Question 1

Recall Application 1, "Beyond Purchasing Treasury Securities," to answer the following questions:
-According to the application, which of the following was a way for the Fed to channel more funds to banks to encourage bank lending?

Accepted Answer

A)   The Fed held mortgage backed securities.
B)   The Fed guaranteed all the loans that the banks made to large corporations.
C)   The Fed owned all the banks.
D)   All of the above are correct.

Question 2

Recall Application 1, "Beyond Purchasing Treasury Securities," to answer the following questions:
-According to the application, how did the Fed conduct monetary policy prior to 2008?

Accepted Answer

A)   The Fed only held U.S. Treasury securities as its assets.
B)   The Fed bought securities directly from individuals.
C)   The Fed took directives regarding monetary policy directly from the U.S. president only.
D)   The Fed allowed the fed funds rate to go below zero.

Question 3

Which of the following is not a tool available to the Fed to change the supply of money?

Accepted Answer

A)   the required reserve ratio
B)   the discount rate
C)   the open market operations
D)   the federal funds rate

Question 4

Explain how an open market sale will affect bond prices.

Accepted Answer

If the Fed sells bon...

Question 5

Figure 14.5
-Refer to Figure 14.5. If the money supply decreases from

Accepted Answer

A)   the market interest rate will fall to 6%. 
B)   the money market will return to equilibrium only if the money supply is decreased to its original level.
C)   the market interest rate will increase to 10%.
D)   money demand must increase for the money market to return to equilibrium.

Question 6

Explain the impact of Fed open- market purchases of government bonds on the money supply.

Accepted Answer

The Fed's purchase of government bonds f...

Question 7

Excess demand in the money market causes:

Accepted Answer

A)   a decrease in the equilibrium interest rate.
B)   an increase in the quantity demanded of money.
C)   a decrease in the money supply.
D)   an increase in the equilibrium interest rate.

Question 8

If the quantity of money demanded is greater than the quantity of money supplied, then the interest rate will:

Accepted Answer

A)   fall.
B)   remain constant.
C)   equal zero.
D)   rise.

Question 9

When you pay your groceries with money because the supermarket does not accept stocks and certificates of deposits (CDs) , then the reason why you are holding money is the:

Accepted Answer

A)   speculative demand for money.
B)   transactions demand for money.
C)   liquidity demand for money.
D)   All of the above are correct.

Question 10

Which of the following sequence of events follows an expansionary monetary policy?

Accepted Answer

A)   
B)   
C)   
D)

Question 11

Recall Application 2, "Rising Interest Rates During an Economic Recovery," to answer the following questions:
-According to the application, a recovering economy (and hence, a higher income)  is usually associated with higher interest rates because:

Accepted Answer

A)   higher incomes cause a lower supply of money.
B)   higher incomes cause a higher demand for money.
C)   higher incomes cause a lower demand for money.
D)   higher incomes cause a higher supply of money.

Question 12

Recall Application 3, "The Effectiveness of Committees," to answer the following questions:
-According to the application, experiments show that decisions made by committees:

Accepted Answer

A)   are more accurate and just as quick as decisions made by individuals.
B)   are less accurate but just as quick as decisions made by individuals.
C)   are less accurate and slower than decisions made by individuals.
D)   are more accurate but slower than decisions made by individuals.

Question 13

When the interest rate increases, the

Accepted Answer

A)   demand for money increases.
B)   the demand for money decreases.
C)   the quantity demanded of money increases.
D)   the quantity demanded of money decreases.

Question 14

If the Fed wishes to increase long- term investment spending, it must:

Accepted Answer

A)   cut the current short- term interest rate.
B)   convince the public that the expected future short- term rates would be low.
C)   raise the short- term interest rates but lower the expected short- term future rates.
D)   A and B are correct.

Question 15

When the interest rate rises, bond prices:

Accepted Answer

A)   rise.
B)   fall.
C)   are unchanged because the interest rate paid on a bond is fixed.
D)   will either increase or decrease depending on the type of bond.

Question 16

Summarize the effects of a decrease in the money supply on the rate of interest, investment spending, and real GDP.

