Chapter 13,14,15 Econ Online
If you deposit a $50 bill in a commercial bank that has a 10 percent legal reserve requirement the bank will: A. have $45 of additional excess reserves. B. be capable of lending an additional $500. C. be capable of lending an additional $50. D. have $50 of required reserves.
A
In the United States, the money supply (M1) is comprised of: A. coins, paper currency, and checkable deposits. B. currency, checkable deposits, and Series E bonds. C. coins, paper currency, checkable deposits, and credit balances with brokers. D. paper currency, coins, gold certificates, and time deposits.
A
On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively, the total demand for money can be found by: (4 points) a. horizontally adding the transactions and the asset demand for money. b. vertically subtracting the transactions demand from the asset demand for money. c. horizontally subtracting the asset demand from the transactions demand for money. d. vertically adding the transactions and the asset demand for money.
A
Research for industrially advanced countries indicates that: (4 points) a. the more independent the central bank, the lower the average annual rate of inflation. b. the more independent the central bank, the higher the average annual rate of inflation. c. there is no relationship between the degree of independence of a country's central bank and its inflation rate. d. the more independent the central bank, the higher the average annual rate of unemployment.
A
Suppose that a bank's actual reserves are $5 million, its checkable deposits are $5 million, and its excess reserves are $3 million. The reserve requirement must be: A. 40 percent. B. 20 percent. C. 10 percent. D. 5 percent.
A
The Fed's initial step in pursuing restrictive monetary policy using the Federal funds rate is to. A. announce a higher target. B. sell bonds to banks and the public. C. raise the discount rate. D. raise the prime interest rate.
A
The Federal Reserve Banks buy government securities from commercial banks. As a result, the checkable deposits: A. of commercial banks are unchanged, but their reserves increase. B. and reserves of commercial banks both decrease. C. of commercial banks are unchanged, but their reserves decrease. D. and reserves of commercial banks are both unchanged.
A
The commercial banking system borrows from the Federal Reserve Banks. As a result, the checkable deposits: A. of commercial banks are unchanged, but their reserves increase. B. and reserves of commercial banks both decrease. C. of commercial banks are unchanged, but their reserves decrease. D. and reserves of commercial banks are both unchanged.
A
The discount rate is the rate of interest at which: A. Federal Reserve Banks lend to commercial banks. B. savings and loan associations lend to some builders. C. Federal Reserve Banks lend to large corporations. D. commercial banks lend to large corporations.
A
The equilibrium rate of interest in the market for money is determined by the intersection of the: A. supply of money curve and the total demand for money curve. B. supply of money curve and the transactions demand for money curve. C. investment demand curve and total demand for money curve. D. supply of money curve and the asset demand for money curve.
A
The most important and widely used monetary took of the Fed is a. Open market operations b. The reserve requirement c. The discount rate d. The margin requirement
A
The problem of cyclical asymmetry refers to the idea that: A. a restrictive monetary policy can force a contraction of the money supply, but an expansionary monetary policy may not achieve an increase in the money supply. B. the monetary authorities have been less willing to use an expansionary monetary policy than they have a restrictive monetary policy. C. cyclical downswings are typically of longer duration than cyclical upswings. D. an expansionary monetary policy can force an expansion of the money supply, but a restrictive monetary policy may not achieve a contraction of the money supply.
A
The three main tools of monetary policy are: A. the discount rate, the reserve ratio, and open-market operations. B. tax rate changes, the discount rate, and open-market operations. C. changes in government expenditures, the reserve ratio, and the discount rate. D. tax rate changes, changes in government expenditures, and open-market operations.
A
To increase the Federal funds rate, the Fed would: A. sell government securities. B. buy government securities. C. reduce the discount rate. D. decrease the reserve requirement.
A
To reduce the Federal funds rate, the Fed can: A) buy government bonds from the public. B) increase the discount rate. C) increase the prime interest rate. D) sell government bonds to commercial banks.
A
Which of the following is a tool of monetary policy? A) open market operations B) changes in banking laws C) changes in tax rates D) changes in government spending
A
Which of the following is an asset on the consolidated balance sheet of the Federal Reserve Banks? A. loans to commercial banks B. Federal Reserve Notes in circulation C. Treasury deposits D. reserves of commercial banks
A
Assume the economy is operating at less than full employment. An expansionary monetary policy will cause interest rates to ________, which will ___________ investment spending. A. decrease; decrease B. decrease; increase C. increase; increase D. increase; decrease
B
Assuming no other changes, if checkable deposits increase by $40 billion and currency in circulation decreases by $40 billion, the: A. M1 money supply will decline. B. M1 money supply will not change. C. M2 money supply will decline. D. MZM money supply will increase.
B
Bank panics: A. occur frequently in fractional reserve banking systems. B. are a risk of fractional reserve banking, but are unlikely when banks are highly regulated and lend prudently. C. cannot occur in a fractional reserve banking system. D. occur more frequently when the monetary system is backed by gold.
B
If you place a part of your summer earnings in a savings account, you are using money primarily as a: A. medium of exchange. B. store of value. C. unit of account. D. standard of value.
B
In a certain year the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $120 billion. To obtain price level stability under these conditions the government should: A) increase government expenditures and decrease tax rates. B) increase tax rates and reduce government expenditures. C) encourage private investment by reducing corporate income taxes. D) discourage personal saving by reducing corporate income taxes.
