Question 1

The prime rate is the interest rate at which banks can borrow from the Fed.

Accepted Answer

A) True 
 B)False

Question 2

An open market purchase by the Fed

Accepted Answer

A)   increases the total amount of reserves in the banking system.
B)   decreases the total amount of reserves in the banking system.
C)   does not change the total amount of reserves in the banking system.
D)   causes the reserve requirement to fall.

Question 3

An increase in the reserve requirement

Accepted Answer

A)   increases the money supply, which leads to increased interest rates and a decrease in GDP.
B)   increases the money supply, which leads to decreased interest rates and a decrease in GDP.
C)   decreases the money supply, which leads to increased interest rates and a decrease in GDP.
D)   decreases the money supply, which leads to decreased interest rates and a decrease in GDP.

Question 4

Which of the following is an example of an expectation of inflation?

Accepted Answer

A)   Producers expect their prices on average to be higher next year.
B)   Producers expect the prices they pay for raw materials to be higher next year.
C)   Workers expect that the prices they pay for goods and services will be higher next year.
D)   all of the above

Question 5

The rate of interest charged to commercial banks by the Fed for loans is called the ________ rate.

Accepted Answer

A)   federal funds
B)   discount
C)   prime
D)   commercial paper

Question 6

The inside lags for monetary policy are relatively long compared to those for fiscal policy.

Accepted Answer

A) True 
 B)False

Question 7

What is the motivation for individuals to hold money?

Accepted Answer

A)   to reduce risk
B)   to have liquidity
C)   to facilitate transactions
D)   all of the above

Question 8

To increase the money supply using the reserve requirements, what would the Fed typically do?

Accepted Answer

A)   increase the reserve requirement for banks
B)   reduce the reserve requirement for banks
C)   make each bank set its own reserve levels
D)   let each bank get more currency from the Treasury

Question 9

Interest rates will increase if the Fed conducts an open market purchase.

Accepted Answer

A) True 
 B)False

Question 10

Actions by the Federal Reserve to influence the level of GDP are known as

Accepted Answer

A)   monetary policy.
B)   fiscal policy.
C)   cyclical policy.
D)   procyclical policy.

Question 11

If the Fed wished to decrease interest rates, it could

Accepted Answer

A)   increase the reserve requirement or conduct an open market sale.
B)   increase the reserve requirement or conduct an open market purchase.
C)   decrease the reserve requirement or conduct an open market sale.
D)   decrease the reserve requirement or conduct an open market purchase.

Question 12

When the expected rate of inflation is added to the real interest rate, the result is called the

Accepted Answer

A)   preferred rate.
B)   nominal interest rate.
C)   adjustment rate.
D)   differential rate.

Question 13

In addition to lowering the discount rate to increase the money supply, the Fed could also

Accepted Answer

A)   purchase bonds on the open market and raise reserve requirements.
B)   sell bonds on the open market and raise reserve requirements.
C)   purchase bonds on the open market and lower reserve requirements.
D)   sell bonds on the open market and lower reserve requirements.

Question 14

Selling government bonds through open market operations allows the Federal Reserve to

Accepted Answer

A)   decrease money in the Treasury.
B)   decrease the money supply in the private sector.
C)   receive discounts on future sales.
D)   receive a high rate of interest on the bonds.

Question 15

In practice, the Federal Reserve keeps the discount rate close to the ________ rate in order to avoid large swings in borrowed reserves by banks.

Accepted Answer

A)   inflation
B)   six-month Treasury bill
C)   federal funds
D)   prime

Question 16

An increase in the discount rate

Accepted Answer

A)   reduces the cost of reserves borrowed from the Fed.
B)   signals the Fed's desire to increase the money supply.
C)   signals the Fed's desire to lend increased reserves to banks.
D)   increases the cost of reserves borrowed from the Fed.

Question 17

If your assets are highly liquid, this means you can make transactions on short notice.

Accepted Answer

A) True 
 B)False

Question 18

When the public expects inflation, real and nominal rates of interest will be the same.

Accepted Answer

A) True 
 B)False

Question 19

Equilibrium in the money market occurs when

Accepted Answer

A)   the quantity of money demanded equals the quantity of money supplied.
B)   the quantity of money demanded is less than the quantity of money supplied.
C)   the quantity of money demanded is more than the quantity of money supplied.
D)   the interest rate equals the money supply.

