Question 1

If the demand for money and the supply of money both increase, then the new equilibrium:

Accepted Answer

A)   quantity of money and the interest rate will both increase.
B)   quantity of money and the interest rate will both decrease.
C)   quantity of money will increase, but the change in the interest rate cannot be predicted.
D)   interest rate will increase, but the change in the interest rate cannot be predicted.E) All of the above
F) A) and C)

Question 2

Repurchase agreements by the Fed:

Accepted Answer

A)   are used primarily to ease inflationary pressure.
B)   were temporarily implemented during the financial crisis as a way for the Fed to consolidate failing banks.
C)   are a contractionary form of open market operations.
D)   are an expansionary form of open market operations.E) C) and D)
F) B) and C)

Question 3

The Board of Governors of the Federal Reserve System can encourage the lending of commercial bank excess reserves by:

Accepted Answer

A)   increasing the discount rate.
B)   increasing the reserve ratio.
C)   decreasing the prime interest rate.
D)   lowering the interest rate on excess reserves.E) C) and D)
F) A) and B)

Question 4

1, AD2, and AD3 labels indicate the level of investment spending associated with each curve. All figures are in billions. The interest rate in the economy is 4 percent. What should the Fed do to achieve a noninflationary full-employment level of real GDP (Qf) ? A)  Increase the money supply from $75 to $150 billion. B)  Increase the money supply from $150 to $225 billion. C)  Decrease the money supply from $225 to $150 billion. D)  Make no change in the money supply." class="answers-bank-image d-inline" rel="preload" >
- Refer to the above diagrams, in which the numbers in parentheses near the AD1, AD2, and AD3 labels indicate the level of investment spending associated with each curve. All figures are in billions. The interest rate in the economy is 4 percent. What should the Fed do to achieve a noninflationary full-employment level of real GDP (Qf) ?

Accepted Answer

A)   Increase the money supply from $75 to $150 billion.
B)   Increase the money supply from $150 to $225 billion.
C)   Decrease the money supply from $225 to $150 billion.
D)   Make no change in the money supply.E) A) and D)
F) A) and C)

Question 5

Which of the following best describes what occurs when monetary authorities sell government securities?

Accepted Answer

A)   There is a decrease in the size of commercial banks' excess reserves, the money supply increases, and interest rates fall, thereby causing a decrease in investment spending and real GDP.
B)   There is a decrease in the size of commercial banks' excess reserves, the money supply decreases, and interest rates rise, thereby causing a decrease in investment spending and real GDP.
C)   There is a decrease in the size of commercial banks' excess reserves, the money supply decreases, and interest rates rise, thereby causing an increase in investment spending and real GDP.
D)   There is an increase in the size of commercial bank reserves, the money supply increases, and interest rates fall, thereby causing an increase in investment spending and real GDP.E) A) and B)
F) B) and C)

Question 6

The major problem facing the economy is high unemployment and weak economic growth. The inflation rate is low and stable. Therefore, the Federal Reserve decides to pursue a policy to increase the rate of economic growth. Which policy changes by the Fed would reinforce each other to achieve that objective?

Accepted Answer

A)   Selling government securities and raising the discount rate.
B)   Selling government securities and lowering the discount rate.
C)   Buying government securities and lowering the interest rate paid on excess reserves.
D)   Buying government securities and raising the reserve ratio.E) C) and D)
F) B) and C)

Question 7

m1, Dm2, and Dm3 represent different demands for money and Sm1, Sm2, and Sm3 represent different levels of the money supply. The initial equilibrium point is A. What will be the new equilibrium point following a decrease in the money supply? A)  B. B)  E. C)  F. D)  I." class="answers-bank-image d-inline" rel="preload" >
- Refer to the above graph, which shows the supply and demand for money where Dm1, Dm2, and Dm3 represent different demands for money and Sm1, Sm2, and Sm3 represent different levels of the money supply. The initial equilibrium point is A. What will be the new equilibrium point following a decrease in the money supply?

Accepted Answer

A)   B.
B)   E.
C)   F.
D)   I.E) A) and B)
F) A) and D)

Question 8

The expression, "You can lead a horse to water, but you can't make it drink" is an analogy describing the:

Accepted Answer

A)   inflexibility of monetary policy tools.
B)   long operational lags faced by monetary policy.
C)   liquidity trap.
D)   long recognition lags faced by monetary policy.E) A) and B)
F) All of the above

Question 9

The Federal Open Market Committee meets regularly to choose a desired Federal funds rate and directs the Federal Reserve Bank of New York to undertake open-market operations to achieve and maintain that rate.

Accepted Answer

A) True 
 B)False

Exam 15: Interest Rates and Monetary Policy

Which of the following best describes what occurs when monetary authorities sell government securities?

Correct Answer
verified

Correct Answer
verified

The Federal Open Market Committee meets regularly to choose a desired Federal funds rate and directs the Federal Reserve Bank of New York to undertake open-market operations to achieve and maintain that rate.

Correct Answer
verified

Repurchase agreements by the Fed:

Correct Answer
verified

If the demand for money and the supply of money both increase, then the new equilibrium:

Correct Answer
verified

The expression, "You can lead a horse to water, but you can't make it drink" is an analogy describing the:

Correct Answer
verified

Correct Answer
verified

The Board of Governors of the Federal Reserve System can encourage the lending of commercial bank excess reserves by:

Correct Answer
verified

Correct Answer
verified

Exam 15: Interest Rates and Monetary Policy

Which of the following best describes what occurs when monetary authorities sell government securities?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Federal Open Market Committee meets regularly to choose a desired Federal funds rate and directs the Federal Reserve Bank of New York to undertake open-market operations to achieve and maintain that rate.

Correct AnswerverifiedShow Answer

Repurchase agreements by the Fed:

Correct AnswerverifiedShow Answer

If the demand for money and the supply of money both increase, then the new equilibrium:

Correct AnswerverifiedShow Answer

The expression, "You can lead a horse to water, but you can't make it drink" is an analogy describing the:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Board of Governors of the Federal Reserve System can encourage the lending of commercial bank excess reserves by:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified