Question 1

Which of the following is an income number?

Accepted Answer

A)  M1
B)  M2
C)  GDP
D)  Cash

Question 2

The correct chain of causation illustrating the changes caused by monetary policy is

Accepted Answer

A)  money, interest rates, C + I + G + (X − IM) , I.
B)  money, interest rates, I, C + I + G + (X − IM) .
C)  C + I + G + (X − IM) , I, interest rates, money.
D)  I, C + I + G + (X − IM) , money, interest rates.

Question 3

The amount of inflation caused by expansionary monetary policy depends on the slope of the aggregate supply curve.

Accepted Answer

A) True 
 B)False  True

Question 4

Why do economists insist on emphasizing the difference between money and income? Why is this difference important in macroeconomics?

Accepted Answer

Money is a stock variable that has a val...

Question 5

Proponents of Fed independence maintain that

Accepted Answer

A)  independence helps ensure low unemployment rates.
B)  money is too important to be left to the bankers.
C)  independence permits objective decisions not based on politics.
D)  only the Federal Reserve knows how to act wisely.

Question 6

Monetary policy is the system of actions taken by the Fed to influence the money supply.

Accepted Answer

A) True 
 B)False

Question 7

The Fed conducts an open-market sale of Treasury bills of $5 million.If the required reserve ratio is 0.20, what change in the money supply can be expected using the oversimplified money multiplier?

Accepted Answer

A)  $25 million
B)  $5 million
C)  0
D)  −$5 million
E)  −$25 million

Question 8

Table 29-1
Effects of an open-market transaction on the balance sheets of banks and the fed (in millions of dollars)   ​
-In Table 29-1, the Federal Reserve System has

Accepted Answer

A)  sold $10 million in government securities to banks, taking payment in cash.
B)  sold $10 million in government securities to banks, taking payment from the bank's reserves.
C)  purchased $10 million in government securities from banks, paying for them with increases in banks' reserves.
D)  purchased $10 million in government securities from banks, paying for them with new Federal Reserve notes.

Question 9

If the Federal Open Market Committee decides to expand the money supply, then it will

Accepted Answer

A)  raise the discount rate to member banks.
B)  issue directions to purchase government securities, thus putting more reserves in member banks.
C)  issue directions to sell government securities, thus taking reserves from member banks.
D)  order new Federal Reserve notes delivered to member banks.

Question 10

The quantity of reserves demanded decreases as the federal funds rate rises because

Accepted Answer

A)  people want more liquid assets as the federal funds rate rises.
B)  the price of bonds rise as the federal funds rate rises.
C)  the opportunity cost of holding excess reserves increases as the federal funds rate rises.
D)  people want more money to invest as the federal funds rate rises.

Question 11

Which of the following were not actions taken by the Federal Reserve in order to stimulate the economy during the recession of 2007-2009?

Accepted Answer

A)  Decreasing the discount rate
B)  Suspending trading on the major stock exchanges
C)  Massive lending to banks
D)  Open-market purchases of assets other than Treasury bills B

Question 12

The creation of new bank reserves could lead to a multiple increase in the money supply.

Accepted Answer

A) True 
 B)False

Question 13

The reason that the Fed does not actively use discount rate policy to control the money supply is because the Fed

Accepted Answer

A)  acts when a majority of member banks agree on policy and the banks rarely agree.
B)  earns interest on discounting and cannot afford to lose the revenue.
C)  does not know how banks will respond to discount rate changes.
D)  has been directed by Congress to set the discount rate at a permanent level.

Question 14

The money supply can be increased by decreasing the required reserve ratio.

Accepted Answer

A) True 
 B)False  True

Question 15

Under what conditions will the inflationary impact of an expansionary monetary policy be the largest?

Accepted Answer

A)  When equilibrium real GDP is at potential real GDP.
B)  When there is a recessionary gap.
C)  When unemployment rates are high and there is substantial excess industrial capacity.
D)  When real GDP is falling and the price level is decreasing.