Accepted Answer

The effects of a decrease in the money s...

Question 17

Which of the following represents an action by the Federal Reserve that is designed to increase the money supply?

Accepted Answer

A)   a decrease in the required reserve ratio
B)   selling government bonds in the open market
C)   an increase in the discount rate
D)   a decrease in federal tax rates

Question 18

The price of bonds and the interest rate are:

Accepted Answer

A)   positively related.
B)   negatively related.
C)   sometimes positively related and other times negatively related, depending on the bond payments.
D)   There is no relationship between the interest rate and the price of bonds.

Question 19

An open- market sale of government bonds by the Fed results in  _______ in bank reserves and _______ in the supply of money.

Accepted Answer

A)   a decrease; a decrease
B)   an increase; a decrease
C)   an increase; an increase
D)   a decrease; an increase

Question 20

Most econometric models predict that an interest rate cut will take at least _______ before most of its effects are felt.

Accepted Answer

A)   5 months
B)   2 years
C)   3 quarters
D)   5 years

Exam 14: The Federal Reserve and Monetary Policy

Explain how an open market sale will affect bond prices.

Correct AnswerverifiedIf the Fed sells bon...View AnswerShow Answer

An open- market sale of government bonds by the Fed results in _______ in bank reserves and _______ in the supply of money.

Correct AnswerverifiedShow Answer

Recall Application 3, "The Effectiveness of Committees," to answer the following questions: -According to the application, experiments show that decisions made by committees:

Correct AnswerverifiedShow Answer

Summarize the effects of a decrease in the money supply on the rate of interest, investment spending, and real GDP.

Correct AnswerverifiedThe effects of a decrease in the money s...View AnswerShow Answer

Explain the impact of Fed open- market purchases of government bonds on the money supply.

Correct AnswerverifiedThe Fed's purchase of government bonds f...View AnswerShow Answer

When the interest rate rises, bond prices:

Correct AnswerverifiedShow Answer

Figure 14.5 -Refer to Figure 14.5. If the money supply decreases from

Correct AnswerverifiedShow Answer

Most econometric models predict that an interest rate cut will take at least _______ before most of its effects are felt.

Correct AnswerverifiedShow Answer

Which of the following represents an action by the Federal Reserve that is designed to increase the money supply?

Correct AnswerverifiedShow Answer

Excess demand in the money market causes:

Correct AnswerverifiedShow Answer

If the quantity of money demanded is greater than the quantity of money supplied, then the interest rate will:

Correct AnswerverifiedShow Answer

Which of the following is not a tool available to the Fed to change the supply of money?

Correct AnswerverifiedShow Answer

Recall Application 1, "Beyond Purchasing Treasury Securities," to answer the following questions: -According to the application, which of the following was a way for the Fed to channel more funds to banks to encourage bank lending?

Correct AnswerverifiedShow Answer

When the interest rate increases, the

Correct AnswerverifiedShow Answer

Recall Application 2, "Rising Interest Rates During an Economic Recovery," to answer the following questions: -According to the application, a recovering economy (and hence, a higher income) is usually associated with higher interest rates because:

Correct AnswerverifiedShow Answer

Which of the following sequence of events follows an expansionary monetary policy?

Correct AnswerverifiedShow Answer

Recall Application 1, "Beyond Purchasing Treasury Securities," to answer the following questions: -According to the application, how did the Fed conduct monetary policy prior to 2008?

Correct AnswerverifiedShow Answer

If the Fed wishes to increase long- term investment spending, it must:

Correct AnswerverifiedShow Answer

The price of bonds and the interest rate are:

Correct AnswerverifiedShow Answer

When you pay your groceries with money because the supermarket does not accept stocks and certificates of deposits (CDs) , then the reason why you are holding money is the:

Correct AnswerverifiedShow Answer

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If the Fed sells bon...
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An open- market sale of government bonds by the Fed results in _ in bank reserves and _ in the supply of money.

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The effects of a decrease in the money s...
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The Fed's purchase of government bonds f...
View Answer

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