Question 1

The job of the Fed in limiting the supply of money may be made more complex if commercial banks initially have substantial excess reserves.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following Fed actions increases the excess reserves of commercial banks?

Accepted Answer

A)  selling bonds to the public
B)  selling bonds to commercial banks
C)  increasing the discount rate
D)  lower the reserve ratioE) A) and D)
F) B) and C)

Question 3

The federal funds rate is the rate that banks charge other banks for overnight loans of excess reserves.

Accepted Answer

A) True 
 B)False

Question 4

Compared to fiscal policy, monetary policy has a much shorter

Accepted Answer

A)  recognition lag.
B)  administrative lag.
C)  operational lag.
D)  effects lag.E) A) and B)
F) A) and C)

Question 5

Starting in 2014, the European Central Bank (ECB) , along with a few other central banks in Europe, implemented a strange monetary policy of

Accepted Answer

A)  closed-market operations.
B)  market integration.
C)  negative interest rates.
D)  qualitative easing.E) None of the above
F) All of the above

Question 6

A liquidity trap occurs when the Federal Reserve reduces reserves in the system, choking off aggregate demand.

Accepted Answer

A) True 
 B)False

Question 7

A decrease in the nominal GDP, other things remaining the same, will decrease both the total demand for money and the equilibrium rate of interest in the economy.

Accepted Answer

A) True 
 B)False

Question 8

The effects of expansionary monetary policy are strengthened by a liquidity trap.

Accepted Answer

A) True 
 B)False

Question 9

Suppose the demand for money and the supply of money increase simultaneously.We can

Accepted Answer

A)  expect the interest rate to rise and bond prices to fall.
B)  expect the interest rate to fall and bond prices to rise.
C)  expect the nominal GDP to expand.
D)  not accurately predict what will happen to interest rates or bond prices.Accessibility: Keyboard NavigationE) All of the above
F) A) and C)

Question 10

Open-market operations change

Accepted Answer

A)  the size of the monetary multiplier but not commercial bank reserves.
B)  commercial bank reserves but not the size of the monetary multiplier.
C)  neither commercial bank reserves nor the size of the monetary multiplier.
D)  both commercial bank reserves and the size of the monetary multiplier.E) B) and C)
F) A) and B)

Question 11

Assuming government wishes to either increase or decrease the level of aggregate demand, which of the following pairs are not consistent policy measures?

Accepted Answer

A)  a tax increase and an increase in the money supply
B)  a tax reduction and an increase in the money supply
C)  a reduction in government expenditures and a decline in the money supply
D)  a tax increase and an increase in the interest rateE) None of the above
F) C) and D)

Question 12

The purchase of government securities from the public by the Fed will cause

Accepted Answer

A)  commercial bank reserves to decrease.
B)  the money supply to increase.
C)  demand deposits to decrease.
D)  the interest rate to increase.E) None of the above
F) B) and C)

Question 13

The asset demand for money

Accepted Answer

A)  is unrelated to both the interest rate and the level of GDP.
B)  varies inversely with the rate of interest.
C)  varies inversely with the level of real GDP.
D)  varies directly with the level of nominal GDP.E) All of the above
F) None of the above

Question 14

The transactions demand for money is most closely related to money functioning as a

Accepted Answer

A)  unit of account.
B)  medium of exchange.
C)  store of value.
D)  measure of value.E) B) and D)
F) All of the above

Question 15

The increase in excess reserves that occurred as a result of the mortgage debt crisis

Accepted Answer

A)  was offset by restrictive monetary policy.
B)  rendered open-market operations ineffective.
C)  caused the Fed to set a negative nominal interest rate target for the federal funds rate.
D)  prevented the Fed from taking any further action to increase the money supply.E) All of the above
F) C) and D)

Question 16

Which of the following Fed actions will decrease the money supply?

Accepted Answer

A)  reverse repos
B)  repos
C)  open-market purchases of bonds
D)  raising taxesE) A) and B)
F) A) and C)

Question 17

Bond prices and interest rates are directly or positively related.

Accepted Answer

A) True 
 B)False

Question 18

Prior to the financial crisis, to reduce the federal funds rate, the Fed could

Accepted Answer

A)  buy government bonds from the public.
B)  increase the discount rate.
C)  increase the prime interest rate.
D)  sell government bonds to commercial banks.E) None of the above
F) A) and B)

Question 19

If the Fed wants to maintain current interest rates, it would be buying government bonds in the open market when

Accepted Answer

A)  the demand for money decreases.
B)  the demand for money increases.
C)  investment demand decreases.
D)  the discount rate increases.E) A) and C)
F) A) and B)

Question 20

Which of the following is not a result of policy actions taken by the Fed since the financial crisis in 2008?

Accepted Answer

A)  a massive expansion of excess reserves in the banking system
B)  The federal funds rate has hovered near zero.
C)  very little activity in the federal funds market
D)  a very volatile federal funds rateE) B) and C)
F) C) and D)

Exam 36: Interest Rates and Monetary Policy

Starting in 2014, the European Central Bank (ECB) , along with a few other central banks in Europe, implemented a strange monetary policy of

Correct AnswerverifiedShow Answer

Bond prices and interest rates are directly or positively related.

Correct AnswerverifiedShow Answer

The transactions demand for money is most closely related to money functioning as a

Correct AnswerverifiedShow Answer

Which of the following is not a result of policy actions taken by the Fed since the financial crisis in 2008?

Correct AnswerverifiedShow Answer

The federal funds rate is the rate that banks charge other banks for overnight loans of excess reserves.

Correct AnswerverifiedShow Answer

Which of the following Fed actions will decrease the money supply?

Correct AnswerverifiedShow Answer

Compared to fiscal policy, monetary policy has a much shorter

Correct AnswerverifiedShow Answer

Prior to the financial crisis, to reduce the federal funds rate, the Fed could

Correct AnswerverifiedShow Answer

Assuming government wishes to either increase or decrease the level of aggregate demand, which of the following pairs are not consistent policy measures?

Correct AnswerverifiedShow Answer

The increase in excess reserves that occurred as a result of the mortgage debt crisis

Correct AnswerverifiedShow Answer

The effects of expansionary monetary policy are strengthened by a liquidity trap.

Correct AnswerverifiedShow Answer

If the Fed wants to maintain current interest rates, it would be buying government bonds in the open market when

Correct AnswerverifiedShow Answer

The job of the Fed in limiting the supply of money may be made more complex if commercial banks initially have substantial excess reserves.

Correct AnswerverifiedShow Answer

The asset demand for money

Correct AnswerverifiedShow Answer

The purchase of government securities from the public by the Fed will cause

Correct AnswerverifiedShow Answer

Which of the following Fed actions increases the excess reserves of commercial banks?

Correct AnswerverifiedShow Answer

Suppose the demand for money and the supply of money increase simultaneously.We can

Correct AnswerverifiedShow Answer

A decrease in the nominal GDP, other things remaining the same, will decrease both the total demand for money and the equilibrium rate of interest in the economy.

Correct AnswerverifiedShow Answer

Open-market operations change

Correct AnswerverifiedShow Answer

A liquidity trap occurs when the Federal Reserve reduces reserves in the system, choking off aggregate demand.

Correct AnswerverifiedShow Answer

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