Question 1

What would be a way for the Federal Reserve to slow down the economy when it is growing too quickly or is inflationary?

Accepted Answer

A)   print more money
B)   buy back government bonds on the open market
C)   sell more government bonds
D)   encourage the stock market

Question 2

Describe the channels through which open market purchases by the Fed affects output in an open economy.

Accepted Answer

Open market purchases lead to a increase...

Question 3

If the Federal Reserve conducts an open market purchase, the

Accepted Answer

A)   interest rate will not change.
B)   interest rate will increase.
C)   interest rate will decrease.
D)   money supply is decreased.

Question 4

What is the "good news" and the "bad news" about a lower value of the U.S. dollar?

Accepted Answer

The "good news" about a lower value of t...

Question 5

If the monthly unemployment rate increase mentioned in the Application wound up being a permanent and not temporary change, the best economic decision by the committee would most likely be to

Accepted Answer

A)   increase the money supply to stimulate the economy.
B)   decrease the money supply to stimulate the economy.
C)   decrease the money supply to slow the economy down.
D)   not change monetary policy.

Question 6

What impact would the Fed's raising the interest rate have on any inflationary pressure in the economy?

Accepted Answer

A)   An increase in interest rates decreases the money demand, which could slow increases in the price level.
B)   An increase in interest rates increases the money supply, which could cause the price level to increase.
C)   An increase in interest rates decreases the exchange rate, which causes net exports to rise, generating inflation.
D)   An increase in interest rates increases real GDP, which creates inflation in an economy.

Question 7

Banks can obtain funds to make loans by borrowing reserves from other banks through the federal funds market.

Accepted Answer

A) True 
 B)False

Question 8

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 9

A decrease in the discount rate will

Accepted Answer

A)   decrease the money supply.
B)   not affect the money supply.
C)   increase the money supply.
D)   have an unclear effect on the money supply.

Question 10

An open market sale by the Fed

Accepted Answer

A)   increases the money supply and increases output.
B)   increases the money supply and decreases output.
C)   decreases the money supply and increases output.
D)   decreases the money supply and decreases output.

Question 11

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 12

When the Fed ________ interest rates, bond prices ________.

Accepted Answer

A)   raises; rise
B)   lowers; rise
C)   raises; do not change
D)   lowers; do not change

Question 13

The exchange rate is

Accepted Answer

A)   the rate at which banks can borrow from the Fed.
B)   the slope of the investment function.
C)   the price at which one currency trades for another currency.
D)   the rate at which one can translate money into consumption goods.

Question 14

Recall the Application about the Fed's expanded involvement in the economy following the financial crisis in 2008 to answer the following question(s) .
-According to the Application, in 2010 the Fed

Accepted Answer

A)   the Fed ended its support of the mortgage market.
B)   the Fed converted all its assets to cash.
C)   held over $1 trillion in mortgage-backed securities.
D)   stopped trading in Treasury securities.

Question 15

The Fed has immense power and there are no limits to the extent to which it can effectively control the economy.

Accepted Answer

A) True 
 B)False

Question 16

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 17

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 18

Explain the three different types of money demand.

Accepted Answer

Transaction demand refers to the demand ...

Question 19

From time to time, the Federal Reserve buys back government bonds from the private sector through a process called

Accepted Answer

A)   bond recall procedures.
B)   open market purchases.
C)   backflip bond investments.
D)   voluntary redemption procedures.

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.
-Recall the Application. The rise in commodity prices corresponded with ________ in interest rates, and this change in interest rates would result in bond prices ________.

Accepted Answer

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

Exam 14: The Federal Reserve and Monetary Policy

Correct Answer
verified

What is the "good news" and the "bad news" about a lower value of the U.S. dollar?

Correct Answer
verified
The "good news" about a lower value of t...
View Answer

What would be a way for the Federal Reserve to slow down the economy when it is growing too quickly or is inflationary?

Correct Answer
verified

When the Fed interest rates, bond prices .

Correct Answer
verified

The exchange rate is

Correct Answer
verified

Describe the channels through which open market purchases by the Fed affects output in an open economy.

Correct Answer
verified
Open market purchases lead to a increase...
View Answer

What impact would the Fed's raising the interest rate have on any inflationary pressure in the economy?

Correct Answer
verified

Explain the three different types of money demand.

Correct Answer
verified
Transaction demand refers to the demand ...
View Answer

The Fed has immense power and there are no limits to the extent to which it can effectively control the economy.

Correct Answer
verified

Equilibrium in the money market occurs when

Correct Answer
verified

Banks can obtain funds to make loans by borrowing reserves from other banks through the federal funds market.

Correct Answer
verified

An open market sale by the Fed

Correct Answer
verified

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

Correct Answer
verified

A decrease in the discount rate will

Correct Answer
verified

From time to time, the Federal Reserve buys back government bonds from the private sector through a process called

Correct Answer
verified

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

Correct Answer
verified

If the Federal Reserve conducts an open market purchase, the

Correct Answer
verified

If the monthly unemployment rate increase mentioned in the Application wound up being a permanent and not temporary change, the best economic decision by the committee would most likely be to

Correct Answer
verified

Recall the Application about the Fed's expanded involvement in the economy following the financial crisis in 2008 to answer the following question(s) . -According to the Application, in 2010 the Fed

Correct Answer
verified

An open market purchase by the Fed

Correct Answer
verified

Exam 14: The Federal Reserve and Monetary Policy

Correct AnswerverifiedShow Answer

What is the "good news" and the "bad news" about a lower value of the U.S. dollar?

Correct AnswerverifiedThe "good news" about a lower value of t...View AnswerShow Answer

What would be a way for the Federal Reserve to slow down the economy when it is growing too quickly or is inflationary?

Correct AnswerverifiedShow Answer

When the Fed ________ interest rates, bond prices ________.

Correct AnswerverifiedShow Answer

The exchange rate is

Correct AnswerverifiedShow Answer

Describe the channels through which open market purchases by the Fed affects output in an open economy.

Correct AnswerverifiedOpen market purchases lead to a increase...View AnswerShow Answer

What impact would the Fed's raising the interest rate have on any inflationary pressure in the economy?

Correct AnswerverifiedShow Answer

Explain the three different types of money demand.

Correct AnswerverifiedTransaction demand refers to the demand ...View AnswerShow Answer

The Fed has immense power and there are no limits to the extent to which it can effectively control the economy.

Correct AnswerverifiedShow Answer

Equilibrium in the money market occurs when

Correct AnswerverifiedShow Answer

Banks can obtain funds to make loans by borrowing reserves from other banks through the federal funds market.

Correct AnswerverifiedShow Answer

An open market sale by the Fed

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A decrease in the discount rate will

Correct AnswerverifiedShow Answer

From time to time, the Federal Reserve buys back government bonds from the private sector through a process called

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the Federal Reserve conducts an open market purchase, the

Correct AnswerverifiedShow Answer

If the monthly unemployment rate increase mentioned in the Application wound up being a permanent and not temporary change, the best economic decision by the committee would most likely be to

Correct AnswerverifiedShow Answer

Recall the Application about the Fed's expanded involvement in the economy following the financial crisis in 2008 to answer the following question(s) . -According to the Application, in 2010 the Fed

Correct AnswerverifiedShow Answer

An open market purchase by the Fed

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
The "good news" about a lower value of t...
View Answer

Correct Answer
verified

When the Fed interest rates, bond prices .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Open market purchases lead to a increase...
View Answer

Correct Answer
verified

Correct Answer
verified
Transaction demand refers to the demand ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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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