Question 1

Banks and customers are most likely to be reluctant to use the full lending capacity made available by the Federal Reserve when the economy experiences

Accepted Answer

A)  Growth and low interest rates.
B)  Growth and inflation rates higher than the interest rate.
C)  High inflation rates.
D)  A deep recession.

Question 2

Currency held by the public plus balances in transactions accounts are the

Accepted Answer

A)  Total reserves.
B)  Money supply (M1) .
C)  Required reserves.
D)  Money supply (M2) .

Question 3

The most visible market signal of the Fed's activity is the

Accepted Answer

A)  Equilibrium interest rate.
B)  Federal funds rate.
C)  Discount rate.
D)  Prime lending rate.

Question 4

If the nominal interest rate is a constant 15 percent and anticipated inflation falls from 10 percent to 7 percent,the real interest rate would change from

Accepted Answer

A)  15 to 10 percent.
B)  5 to 8 percent.
C)  7 to 9 percent.
D)  8 to 5 percent.

Question 5

In Figure 15.3,the Fed can use all of the following to decrease the equilibrium interest rate from 6 percent to 2 percent except

Accepted Answer

A)  Decreasing the reserve requirement.
B)  Selling bonds.
C)  Buying bonds.
D)  Decreasing the discount rate.

Question 6

U.S.multinational nonbank corporations can borrow money from all of the following except

Accepted Answer

A)  Domestic banks.
B)  Foreign bond markets.
C)  Foreign subsidiaries.
D)  Federal Reserve district banks.

Question 7

A monetary stimulus is designed to shift the

Accepted Answer

A)  AS curve to the right.
B)  AS curve to the left.
C)  AD curve to the right.
D)  AD curve to the left.

Question 8

In Figure 15.3,the Fed can change the equilibrium interest rate from 2 percent to 6 percent by

Accepted Answer

A)  Buying bonds in the open market.
B)  Decreasing the reserve requirement.
C)  Raising the discount rate.
D)  Increasing the amount of coins in circulation.

Question 9

A horizontal aggregate supply curve causes higher inflation,rather than higher output,to result from increases in the money supply.
A horizontal aggregate supply curve actually causes higher output,and no inflation,to result from increases in the money supply.

Accepted Answer

A) True 
 B)False

Question 10

The success of Fed intervention depends on how well

Accepted Answer

A)  Congress performs when manipulating the money supply.
B)  Individuals respond to the Fed's direct requests of the public.
C)  The Treasury follows the Fed's directions for releasing money.
D)  Changes in long-term interest rates closely follow changes in short-term interest rates.

Question 11

Monetary policy is most likely to result in inflation when the aggregate supply curve is

Accepted Answer

A)  Vertical and the Fed lowers the discount rate.
B)  Vertical and the Fed raises the reserve requirement.
C)  Horizontal and the Fed sells securities.
D)  Horizontal and the Fed lowers the reserve ratio.

Question 12

Which of the following shifts in the demand for money or the supply of money is most likely to occur as the result of a recession?

Accepted Answer

A)  The demand curve shifts leftward.
B)  The demand curve shifts rightward.
C)  The supply curve shifts rightward.
D)  Both the demand and supply curves shift rightwarD.The demand curve is most likely to shift leftward because incomes typically fall during recessions.

Question 13

The liquidity trap exists because the lower portion of the money demand curve is horizontal.
Along the horizontal portion of the money demand curve,an increase in money supply does not cause interest rates to fall any further.

Accepted Answer

A) True 
 B)False

Question 14

Why is expansionary monetary policy ineffective in the liquidity trap?

Accepted Answer

In the liquidity trap,people are willing...

Question 15

The liquidity trap

Accepted Answer

A)  Refers to the vertical portion of the money demand curve.
B)  Refers to the possibility that interest rates may not respond to changes in the money supply.
C)  Implies that people are willing to hold very limited amounts of money at low interest rates.
D)  Occurs when people wish to hold more and more money as interest rates fall.

Question 16

What is the monetarist prescription for the reducing unemployment,and why?