Question 20

Recall the Application about the possible link between the value of the U.S. dollar and the worldwide increase in commodity prices to answer the following question(s) . Starting in the summer of 2010, there was a rise in prices of commodities such as oil and food worldwide. Some economists suggested that monetary policy in the United States was the cause of the worldwide commodity boom.
-According to this Application, some economists noticed that the U.S. dollar ________ largely because monetary policy in the United States had driven interest rates ________.

Accepted Answer

A)   depreciated; down
B)   depreciated; up
C)   appreciated; down
D)   appreciated; up

Exam 17: Monetary Policy and Inflation

If your assets are highly liquid, this means you can make transactions on short notice.

Correct Answer
verified

When the public expects inflation, real and nominal rates of interest will be the same.

Correct Answer
verified

To increase the money supply using the reserve requirements, what would the Fed typically do?

Correct Answer
verified

An increase in the discount rate

Correct Answer
verified

An increase in the reserve requirement

Correct Answer
verified

When the expected rate of inflation is added to the real interest rate, the result is called the

Correct Answer
verified

An open market purchase by the Fed

Correct Answer
verified

In practice, the Federal Reserve keeps the discount rate close to the ________ rate in order to avoid large swings in borrowed reserves by banks.

Correct Answer
verified

Which of the following is an example of an expectation of inflation?

Correct Answer
verified

If the Fed wished to decrease interest rates, it could

Correct Answer
verified

Selling government bonds through open market operations allows the Federal Reserve to

Correct Answer
verified

Actions by the Federal Reserve to influence the level of GDP are known as

Correct Answer
verified

Interest rates will increase if the Fed conducts an open market purchase.

Correct Answer
verified

The rate of interest charged to commercial banks by the Fed for loans is called the ________ rate.

Correct Answer
verified

Equilibrium in the money market occurs when

Correct Answer
verified

Correct Answer
verified

What is the motivation for individuals to hold money?

Correct Answer
verified

The prime rate is the interest rate at which banks can borrow from the Fed.

Correct Answer
verified

The inside lags for monetary policy are relatively long compared to those for fiscal policy.

Correct Answer
verified

In addition to lowering the discount rate to increase the money supply, the Fed could also

Correct Answer
verified

Exam 17: Monetary Policy and Inflation

If your assets are highly liquid, this means you can make transactions on short notice.

Correct AnswerverifiedShow Answer

When the public expects inflation, real and nominal rates of interest will be the same.

Correct AnswerverifiedShow Answer

To increase the money supply using the reserve requirements, what would the Fed typically do?

Correct AnswerverifiedShow Answer

An increase in the discount rate

Correct AnswerverifiedShow Answer

An increase in the reserve requirement

Correct AnswerverifiedShow Answer

When the expected rate of inflation is added to the real interest rate, the result is called the

Correct AnswerverifiedShow Answer

An open market purchase by the Fed

Correct AnswerverifiedShow Answer

In practice, the Federal Reserve keeps the discount rate close to the ________ rate in order to avoid large swings in borrowed reserves by banks.

Correct AnswerverifiedShow Answer

Which of the following is an example of an expectation of inflation?

Correct AnswerverifiedShow Answer

If the Fed wished to decrease interest rates, it could

Correct AnswerverifiedShow Answer

Selling government bonds through open market operations allows the Federal Reserve to

Correct AnswerverifiedShow Answer

Actions by the Federal Reserve to influence the level of GDP are known as

Correct AnswerverifiedShow Answer

Interest rates will increase if the Fed conducts an open market purchase.

Correct AnswerverifiedShow Answer

The rate of interest charged to commercial banks by the Fed for loans is called the ________ rate.

Correct AnswerverifiedShow Answer

Equilibrium in the money market occurs when

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What is the motivation for individuals to hold money?

Correct AnswerverifiedShow Answer

The prime rate is the interest rate at which banks can borrow from the Fed.

Correct AnswerverifiedShow Answer

The inside lags for monetary policy are relatively long compared to those for fiscal policy.

Correct AnswerverifiedShow Answer

In addition to lowering the discount rate to increase the money supply, the Fed could also

Correct AnswerverifiedShow Answer

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verified

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