B
Monetary policy is expected to have its greatest impact on: A. Xg. B. Ig. C. C. D. G.
B
Open-market operations change: A. the size of the monetary multiplier, but not commercial bank reserves. B. commercial bank reserves, but not the size of the monetary multiplier. C. neither commercial bank reserves nor the size of the monetary multiplier. D. both commercial bank reserves and the size of the monetary multiplier
B
Other things equal, a reduction in income taxes would: A. reduce productivity and reduce aggregate supply. B. increase consumption and increase aggregate demand. C. increase the supply of money and reduce investment. D. increase government spending and increase aggregate demand.
B
Other things equal, if the required reserve ratio was lowered: A. banks would have to reduce their lending. B. the size of the monetary multiplier would increase. C. the actual reserves of banks would increase. D. the Federal funds interest rate would rise.
B
Other things equal, if there is an increase in nominal GDP: (4 points) a. the demand for money will decrease. b. the interest rate will rise. c. bond prices will rise. d. consumption spending will fall
B
Paper money (currency) in the United States is issued by the: A. United States Mint. B. Federal Reserve Banks. C. United States Treasury. D. national banks.
B
The ABC Commercial Bank has $5,000 in excess reserves and the reserve ratio is 30 percent. The bank must have: A. $90,000 in outstanding loans and $35,000 in reserves. B. $90,000 in checkable deposit liabilities and $32,000 in reserves. C. $20,000 in checkable deposit liabilities and $10,000 in reserves. D. $90,000 in checkable deposit liabilities and $35,000 in reserves.
B
The Fed sets the discount rate at 1 percentage point above: A. the rate of inflation. B. the Fed target for the Federal funds rate. C. the prime lending rate. D. the rate paid on series EE saving bonds.
B
The Federal Reserve Banks sell government securities to the public. As a result, the checkable deposits: A. of commercial banks are both unchanged. B. and reserves of commercial banks both decrease. C. of commercial banks are unchanged, but their reserves decrease. D. of commercial banks are unchanged, but their reserves increase.
B
The Federal Reserve Banks sell government securities to the public. As a result, the checkable deposits: A. of commercial banks are unchanged, but their reserves increase. B. and reserves of commercial banks both decrease. C. of commercial banks are unchanged, but their reserves decrease. D. of commercial banks are both unchanged.
B
The Federal funds rate is: A. lower than the prime interest rate but higher than the discount rate. B. lower than both the prime interest rate and the discount rate. C. higher than both the prime interest rate and the discount rate. D. higher than the prime interest rate but lower than the discount rate.
B
The amount of money reported as M2: (4 points) a. is smaller than the amount reported as M1. b. is larger than the amount reported as M1. c. excludes coins and currency. d. includes large ($100,000 or more) certificates of deposit.
B
The asset demand for money: A. is unrelated to both the interest rate and the level of GDP. B. varies inversely with the rate of interest. C. varies inversely with the level of real GDP. D. varies directly with the level of nominal GDP.
B
The basic policy-making body in the U.S. banking system is the: A. Federal Open Market Committee (FOMC). B. Board of Governors of the Federal Reserve. C. Federal Monetary Authority. D. Council of Economic Advisers.
B
The discount rate is the interest: A. rate at which the central banks lend to the U.S. Treasury. B. rate at which the Federal Reserve Banks lend to commercial banks. C. yield on long-term government bonds. D. rate at which commercial banks lend to the public.
B
The primary purpose of the legal reserve requirement is to: A) prevent banks from hoarding too much vault cash. B) provide a means by which the monetary authorities can influence the lending ability of commercial banks. C) prevent commercial banks from earning excess profits. D) provide a dependable source of interest income for commercial banks.
B
The securities held as assets by the Federal Reserve Banks consist mainly of: A) corporate bonds. B) Treasury bills and Treasury bonds. C) common stock. D) certificates of deposit.
B
To say money is socially defined means that: A. money has been defined in a Constitutional amendment. B. whatever performs the functions of money extremely well is considered to be money. C. the money supply includes all public and private securities purchased by society. D. society, acting through Congress, specifies what shall be included in the money supply.
B
When economists say that money serves as a medium of exchange, they mean that it is: A. a way to keep wealth in a readily spendable form for future use. B. a means of payment. C. a monetary unit for measuring and comparing the relative values of goods. D. declared as legal tender by the government.
B
Which of the following statements is correct? (4 points) 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.
B
Which of the following statements is correct? 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.
B
Which of the following statements is correct? A. The actual reserves of a commercial bank equal its excess reserves minus its required reserves. B. A bank's liabilities plus its net worth equal its assets. C. When borrowers repay bank loans, the supply of money increases. D. A single commercial bank can safely lend a multiple amount of its excess reserves.
B
Which of the following tools of monetary policy has not been used since 1992? A. the discount rate B. the reserve ratio C. open market operations D. the Federal funds rate
B
Answer the next question(s) on the basis of the following information about a banking system: new currency deposited in the system = $40 billion; legal reserve ratio = 0.20; excess reserves prior to the currency deposit = $0. 30. Refer to the above information. The $40 billion deposit of currency into checking accounts will initially create: A. $8 billion of new checkable deposits. B. $10 billion of new checkable deposits. C. $40 billion of new checkable deposits. D. $160 billion of new checkable deposits.
