Question 1

In the United States, monetary policy is the responsibility of the Federal Reserve Board of Governors and the Federal Open Market Committee.

Accepted Answer

A) True 
 B)False

Question 2

Halving the required reserve ratio would, other things being equal,

Accepted Answer

A)  double the money supply.
B)  halve the money supply.
C)  increase the money supply, but by less than double.
D)  decrease the money supply, but by more than double.E) None of the above
F) A) and B)

Question 3

Other things being constant, an increase in nominal GDP will generally increase the demand for money.

Accepted Answer

A) True 
 B)False

Question 4

If the Fed conducted an open market sale of government bonds and raised the discount rate:

Accepted Answer

A)  the money supply would increase.
B)  the money supply would decrease.
C)  the money supply would not change.
D)  the money supply could either increase or decrease.E) All of the above
F) A) and B)

Question 5

All decisions of the Fed are subject to approval by:

Accepted Answer

A)  the President of the United States.
B)  the U.S. Congress.
C)  the FDIC
D)  none of the aboveE) All of the above
F) A) and B)

Question 6

When money demand increases, the Fed cannot keep the money supply from rising and the interest rate from rising at the same time.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following would cause the U.S.money supply to expand?

Accepted Answer

A)  a commercial bank calling in a loan to build up more excess reserves
B)  a commercial bank purchasing U.S. securities from the Fed as an investment
C)  a decrease in reserve requirements
D)  an increase in the discount rateE) B) and C)
F) A) and B)

Question 8

An open market purchase of government securities by the Fed will not tend to result in which of the following, other things being equal?

Accepted Answer

A)  increased bond prices
B)  an increase in real output
C)  decreased interest rates
D)  an increase in the price level
E)  All of the above are likely to result from an open market purchase.F) All of the above
G) A) and C)

Question 9

What can the Fed increase to increase the supply of money?

Accepted Answer

A)  Open market purchases of government bonds.
B)  Reserve requirements.
C)  The discount rate.
D)  All of these answers are true.E) A) and C)
F) A) and B)

Question 10

If money supply and money demand both fell, but money supply fell more than money demand:

Accepted Answer

A)  interest rates would increase and investment would increase.
B)  interest rates would increase and investment would decrease.
C)  interest rates would decrease and investment would increase.
D)  interest rates would decrease and investment would decrease.
E)  the change in interest rates and investment would be indeterminate.F) A) and B)
G) D) and E)

Question 11

There is a positive correlation between a nation's average annual inflation and the degree of independence of its central bank.

Accepted Answer

A) True 
 B)False

Question 12

When the money supply decreases, other things being equal,

Accepted Answer

A)  real interest rates fall and investment spending rises.
B)  real interest rates fall and investment spending falls.
C)  real interest rates rise and investment spending falls.
D)  real interest rates rise and investment spending rises.E) B) and C)
F) A) and D)

Question 13

You have the assignment of making a recommendation to the Chairman of the Fed during a period of persistent, high inflation.What could you do to restore stable prices?

Accepted Answer

In order to restore price stab...

Question 14

Which of the following would cause the U.S.money supply to expand?

Accepted Answer

A)  a commercial bank using excess reserves to extend a loan to a customer
B)  a commercial bank purchasing U.S. securities from the Fed as an investment
C)  an increase in reserve requirements
D)  an increase in the discount rate
E)  a purchase of U.S. government securities by the FedF) A) and B)
G) None of the above

Question 15

If M increases, and V remains constant:

Accepted Answer

A)  P must rise.
B)  Q must rise.
C)  P and Q must each rise.
D)  Any of the above may happen, but none of the above must happen.E) B) and D)
F) A) and B)

Question 16

When would the quantity of money demanded by the public tend to increase by the greatest amount?

Accepted Answer

A)  The interest rate increases and nominal GDP increases.
B)  The interest rate increases and nominal GDP decreases.
C)  The interest rate decreases and nominal GDP increases.
D)  The interest rate decreases and nominal GDP decreases.E) A) and D)
F) B) and D)

Question 17

An expansionary monetary policy is likely to increase real output more than just temporarily:

Accepted Answer

A)  when actual output is beyond the economy's long-run capacity.
B)  when the economy is at full employment.
C)  when the economy operates at less than capacity.
D)  at virtually any output level.E) B) and C)
F) A) and B)

Question 18

What affects the demand for money?

Accepted Answer

People have three basic motives for hold...

Question 19

Based on the situation depicted in the graph below, which of the following would be an appropriate monetary policy response?

Accepted Answer

A)  decrease reserve requirements
B)  decrease the discount rate
C)  sell government bonds
D)  none of the aboveE) All of the above
F) B) and C)

Question 20

The primary reason that money is demanded is for:

Accepted Answer

A)  transaction purposes.
B)  asset purposes.
C)  precautionary reasons.
D)  investment purposes.E) B) and C)
F) C) and D)

Exam 16: The Federal Reserve System and Monetary Policy

An open market purchase of government securities by the Fed will not tend to result in which of the following, other things being equal?

Correct AnswerverifiedShow Answer

What affects the demand for money?

Correct AnswerverifiedPeople have three basic motives for hold...View AnswerShow Answer

When the money supply decreases, other things being equal,

Correct AnswerverifiedShow Answer

If M increases, and V remains constant:

Correct AnswerverifiedShow Answer

There is a positive correlation between a nation's average annual inflation and the degree of independence of its central bank.

Correct AnswerverifiedShow Answer

Halving the required reserve ratio would, other things being equal,

Correct AnswerverifiedShow Answer

You have the assignment of making a recommendation to the Chairman of the Fed during a period of persistent, high inflation.What could you do to restore stable prices?

Correct AnswerverifiedIn order to restore price stab...View AnswerShow Answer

Which of the following would cause the U.S.money supply to expand?

Correct AnswerverifiedShow Answer

What can the Fed increase to increase the supply of money?

Correct AnswerverifiedShow Answer

In the United States, monetary policy is the responsibility of the Federal Reserve Board of Governors and the Federal Open Market Committee.

Correct AnswerverifiedShow Answer

Which of the following would cause the U.S.money supply to expand?

Correct AnswerverifiedShow Answer

All decisions of the Fed are subject to approval by:

Correct AnswerverifiedShow Answer

If the Fed conducted an open market sale of government bonds and raised the discount rate:

Correct AnswerverifiedShow Answer

Other things being constant, an increase in nominal GDP will generally increase the demand for money.

Correct AnswerverifiedShow Answer

Based on the situation depicted in the graph below, which of the following would be an appropriate monetary policy response?

Correct AnswerverifiedShow Answer

An expansionary monetary policy is likely to increase real output more than just temporarily:

Correct AnswerverifiedShow Answer

When money demand increases, the Fed cannot keep the money supply from rising and the interest rate from rising at the same time.

Correct AnswerverifiedShow Answer

If money supply and money demand both fell, but money supply fell more than money demand:

Correct AnswerverifiedShow Answer

When would the quantity of money demanded by the public tend to increase by the greatest amount?

Correct AnswerverifiedShow Answer

The primary reason that money is demanded is for:

Correct AnswerverifiedShow Answer

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People have three basic motives for hold...
View Answer

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In order to restore price stab...
View Answer

Correct Answer
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