required reserve ratio is 10 percent and the FOMC orders an open market sale of $50 million in government securities from member banks.If the oversimplified money multiplier is assumed, then the money supply will

Accepted Answer

A)   increase by $500 million.
B)   increase by $100 million.
C)   decrease by $100 million.
D)   decrease by $500 million.

Question 15

If the Fed sells a U.S.Treasury bill to a member of the public, the banking system has

Accepted Answer

A)   less reserves and the money supply tends to fall.
B)   more reserves and the money supply tends to fall.
C)   less reserves and the money supply tends to grow.
D)   more reserves and the money supply tends to grow.

Question 16

When interest rates increase, banks will normally

Accepted Answer

A)   increase lending, but decrease deposits and the money supply.
B)   increase lending, deposits, and the money supply.
C)   decrease lending, but increase deposits and the money supply.
D)   decrease lending, deposits, and the money supply.

Question 17

The demand for reserves will increase at lower levels of GDP.

Accepted Answer

A) True 
 B)False

Question 18

Income is to money as

Accepted Answer

A)   short story is to novel.
B)   video is to digital photo.
C)   song is to symphony.
D)   entree is to dessert.

Question 19

Why do economists insist on emphasizing the difference between money and income? Why is this difference important in macroeconomics?

Accepted Answer

Money is a stock variable that has a val...

Question 20

The central bank of the United States is known as the

Accepted Answer

A)   Internal Revenue Service.
B)   Federal Reserve System.
C)   Federal Deposit Insurance Corporation.
D)   Department of Commerce.

Exam 30: Monetary Policy: Conventional and Unconventional

The Fed has control over bank reserves and complete control over the money supply.

Correct AnswerverifiedShow Answer

The opportunity cost of holding excess reserves will be lower at an 8 percent federal funds rate in comparison to a 10 percent federal funds rate.

Correct AnswerverifiedShow Answer

The Fed can drive up interest rates by selling government securities and decreasing the money supply.

Correct AnswerverifiedShow Answer

The demand for reserves will increase at lower levels of GDP.

Correct AnswerverifiedShow Answer

The actual control of the Federal Reserve System resides in the

Correct AnswerverifiedShow Answer

Why do economists insist on emphasizing the difference between money and income? Why is this difference important in macroeconomics?

Correct AnswerverifiedMoney is a stock variable that has a val...View AnswerShow Answer

When the Fed wants to expand the money supply, it

Correct AnswerverifiedShow Answer

Which of the following will cause movement along the reserve demand schedule?

Correct AnswerverifiedShow Answer

When interest rates increase, banks will normally

Correct AnswerverifiedShow Answer

We should expect to see home construction activity decrease when interest rates increase.

Correct AnswerverifiedShow Answer

Describe the origins of the Fed and the arguments about the independence of the Fed.

Correct AnswerverifiedThe Fed was established in 1914 as a res...View AnswerShow Answer

How does an open market purchase by the Fed affect the level of bank reserves and the interest rate? Illustrate the interest rate effect by drawing the appropriate graph.

Correct AnswerverifiedWhen the Fed buys government securities ...View AnswerShow Answer

If the Fed sells a U.S.Treasury bill to a member of the public, the banking system has

Correct AnswerverifiedShow Answer

Most power in the Federal Reserve System is held by the

Correct AnswerverifiedShow Answer

Income is to money as

Correct AnswerverifiedShow Answer

Assume the required reserve ratio is 10 percent and the FOMC orders an open market sale of $50 million in government securities from member banks.If the oversimplified money multiplier is assumed, then the money supply will

Correct AnswerverifiedShow Answer

If the Fed reduces the required reserve ratio, how will this affect excess reserves and the money supply?

Correct AnswerverifiedShow Answer

The central bank of the United States is known as the

Correct AnswerverifiedShow Answer

The Fed cannot predict the effects of open market operations with perfect accuracy because of

Correct AnswerverifiedShow Answer

If the Fed raises the reserve requirement on deposits from 15 percent to 20 percent, what would happen to the money supply?

Correct AnswerverifiedShow Answer

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Money is a stock variable that has a val...
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The Fed was established in 1914 as a res...
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When the Fed buys government securities ...
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