C
Commercial banks and thrifts usually hold only small amounts of excess reserves because: A. the presence of such reserves tends to boost interest rates and reduce investment. B. the Fed constantly uses open market operations to eliminate excess reserves. C. the Fed does not pay interest on reserves. D. the Fed does not want commercial banks and thrifts to be too liquid.
C
Commercial banks and thrifts usually hold only small amounts of excess reserves because: A. the presence of such reserves tends to boost interest rates and reduce investment. B. the Fed constantly uses open market operations to eliminate excess reserves. C. the Fed does not pay interest on reserves. D. the Fed does not want commercial banks and thrifts to be too liquid.
C
If actual reserves in the banking system are $50,000, excess reserves are $5,000, and checkable deposits are $225,000, then the monetary multiplier is: A. 10. B. 4. C. 5. D. 10.
C
If severe demand-pull inflation was occurring in the economy, proper government policies would involve a government: A) deficit and the purchase of securities in the open market, a higher discount rate, and higher reserve requirements. B) deficit and the sale of securities in the open market, a higher discount rate, and lower reserve requirements. C) surplus and the sale of securities in the open market, a higher discount rate, and higher reserve requirements. D) surplus and the purchase of securities in the open market, a lower discount rate, and lower reserve requirements.
C
If the Fed were to increase the legal reserve ratio, we would expect: A) lower interest rates, an expanded GDP, and depreciation of the dollar. B) lower interest rates, an expanded GDP, and appreciation of the dollar. C) higher interest rates, a contracted GDP, and appreciation of the dollar. D) higher interest rates, a contracted GDP, and depreciation of the dollar.
C
In defining money as M1 economists exclude time deposits because: A) the value of time deposits is zero. B) the purchasing power of time deposits is much less stable than that of demand deposits and currency. C) they cannot directly or immediately be used as a medium of exchange. D) they are not recognized by the Federal government as legal tender.
C
In the United States monetary policy is the responsibility of the: A. U.S. Congress. B. Department of Commerce. C. Board of Governors of the Federal Reserve System. D. U.S. Treasury.
C
In the United States monetary policy is the responsibility of the: A. U.S. Treasury. B. Department of Commerce. C. Board of Governors of the Federal Reserve System. D. U.S. Congress.
C
Other things equal, an increase in productivity will: A. reduce aggregate supply and increase real output. B. reduce both the interest rate and the international value of the dollar. C. increase both aggregate supply and real output. D. increase net exports, increase investment, and reduce aggregate demand.
C
Purchasing common stock by writing a check best exemplifies money serving as a: A. store of value. B. unit of account. C. medium of exchange. D. index of satisfaction.
C
Suppose a savings and loan association has checkable deposits of $500,000 and the legal reserve ratio is 10 percent. If the institution has excess reserves of $4,000, then its actual reserves are: A. $46,000. B. $50,000. C. $54,000. D. $4,000.
C
Suppose the Federal Reserve Banks sell $2 billion of government bonds to the public which pays for them by drawing checks. As a result, commercial bank reserves will: A. increase by $10 billion. B. remain unchanged. C. decrease by $2 billion. D. increase by $2 billion.
C
The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $100,000 in: A. mutual fund companies and pension fund companies. B. thrifts and insurance companies. C. commercial banks and thrifts. D. securities firms and insurance companies.
C
The Federal Reserve System regulates the money supply primarily by: A. controlling the production of coins at the United States mint. B. altering the reserve requirements of commercial banks and thereby the ability of banks to make loans. C. altering the reserves of commercial banks, largely through sales and purchases of government bonds. D. restricting the issuance of Federal Reserve Notes because paper money is the largest portion of the money supply.
C
The Federal funds market is the market in which: A. banks borrow from the Federal Reserve Banks. B. U.S. securities are bought and sold. C. banks borrow reserves from one another on an overnight basis. D. Federal Reserve Banks borrow from one another.
C
The Federal funds rate is the interest rate that _______ charge(s) _______. A. the Fed; commercial banks. B. banks; on federal student loans. C. banks; other banks. D. banks; their best corporate customers.
C
The equilibrium rate of interest in the market for money is determined by the intersection of the: A. supply of money curve and the asset demand for money curve. B. supply of money curve and the transactions demand for money curve. C. supply of money curve and the total demand for money curve. D. investment demand curve and total demand for money curve.
C
The impact of monetary policy on investment spending may be weakened: A) because of the Treasury's desire for high interest rates. B) if velocity 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.
C
The largest component of the money supply (M1) is: A) gold certificates. B) checkable deposits. C) currency in circulation. D) travelers' checks.
C
The main policy-making body of the Federal Reserve System in the a. Federal Advisory Council b. Council of Economic Advisors c. Board of Governors d. Federal Banking Committee
C
The opportunity cost of holding money: A. is zero because money is not an economic resource. B. varies inversely with the interest rate. C. varies directly with the interest rate. D. varies inversely with the level of economic activity.
C
The three formal Advisory Councils to the Board of Governors are the: (4 points) a. Federal Advisory Council, Thrift Institutions Advisory Council, and the Council of Economic Advisers. b. Office of Management of the Budget, Congressional Budget Office, and the Consumer Advisory Council. c. Federal Advisory Council, Thrift Institutions Advisory Council, and the Consumer Advisory Council. d. Federal Advisory Council, Federal Open Market Committee, and the Council of Economic Advisers.