Accepted Answer

Monetarists favor steady and predictable...

Question 17

What should happen to the equilibrium interest rate and the corresponding rate of investment if the Fed decreases the discount rate?

Accepted Answer

A)  The equilibrium interest rate and the equilibrium rate of investment should both increase.
B)  The equilibrium interest rate should increase,and the equilibrium rate of investment should decrease.
C)  The equilibrium interest rate should decrease,and the equilibrium rate of investment should increase.
D)  The equilibrium interest rate and the equilibrium rate of investment should both decrease.

Question 18

The federal funds rate reflects the cost for banks to borrow from other banks.
The federal funds rate is an overnight,interbank loan rate paid to cover reserve requirements.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following causes the opportunity cost of holding money in the form of cash to decrease?

Accepted Answer

A)  Lower interest rates.
B)  Higher short-term yields.
C)  Higher reserve requirement.
D)  Higher long-term yields.

Question 20

Using the equation of exchange and assuming full employment and a constant velocity of money,a decrease in the required reserve ratio would result in a

Accepted Answer

A)  Lower velocity.
B)  Lower quantity of real output.
C)  Higher price level.
D)  Lower price level.

Exam 15: Monetary Policy

U.S.multinational nonbank corporations can borrow money from all of the following except

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The federal funds rate reflects the cost for banks to borrow from other banks. The federal funds rate is an overnight,interbank loan rate paid to cover reserve requirements.

Correct AnswerverifiedShow Answer

Monetary policy is most likely to result in inflation when the aggregate supply curve is

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The success of Fed intervention depends on how well

Correct AnswerverifiedShow Answer

Banks and customers are most likely to be reluctant to use the full lending capacity made available by the Federal Reserve when the economy experiences

Correct AnswerverifiedShow Answer

In Figure 15.3,the Fed can use all of the following to decrease the equilibrium interest rate from 6 percent to 2 percent except

Correct AnswerverifiedShow Answer

The most visible market signal of the Fed's activity is the

Correct AnswerverifiedShow Answer

A monetary stimulus is designed to shift the

Correct AnswerverifiedShow Answer

A horizontal aggregate supply curve causes higher inflation,rather than higher output,to result from increases in the money supply. A horizontal aggregate supply curve actually causes higher output,and no inflation,to result from increases in the money supply.

Correct AnswerverifiedShow Answer

The liquidity trap

Correct AnswerverifiedShow Answer

Which of the following shifts in the demand for money or the supply of money is most likely to occur as the result of a recession?

Correct AnswerverifiedShow Answer

The liquidity trap exists because the lower portion of the money demand curve is horizontal. Along the horizontal portion of the money demand curve,an increase in money supply does not cause interest rates to fall any further.

Correct AnswerverifiedShow Answer

Currency held by the public plus balances in transactions accounts are the

Correct AnswerverifiedShow Answer

Using the equation of exchange and assuming full employment and a constant velocity of money,a decrease in the required reserve ratio would result in a

Correct AnswerverifiedShow Answer

What should happen to the equilibrium interest rate and the corresponding rate of investment if the Fed decreases the discount rate?

Correct AnswerverifiedShow Answer

Why is expansionary monetary policy ineffective in the liquidity trap?

Correct AnswerverifiedIn the liquidity trap,people are willing...View AnswerShow Answer

If the nominal interest rate is a constant 15 percent and anticipated inflation falls from 10 percent to 7 percent,the real interest rate would change from

Correct AnswerverifiedShow Answer

Which of the following causes the opportunity cost of holding money in the form of cash to decrease?

Correct AnswerverifiedShow Answer

In Figure 15.3,the Fed can change the equilibrium interest rate from 2 percent to 6 percent by

Correct AnswerverifiedShow Answer

What is the monetarist prescription for the reducing unemployment,and why?

Correct AnswerverifiedMonetarists favor steady and predictable...View AnswerShow Answer

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In the liquidity trap,people are willing...
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Correct Answer
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Monetarists favor steady and predictable...
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