Question 1

The interest rate at which the Federal Reserve Banks lend to commercial banks is called the:

Accepted Answer

A)   prime rate.
B)   short-term rate.
C)   discount rate.
D)   federal funds rate.E) B) and D)
F) None of the above

Question 2

If,in the market for money,the amount of money supplied exceeds the amount of money households and businesses want to hold,the interest rate will:

Accepted Answer

A)   fall,causing households and businesses to hold less money.
B)   rise,causing households and businesses to hold less money.
C)   rise,causing households and businesses to hold more money.
D)   fall,causing households and businesses to hold more money.E) B) and D)
F) A) and C)

Question 3

All else equal,when the Federal Reserve Banks engage in a restrictive monetary policy,the prices of government bonds usually:

Accepted Answer

A)   fall.
B)   rise.
C)   remain constant.
D)   move in the same direction as the bonds' interest rate yield.E) A) and B)
F) A) and C)

Question 4

(Advanced analysis) Assume the equation for the total demand for money is L = 0.4Y + 80 - 4i,where L is the amount of money demanded,Y is gross domestic product,and i is the interest rate.If gross domestic product is $200 and the interest rate is 10 (percent) ,what amount of money will society want to hold?

Accepted Answer

A)   $200.
B)   $120.
C)   $320.
D)   $160.E) A) and B)
F) A) and C)

Question 5

The purpose of a restrictive monetary policy is to:

Accepted Answer

A)   alleviate recessions.
B)   raise interest rates and restrict the availability of bank credit.
C)   increase aggregate demand and GDP.
D)   increase investment spending.E) All of the above
F) A) and D)

Question 6

The four main tools of monetary policy are:

Accepted Answer

A)   tax rate changes,the discount rate,open-market operations,and the federal funds rate.
B)   tax rate changes,changes in government expenditures,open-market operations,and interest on reserves.
C)   the discount rate,the reserve ratio,interest on reserves,and open-market operations.
D)   changes in government expenditures,the reserve ratio,the federal funds rate,and the discount rate.E) A) and B)
F) None of the above

Question 7

Monetary policy is thought to be:

Accepted Answer

A)   equally effective in moving the economy out of a depression as in controlling demand-pull inflation.
B)   more effective in moving the economy out of a depression than in controlling demand-pull inflation.
C)   more effective in controlling demand-pull inflation than in moving the economy out of a recession.
D)   only effective in moving the economy out of a depression.E) A) and C)
F) None of the above

Question 8

On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively,the asset demand for money can be represented by:

Accepted Answer

A)   a line parallel to the horizontal axis.
B)   a vertical line.
C)   a downsloping line or curve from left to right.
D)   an upsloping line or curve from left to right.E) C) and D)
F) A) and B)

Question 9

If the demand for money increases and the Fed wants interest rates to remain unchanged,which of the following would be appropriate policy?

Accepted Answer

A)   Recall Federal Reserve Notes from circulation.
B)   Raise the legal reserve requirement.
C)   Buy bonds in the open market.
D)   Raise the discount rate.E) None of the above
F) A) and B)

Question 10

Which of the following will increase commercial bank reserves?

Accepted Answer

A)   The purchase of government bonds in the open market by the Federal Reserve Banks.
B)   A decrease in the reserve ratio.
C)   An increase in the discount rate.
D)   The sale of government bonds in the open market by the Federal Reserve Banks.E) None of the above
F) A) and C)

Question 11

Which of the following actions by the Fed most likely increase commercial bank lending?

Accepted Answer

A)   Raising the reserve ratio.
B)   Increasing the federal funds rate target.
C)   Reducing the interest paid on reserves held at the Fed.
D)   Selling bonds to commercial banks and the public.E) C) and D)
F) A) and B)

Question 12

Answer the question on the assumption that the legal reserve ratio is 20 percent.Suppose that the Fed sells $500 of government securities to commercial banks (paid for out of commercial bank reserves) and buys $500 of securities from individuals,who deposit the cash in checking accounts. As a result of the given transactions,excess reserves in the banking system will:

Accepted Answer

A)   remain unchanged.
B)   rise by $100.
C)   fall by $100.
D)   rise by $1,000.E) C) and D)
F) B) and D)

Question 13

Which of the following statements is correct?

Accepted Answer

A)   Interest rates and bond prices vary directly.
B)   Interest rates and bond prices vary inversely.
C)   Interest rates and bond prices are unrelated.
D)   Interest rates and bond prices vary directly during inflations and inversely during recessions.E) A) and B)
F) A) and C)

Question 14

One of the strengths of monetary policy relative to fiscal policy is that monetary policy:

Accepted Answer

A)   can be implemented more quickly.
B)   is subject to closer political scrutiny.
C)   does not produce a net export effect.
D)   entails a larger spending income multiplier effect on real GDP.E) None of the above
F) C) and D)

Question 15

Forward commitment by the Fed has which of the following impacts?

Accepted Answer

A)   Forward commitment encourages lending because banks do not fear that the Fed will suddenly reverse the policy.
B)   Forward commitment encourages excessive lending as banks try to take control of as many reserves as possible before the policy is exhausted.
C)   Forward commitment eliminates all flexibility in monetary policy.
D)   Forward commitment creates moral hazard in lending,as banks know that the Fed will continue to pump reserves into the system.E) A) and B)
F) A) and C)

Question 16

Bond prices and interest rates are directly or positively related.

Accepted Answer

A) True 
 B)False

Question 17

Answer the question on the basis of the following consolidated balance sheet of the commercial banking system.Assume that the reserve requirement is 20 percent.All figures are in billions and each question should be answered independently of changes specified in all preceding ones.   Assets‾ Reserves Securities Loans Property$200300500400 Liabilities & Net Worth ‾ Checkable Deposits Stock Shares$1,100400\begin{array}{c}\begin{array}{lll}\quad\quad\quad\underline{	ext { Assets}}\	ext { Reserves}\	ext { Securities}\	ext { Loans}\	ext { Property} \end{array}\begin{array}{l}\\$ 200 \300 \500 \400 \end{array}\begin{array}{lll}\quad\quad \underline{	ext { Liabilities \& Net Worth }}\	ext { Checkable Deposits}\	ext {  Stock Shares}\\\\end{array}\begin{array}{lll}\\$1,100\400\\\\end{array}\end{array} Assets​ Reserves Securities Loans Property​$200300500400​ Liabilities & Net Worth ​ Checkable Deposits Stock Shares​$1,100400​​

Refer to the given data.The commercial banking system has excess reserves of:

Accepted Answer

A)   zero.
B)   $2 billion.
C)   $5 billion.
D)   $10 billion. E) None of the above
F) C) and D)

Question 18

On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively,the transactions demand for money can be represented by:

Accepted Answer

A)   a line parallel to the horizontal axis.
B)   a vertical line.
C)   a downsloping line or curve from left to right.
D)   an upsloping line or curve from left to right.E) A) and D)
F) A) and C)

Question 19

The federal funds rate is the interest rate that _______ charge(s) _______.

Accepted Answer

A)   banks;other banks
B)   the Fed;commercial banks
C)   banks;their best corporate customers
D)   banks;on federal student loansE) A) and B)
F) A) and C)

Question 20

The impact of monetary policy on investment spending may be weakened:

Accepted Answer

A)   because of the Treasury's desire for high interest rates.
B)   if the rate at which dollars are spent changes in the same direction as the money supply.
C)   if the investment-demand curve shifts to the right during inflation and to the left during recession.
D)   if the investment-demand curve is very flat.E) B) and D)
F) All of the above

Exam 35: Interest Rates and Monetary Policy

The purpose of a restrictive monetary policy is to:

Correct Answer
verified

Which of the following actions by the Fed most likely increase commercial bank lending?

Correct Answer
verified

If,in the market for money,the amount of money supplied exceeds the amount of money households and businesses want to hold,the interest rate will:

Correct Answer
verified

Correct Answer
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Monetary policy is thought to be:

Correct Answer
verified

If the demand for money increases and the Fed wants interest rates to remain unchanged,which of the following would be appropriate policy?

Correct Answer
verified

Correct Answer
verified

On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively,the asset demand for money can be represented by:

Correct Answer
verified

The federal funds rate is the interest rate that _ charge(s) _.

Correct Answer
verified

Correct Answer
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Forward commitment by the Fed has which of the following impacts?

Correct Answer
verified

Which of the following will increase commercial bank reserves?

Correct Answer
verified

One of the strengths of monetary policy relative to fiscal policy is that monetary policy:

Correct Answer
verified

On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively,the transactions demand for money can be represented by:

Correct Answer
verified

All else equal,when the Federal Reserve Banks engage in a restrictive monetary policy,the prices of government bonds usually:

Correct Answer
verified

The interest rate at which the Federal Reserve Banks lend to commercial banks is called the:

Correct Answer
verified

The impact of monetary policy on investment spending may be weakened:

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

Bond prices and interest rates are directly or positively related.

Correct Answer
verified

The four main tools of monetary policy are:

Correct Answer
verified

Exam 35: Interest Rates and Monetary Policy

The purpose of a restrictive monetary policy is to:

Correct AnswerverifiedShow Answer

Which of the following actions by the Fed most likely increase commercial bank lending?

Correct AnswerverifiedShow Answer

If,in the market for money,the amount of money supplied exceeds the amount of money households and businesses want to hold,the interest rate will:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Monetary policy is thought to be:

Correct AnswerverifiedShow Answer

If the demand for money increases and the Fed wants interest rates to remain unchanged,which of the following would be appropriate policy?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively,the asset demand for money can be represented by:

Correct AnswerverifiedShow Answer

The federal funds rate is the interest rate that _______ charge(s) _______.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Forward commitment by the Fed has which of the following impacts?

Correct AnswerverifiedShow Answer

Which of the following will increase commercial bank reserves?

Correct AnswerverifiedShow Answer

One of the strengths of monetary policy relative to fiscal policy is that monetary policy:

Correct AnswerverifiedShow Answer

On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively,the transactions demand for money can be represented by:

Correct AnswerverifiedShow Answer

All else equal,when the Federal Reserve Banks engage in a restrictive monetary policy,the prices of government bonds usually:

Correct AnswerverifiedShow Answer

The interest rate at which the Federal Reserve Banks lend to commercial banks is called the:

Correct AnswerverifiedShow Answer

The impact of monetary policy on investment spending may be weakened:

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Bond prices and interest rates are directly or positively related.

Correct AnswerverifiedShow Answer

The four main tools of monetary policy are:

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The federal funds rate is the interest rate that _ charge(s) _.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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