C
When a commercial bank borrows from a Federal Reserve Bank: A. it indicates that the commercial bank is unsound financially. B. the supply of money automatically increases. C. the commercial bank's lending ability is increased. D. the commercial bank's reserves are reduced.
C
Which of the following metaphors best fits the tendency of the administration and congressional representatives to blame the Fed for the economy's difficulties? A. Fed as a warrior B. Fed as a mechanic C. Fed as a fall guy D. Fed as a cosmic force
C
Which of the following statements best describes the twelve Federal Reserve Banks? A. They are privately owned and privately controlled central banks whose basic goal is to provide an ample and orderly market for U.S. Treasury securities. B. They are privately owned and publicly controlled central banks whose basic function is to minimize the risks in commercial banking in order to make it a reasonably profitable industry. C. They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare. D. They are privately owned and publicly controlled central banks whose basic goal is to earn profits for their owners.
C
Which of the following statements is correct? A) interest rates and bond prices vary directly. B) interest rates and bond prices are unrelated. C) interest rates and bond prices vary inversely. D) Interest rates and bond prices vary directly during periods of inflation and inversely during periods of recessions.
C
Which one of the following is true about the U. S. Federal Reserve System? A. There are 10 regional Federal Reserve Banks. B. The head of the U.S. Treasury also chairs the Federal Reserve Board. C. There are seven members of the Federal Reserve Board of Governors. D. The Open Market Committee is smaller in size than the Federal Reserve Board.
C
A $20 bill is a: A. gold certificate. B. Treasury note. C. Treasury bill. D. Federal Reserve Note.
D
According to studies and recent experience: A) globalization of financial markets has undermined the Fed's ability to change interest rates through monetary policy. B) the shrinking market share of banks and thrifts relative to other financial institutions has caused the Fed to lose control over the money supply and therefore its ability to affect interest rates. C) tight money policies work; easy money policies do not. D) the Fed has retained its ability to control the money supply and affect interest rates, even in the face of globalization of financial markets and the declining role of banks and thrifts in financial markets.
D
Assume that Smith deposits $600 in currency into her checking account in the XYZ Bank. Later that same day Jones negotiates a loan for $1,200 at the same bank. In what direction and by what amount has the supply of money changed? A. decreased by $600 B. increased by $1,800 C. increased by $600 D. increased by $1,200
D
Assume the reserve ratio is 25 percent and Federal Reserve Banks buy $4 million of U.S. securities from the public, which deposits this amount into checking accounts. As a result of these transactions, the supply of money is: A) not directly affected, but the money-creating potential of the commercial banking system is increased by $12 million. B) directly increased by $4 million and the money-creating potential of the commercial banking system is increased by $16 million. C) directly reduced by $4 million and the money-creating potential of the commercial banking system is decreased by $12 million. D) directly increased by $4 million and the money-creating potential of the commercial banking system is increased by $12 million.
D
Commercial banks and thrift institutions: (4 points) a. differ because thrifts cannot make loans. b. differ because thrifts cannot offer checkable deposits. c. have become less similar in recent years. d. have become increasingly similar in recent years.
D
Commercial banks and thrift institutions: A. differ because thrifts cannot make loans. B. differ because thrifts cannot offer checkable deposits. C. have become less similar in recent years. D. have become increasingly similar in recent years.
D
If a portion of the loans extended by commercial banks is taken as cash rather than as checkable deposits, the maximum money- creating potential of the commercial banking system will: A. be equal to twice the reciprocal of the reserve ratio. B. be unaffected. C. increase. D. decrease.
D
If m equals the maximum number of new dollars that can be created for a single dollar of excess reserves and R equals the required reserve ratio, then for the banking system: A. m = R - 1. B. R = m/1. C. R = m - 1. D. m = 1/R.
D
It is costly to hold money because: A. bond prices are highly variable. B. the velocity of money may decline. C. deflation may reduce its purchasing power. D. in doing so one sacrifices interest income.
D
Large time deposits of $100,000 or more are: A. a component of M1. B. a component of M2 but not of M1. C. a component of MZM but not of M2. D. not a component of M1, M2, or MZM.
D
MZM (money zero maturity) measures the value of: A. all financial assets in the system. B. all currency in the system, whether held by individuals, businesses, or financial institutions. C. all non-interest bearing forms of money. D. monetary balances that are immediately available, at zero cost, for household and business transactions.
D
Other things equal, if balances in money market mutual funds increase by $40 billion and large time deposits decrease by $40 billion, the: (4 points) a. M1 and M2 money supplies will not change. b. M2 and M3 money supplies will increase. c. M1, M2, and M3 money supplies will decline. d. M2 money supply will increase and M3 money supply will remain unchanged.
D
Projecting that it might temporarily fall short of legally required reserves in the coming days, the Bank of Beano decides to borrow money from its regional Federal Reserve Bank. The interest rate on the loan is called the: A. prime rate. B. Federal funds rate. C. Treasury bill rate. D. discount rate.
D
Relatively recently, Congress passed legislation that: (4 points) a. will eventually replace the $1 bill with a $1 coin. b. allows nonbank firms such as Chrysler and IBM to own large commercial banks or thifts. c. replaces the twelve Federal Reserve Banks with a single Central Bank. d. ends the legal separation of the banking industry and securities firms.
D
The Fed can change the money supply by: A) changing bank reserves through the sale or purchase of government securities. B) changing the quantities of required and excess reserves by altering the legal reserve ratio. C) changing the discount rate so as to encourage or discourage commercial banks in borrowing from the central banks. D) doing all of the above.
D
The Federal Reserve System regulates the money supply primarily by: A. controlling the production of coins at the United States mint. B. restricting the issuance of Federal Reserve Notes because paper money is the largest portion of the money supply. C. altering the reserve requirements of commercial banks and thereby the ability of banks to make loans. D. altering the reserves of commercial banks, largely through sales and purchases of government bonds.
D
The discount rate is the rate of interest at which: A. savings and loan associations lend to some builders. B. commercial banks lend to large corporations. C. Federal Reserve Banks lend to large corporations. D. Federal Reserve Banks lend to commercial banks.
D
The goldsmith's ability to create money was based on the fact that: A. withdrawals of gold tended to exceed deposits of gold in any given time period. B. consumers and merchants preferred to use gold for transactions, rather than paper money. C. the goldsmith was required to keep 100 percent gold reserves. D. paper money in the form of gold receipts was rarely redeemed for gold.
D
The most important policy-making body in the U.S. banking system is: A) the Open Market Committee. B) the Council of Economic Advisors. C) the Federal Advisory Council. D) the Board of Governors of the Federal Reserve.
D
To increase the Federal funds rate, the Fed can: A. buy government bonds from the public. B. decrease the discount rate. C. decrease the prime interest rate. D. sell government bonds to commercial banks.
D
To reduce the Federal funds rate, the Fed can: A. increase the prime interest rate. B. sell government bonds to commercial banks. C. increase the discount rate. D. buy government bonds from the public.
D
Which of the following is not part of the M2 money supply? A. money market mutual fund balances B. money market deposit accounts C. currency D. large ($100,000 or more) time deposits
D
Which of the following will increase commercial bank reserves? A. a decrease in the reserve ratio B. an increase in the discount rate C. the sale of government bonds in the open market by the Federal Reserve Banks D. the purchase of government bonds in the open market by the Federal Reserve Banks
D
The discount rate is the interest: a.Rate at which the central banks lend to the U.S. Treasury b.Rate at which the Federal Reserve Banks lend to commercial banks. c. Yield on long-term government bonds d. Rate at which commercial banks lend to the public
b
The largest component of the money supply (M1) is: (4 points) a. gold certificates. b. checkable deposits. c. paper money in circulation. d. coins.
b
The purpose of a restrictive monetary policy is to: a. Alleviate recessions b. Raise interest rates and restrict the availability of bank credit c. Increase aggregate demand and GDP d. Increase investment spending
b
To correct an "overheating" stock market, the Federal Reserve would: a. Increase the dollar's exchange b. Increase the margin requirement c. Decrease the prime rate d. Decrease the federal funds rate
b
Which of the following best describes the cause-effect chain of a restrictive monetary policy? a. A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP b. A decrease in the money supply will raise the interest rate, decrease investment spending and decrease aggregate demand and GDP. c. An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP d. An increase in the money supply will lower the interest rate, decrease investment spending, and increase aggregate demand and GDP.
b
If the price index rises from 100 to 120, the value of the dollar: (4 points) a. may either rise or fall. b. will rise by one-sixth. c. will fall by one-sixth. d. will rise by 20 percent.
c
In the United States monetary policy is the responsibility of the: A) U.S. Treasury. B) Department of Commerce. C) Board of Governors of the Federal Reserve System. D) U.S. Congress.
c
It is common for commercial banks with surplus balances in their accounts to lend reserves overnight to banks with deficiencies of reserves. The interest rate that pertains to these loans is the a. Discount rate b. Prime rate c. Federal funds rate d. Commercial load rate
c
Money market deposit accounts are included in: (4 points) a. M1 only. b. both M1 and M2. c. both M2 and M3. d. M3 only.
c
Other things equal, an easy money policy will: A) reduce net exports. B) increase interest rates. C) reduce the international value of the dollar. D) reduce GDP.
c
To combat demand-pull inflation, the Federal Reserve would a. Increase the money supply and shift the aggregate demand curve leftward b. Increase the money supply and shift the aggregate demand curve rightward c. Decrease the money supply and shift the aggregate demand curve leftward d. Decrease the money supply and shift the aggregate demand curve rightward
c
To combat recession, the Fed would adopt a (an) a. Contractionary monetary policy that shifts the aggregate demand curve to the right b. Contractionary monetary policy that shifts the aggregate demand curve to the left c. Expansionary monetary policy that shifts the aggregate demand curve to the right d. Expansionary monetary policy that shifts the aggregate demand curve to the left
c
When a commercial bank borrows from a Federal Reserve Bank: A) the supply of money automatically decreases. B) it indicates that the commercial bank is unsound financially. C) the commercial bank's lending ability is increased. D) the commercial bank's reserves are reduced.
c
When the Fed decreases the discount rate, it may be pursuing a. Contractionary fiscal policy b. Contractionary monetary policy c. Expansionary monetary policy d. Anti-inflationary policy
c
A commercial bank can add to its actual reserves by: A) lending money to bank customers. B) buying government securities from the public. C) buying government securities from a Federal Reserve Bank. D) borrowing from a Federal Reserve Bank.
d
A commercial bank can add to its actual reserves by: a. Lending money to bank customers b. Buying government securities from the public c. Buying government securities from a Federal Reserve Bank d. Borrowing from a Federal Reserve Bank.
d
A tight money policy could be offset by: A) a deterioration in the profit expectations of businesses. B) a budget surplus. C) a decline in the velocity of money. D) an increase in the velocity of money.
d
Generally, the prime interest rate: A) moves in the opposite direction as the Federal funds rate. B) remains constant over long periods of time. C) is highly inflexible downward. D) moves in the same direction as the Federal funds rate.
d
In 2000, the supply of money (M1) in the United States was about: (4 points) a. $247 billion. b. $1600 billion. c. $203 billion. d. $1100 billion.
d
Other things equal, which of the following would increase the Federal funds rate? A) a decrease in loan demand in the Federal funds market B) a decrease in the reserve ratio C) Fed purchases of government securities from banks D) a decline in excess reserves in the banking system
d
The Prime rate is the rate of interest at which: A) Federal Reserve Banks lend to commercial banks. B) savings and loan associations lend to some builders. C) Federal Reserve Banks lend to large corporations. D) commercial banks lend to large corporations
d
To combat a recession, the Federal Reserve could a. Increase the required reserve ratio, increase the discount rate, and/or sell securities on the open market b. Increase required reserve ratio, decrease the discount rate, and/or buy securities on the open market c. Decrease the required ratio, decrease the discount rate, and/or sell securities on the open market d. Decrease the required reserve ratio, decrease the discount rate, and/or buy securities on the open market
d
To counteract demand-pull inflation, the Fed would a. Decrease the discount rate, decrease the required reserve ratio, and buy securities in the open market b. Decrease the discount rate, decrease the required reserve ratio, and sell securities in the open market c. Increase the discount rate, increase the required reserve ratio, and buy securities in the open market d. Increase the discount rate, increase the required reserve ratio, and sell securities in the open market
d
Upon which of the following industries is a tight money policy likely to be most effective? A) furniture B) clothing C) food processing D) residential construction
d
Which of the following best describes the cause-effect chain of an easy money policy? A) A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP. B) A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. C) An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. D) An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.
d
Which of the following is correct? When the Federal Reserve buys government securities from the public, the money supply: A) contracts and commercial bank reserves increase. B) expands and commercial bank reserves decrease. C) contracts and commercial bank reserves decrease. D) expands and commercial bank reserves increase.
d
(Consider This) The Fed's ability to alter the level of reserves in the banking system is the main idea of the: A. sponge analogy. B. squeegee analogy. C. pushing-on-a-string analogy. D. hose analogy.
A
A fractional reserve banking system: A. is susceptible to bank panics. B. prevents money creation through the lending process. C. only tends to exist in developing economies. D. prevents the Federal Reserve from influencing the money supply.
A
Assume that a single commercial bank has no excess reserves and that the reserve ratio is 20 percent. If this bank sells a bond for $1,000 to a Federal Reserve Bank, it can expand its loans by a maximum of: A. $1,000. B. $5,000. C. $800. D. $2,000.
A
Assuming no other changes, if checkable deposits decrease by $40 billion and balances in money market mutual funds increase by $40 billion, the: A. M1 money supply will decline and M2 money supply will remain unchanged. B. M1 and M2 money supplies will not change. C. M2 and MZM money supplies will increase. D. M1, M2, and MZM money supplies will decline.
A
Checkable deposits are classified as money because: A. they can be readily used in purchasing goods and paying debts. B. banks hold currency equal to the value of their checkable deposits. C. they are ultimately the obligations of the Treasury. D. they earn interest income for the depositor.
A
How many commercial banks are now operating in the United States? A. about 140,000 B. about 7,600 C. about 11,400 D. about 6,300
B
The opportunity cost of holding money: A) is zero because money is not an economic resource. B) varies inversely with the interest rate. C) varies directly with the interest rate. D) varies inversely with the level of economic activity.
C
During period of rapid inflation, money may cease to work as a medium of exchange: A. unless it has been designated legal tender. B. unless it is backed by gold. C. it is too scarce for everyone to have enough for transactions. D. because people and businesses will not want to accept it in transactions.
D
A bank temporarily short of required reserves may be able to remedy this situation by: A. borrowing funds in the Federal funds market. B. granting new loans. C. shifting some of its vault cash to its reserve account at the Federal Reserve. D. buying bonds from the public.
A
All else equal, when the Federal Reserve Banks engage in a restrictive monetary policy, the prices of government bonds usually: A. fall. B. rise. C. remain constant. D. move in the same direction as the bonds' interest rate yield.
A
An increase in nominal GDP increases the demand for money because: A. more money is needed to finance a larger volume of transactions. B. bond prices will fall. C. the opportunity cost of holding money will decline. D. interest rates will rise.
A
If the Fed were to increase the legal reserve ratio, we would expect: A. higher interest rates, a contracted GDP, and appreciation of the dollar. B. higher interest rates, a contracted GDP, and depreciation of the dollar. C. lower interest rates, an expanded GDP, and depreciation of the dollar. D. lower interest rates, an expanded GDP, and appreciation of the dollar.
A
MZM stands for: A. money zero maturity. B. market zero money. C. mutual zero money. D. money zero market.
A
The basic reason why the commercial banking system can increase its checkable deposits by a multiple of its excess reserves is that: A. reserves lost by any particular bank will be gained by some other bank. B. the central banks follow policies that prevent reserves from falling below the level required by law. C. the MPC of borrowers is greater than zero, but less than 1. D. the banking system must keep reserves equal to 100 percent of its checkable-deposit liabilities.
A
The commercial banking system borrows from the Federal Reserve Banks. As a result, the checkable deposits: A) of commercial banks are unchanged, but their reserves increase. B) and reserves of commercial banks both decrease. C) of commercial banks are unchanged, but their reserves decrease. D) and reserves of commercial banks are both unchanged.
A
To reduce the Federal funds rate, the Fed can: A. buy government bonds from the public. B. increase the discount rate. C. increase the prime interest rate. D. sell government bonds to commercial banks.
A
When a commercial bank has excess reserves: A. it is in a position to make additional loans. B. its actual reserves are less than its required reserves. C. it is charging too high an interest rate on its loans. D. its reserves exceed its assets.
A
(Last Word) Major countries in which citizens hold and use large quantities of U.S. dollars are: A. Germany, England, and France. B. Russia, Argentina, and Poland. C. Canada, Australia, and New Zealand. D. Egypt, Spain, and Italy.
B
A restrictive monetary policy is designed to shift the: A. aggregate demand curve rightward. B. aggregate demand curve leftward. C. aggregate supply curve rightward. D. aggregate supply curve leftward.
B
All else equal, when the Federal Reserve Banks engage in a restrictive monetary policy, the prices of government bonds usually: A. remain constant. B. fall. C. rise. D. move in the same direction as the bonds' interest rate yield.
B
An expansionary monetary policy may be frustrated if the: A. demand-for-money curve shifts to the left. B. investment-demand curve shifts to the left. C. saving schedule shifts downward. D. investment-demand curve shifts to the right.
B
One of the strengths of monetary policy relative to fiscal policy is that monetary policy: A. does not produce a net export effect. B. can be implemented more quickly. C. entails a larger spending income multiplier effect on real GDP. D. is subject to closer political scrutiny.
B
(Consider This) Credits cards are: A) the fastest growing component of the M1 money supply. B) near-monies that are part of the MZM money supply but not part of the M2 or M1 money supplies. C) not money, officially defined. D) also known as time deposits.
C
If excess reserves in the banking system are $4,000, checkable deposits are $40,000, and the legal reserve ratio is 10 percent, then actual reserves are: A. $4,000. B. $6,000. C. $8,000. D. $5,000.
C
If the economy is operating in the relatively steep (upper) portion of its aggregate supply curve, a reduction in the money supply will: A) increase the interest rate and increase employment. B) reduce the interest rate and increase employment. C) increase the interest rate and reduce the price level, assuming it is flexible downward. D) reduce the interest rate and increase the price level.
C
Currency held within banks is part of: A. the MZM definition of the money supply. B. the M2 definition of the money supply. C. the M1 definition of the money supply. D. none of the above definitions of the money supply.
D
Generally, the prime interest rate: A. moves in the opposite direction as the Federal funds rate. B. remains constant over long periods of time. C. is highly inflexible downward. D. moves in the same direction as the Federal funds rate.
D
The price of a bond having no expiration date is originally $8,000 and has a fixed annual interest payment of $800. A fall in the price of the bond by $3,000 will provide a new buyer of the bond an interest rate of: (4 points) a. 10 percent. b. 12 percent. c. 14 percent. d. 16 percent.
D
The problem of cyclical asymmetry refers to the idea that: A. the monetary authorities have been less willing to use an expansionary monetary policy than they have a restrictive monetary policy. B. an expansionary monetary policy can force an expansion of the money supply, but a restrictive monetary policy may not achieve a contraction of the money supply. C. cyclical downswings are typically of longer duration than cyclical upswings. D. a restrictive monetary policy can force a contraction of the money supply, but an expansionary monetary policy may not achieve an increase in the money supply.
D
The traditional role of savings and loan associations has been to: (4 points) a. finance business purchases of capital goods. b. purchase corporate stocks on behalf of their depositors. c. make installment loans to consumers. d. make mortgage loans on houses.
D
Open market operations a. Refer to the purchase or sale of securities by the Fed b. Are only undertaken to slow down the growth of money supply in the economy c. Are always undertaken on explicit orders from Congress d. Refer to foreign exchange operations of the Fed
a
Other things equal, a depreciation of the U.S. dollar would: A) increase the price of imported resources and decrease aggregate supply. B) decrease net exports and aggregate demand. C) increase consumption, investment, net export, and government spending. D) decrease aggregate supply and decrease aggregate demand.
a
An increase in the money supply will: A) lower interest rates and lower the equilibrium GDP. B) lower interest rates and increase the equilibrium GDP. C) increase interest rates and increase the equilibrium GDP. D) increase interest rates and lower the equilibrium GDP.
b
Assume the economy is operating at less than full employment. An easy money policy will cause interest rates to ________. which will ___________ investment spending. A) decrease; decrease B) decrease; increase C) increase; increase D) increase; decrease
b
If the amount of money demanded exceeds the amount supplied, the: A) demand-for-money curve will shift to the left. B) money supply curve will shift to the right. C) interest rate will rise. D) interest rate will fall.
c
An increase in the required reserve ratio a. Leads to an increase in the monetary supply b. Leads to a decrease in the discount rate c. May lead to an expansion in aggregate demand d. May be part of a contractionary monetary policy package
d
Money functions as: (4 points) a. a store of value. b. a unit of account. c. a medium of exchange. d. all of the above.
d
In the United States, the money supply (M1) is comprised of: A) coins, paper currency, and checkable deposits. B) currency, checkable deposits, and Series E bonds. C) coins, paper currency, checkable deposits, and credit balances with brokers. D) paper currency, coins, gold certificates, and time deposits.