Question 16

In the Keynesian causal chain, changes in GDP cause changes in the level of interest rates.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is an unconventional monetary policy?

Accepted Answer

A)  Lending to banks in unprecedented volume
B)  Lending to companies other than banks
C)  Reducing the federal funds rate to zero
D)  All of these are unconventional monetary policies.

Question 18

How are Treasury bond prices affected when the interest rate rises?

Accepted Answer

A)  The purchaser of the bond needs to spend less money to obtain a given number of dollars of interest per year, so the price of the bond must decrease.
B)  The purchaser of the bond needs to spend more money to obtain a given number of dollars of interest per year, so the price of the bond must increase.
C)  The purchaser of the bond needs to spend more money to obtain a given number of dollars of interest per year, so the price of the bond must decrease.
D)  The purchaser of the bond needs to spend less money to obtain a given number of dollars of interest per year, so the price of the bond must increase.

Question 19

The demand for reserves increases as the price level rises because

Accepted Answer

A)  people want money to buy goods that will appreciate with inflation.
B)  people need more money to finance transactions.
C)  the opportunity cost of holding money increases.
D)  higher prices reduce the value of dollar assets.

Question 20

When the Fed wants to expand the money supply, it

Accepted Answer

A)  buys government securities.
B)  sells government securities.
C)  buys common stock.
D)  sells common stock.

Exam 29: Monetary Policy: Conventional and Unconventional

Which of the following is an income number?

Correct AnswerverifiedShow Answer

The correct chain of causation illustrating the changes caused by monetary policy is

Correct AnswerverifiedShow Answer

The amount of inflation caused by expansionary monetary policy depends on the slope of the aggregate supply curve.

Correct AnswerverifiedTrue

Why do economists insist on emphasizing the difference between money and income? Why is this difference important in macroeconomics?

Correct AnswerverifiedMoney is a stock variable that has a val...View AnswerShow Answer

Proponents of Fed independence maintain that

Correct AnswerverifiedShow Answer

Monetary policy is the system of actions taken by the Fed to influence the money supply.

Correct AnswerverifiedShow Answer

The Fed conducts an open-market sale of Treasury bills of $5 million.If the required reserve ratio is 0.20, what change in the money supply can be expected using the oversimplified money multiplier?

Correct AnswerverifiedShow Answer

Table 29-1 Effects of an open-market transaction on the balance sheets of banks and the fed (in millions of dollars) ​ -In Table 29-1, the Federal Reserve System has

Correct AnswerverifiedShow Answer

If the Federal Open Market Committee decides to expand the money supply, then it will

Correct AnswerverifiedShow Answer

The quantity of reserves demanded decreases as the federal funds rate rises because

Correct AnswerverifiedShow Answer

Which of the following were not actions taken by the Federal Reserve in order to stimulate the economy during the recession of 2007-2009?

Correct AnswerverifiedB

The creation of new bank reserves could lead to a multiple increase in the money supply.

Correct AnswerverifiedShow Answer

The reason that the Fed does not actively use discount rate policy to control the money supply is because the Fed

Correct AnswerverifiedShow Answer

The money supply can be increased by decreasing the required reserve ratio.

Correct AnswerverifiedTrue

Under what conditions will the inflationary impact of an expansionary monetary policy be the largest?

Correct AnswerverifiedShow Answer

In the Keynesian causal chain, changes in GDP cause changes in the level of interest rates.

Correct AnswerverifiedShow Answer

Which of the following is an unconventional monetary policy?

Correct AnswerverifiedShow Answer

How are Treasury bond prices affected when the interest rate rises?

Correct AnswerverifiedShow Answer

The demand for reserves increases as the price level rises because

Correct AnswerverifiedShow Answer

When the Fed wants to expand the money supply, it

Correct AnswerverifiedShow Answer

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True

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Money is a stock variable that has a val...
View Answer

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Table 29-1 Effects of an open-market transaction on the balance sheets of banks and the fed (in millions of dollars) -In Table 29-1, the Federal Reserve System has

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B

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True

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