A
Monetary policy is expected to have its greatest impact on: A. Ig. B. C. C. G. D. Xg.
A
Open-market operations change: A. commercial bank reserves, but not the size of the monetary multiplier. B. both commercial bank reserves and the size of the monetary multiplier. C. the size of the monetary multiplier, but not commercial bank reserves. D. neither commercial bank reserves nor the size of the monetary multiplier.
A
If the Federal Reserve authorities were attempting to reduce demand-pull inflation, the proper policies would be to: A. sell government securities, raise reserve requirements, and lower the discount rate. B. buy government securities, raise reserve requirements, and raise the discount rate. C. sell government securities, raise reserve requirements, and raise the discount rate. D. sell government securities, lower reserve requirements, and lower the discount rate.
C
If the quantity of money demanded exceeds the quantity supplied: A. the supply-of-money curve will shift to the left. B. the interest rate will fall. C. the interest rate will rise. D. the demand-for-money curve will shift to the right.
C
The Federal funds rate is: A. higher than both the prime interest rate and the discount rate. B. lower than both the prime interest rate and the discount rate. C. higher than the prime interest rate but lower than the discount rate. D. lower than the prime interest rate but higher than the discount rate.
B
The benchmark interest rate that banks use as a reference point for a variety of consumer and business loans is the: A. Federal funds rate. B. prime interest rate. C. Treasury bill rate. D. discount rate.
B
The benchmark interest rate that banks use as a reference point for a variety of consumer and business loans is the: A. Federal funds rate. B. prime interest rate. C. discount rate. D. Treasury bill rate.
B
Commercial banks and thrifts usually hold only small amounts of excess reserves because: A. the Fed does not pay interest on reserves. B. the presence of such reserves tends to boost interest rates and reduce investment. C. the Fed constantly uses open market operations to eliminate excess reserves. D. the Fed does not want commercial banks and thrifts to be too liquid.
A
Which of the following best describes the cause-effect chain of an expansionary monetary policy? A. An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP. B. An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. C. A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. D. A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.
A
Which of the following is an asset on the consolidated balance sheet of the Federal Reserve Banks? A. loans to commercial banks B. Federal Reserve Notes in circulation C. Treasury deposits D. reserves of commercial banks
A
Which of the following will increase commercial bank reserves? 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
A
The purpose of a tight money policy is to: A) alleviate recessions. B) raise interest rates and restrict the availability of bank credit. C) increase aggregate demand and GDP. D) increase investment spending.
B
Which of the following is an asset on the consolidated balance sheet of the Federal Reserve Banks? A. reserves of commercial banks B. loans to commercial banks C. Treasury deposits D. Federal Reserve Notes in circulation
B
Which of the following statements is correct? A. Interest rates and bond prices vary directly during inflations and inversely during recessions. B. Interest rates and bond prices vary inversely. C. Interest rates and bond prices are unrelated. D. Interest rates and bond prices vary directly.
B
If the quantity of money demanded exceeds the quantity supplied: A. the supply-of-money curve will shift to the left. B. the demand-for-money curve will shift to the right. C. the interest rate will rise. D. the interest rate will fall.
C
Monetary policy is thought to be: 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 depression. D) only effective in moving the economy out of a depression.
C
Assume that a single commercial bank has no excess reserves and that the reserve ratio is 20 percent. If this bank sells a bond for $1,000 to a Federal Reserve Bank, it can expand its loans by a maximum of: A. $1,000. B. $2,000. C. $800. D. $5,000.
A
Assume the legal reserve ratio is 25 percent and the Fourth National Bank borrows $10,000 from the Federal Reserve Bank in its district. As a result: A. commercial bank reserves are increased by $10,000. B. commercial bank reserves are increased by $7,500. C. the supply of money is automatically increased by $10,000. D. the supply of money automatically declines by $7,500.
A
Assume the legal reserve ratio is 25 percent and the Fourth National Bank borrows $10,000 from the Federal Reserve Bank in its district. As a result: A. commercial bank reserves are increased by $10,000. B. the supply of money automatically declines by $7,500. C. commercial bank reserves are increased by $7,500. D. the supply of money is automatically increased by $10,000.
A
Assume that the commercial banking system has checkable deposits of $10 billion and excess reserves of $1 billion at a time when the reserve requirement is 20 percent. If the reserve requirement is now raised to 30 percent, the banking system then has: A. excess reserves of $2 billion. B. neither an excess nor a deficiency of reserves. C. a deficiency of reserves of $.5 billion. D. excess reserves of only $.5 billion.
B
Federal Reserve Notes in circulation are: A. an asset as viewed by the Federal Reserve Banks. B. a liability as viewed by the Federal Reserve Banks. C. part of M1, but not of M2 or MZM. D. neither an asset nor a liability as viewed by the Federal Reserve Banks.
B
If the economy were encountering a severe recession, proper monetary and fiscal policies would call for: A) selling government securities, raising the reserve ratio, lowering the discount rate, and a budgetary surplus. B) buying government securities, reducing the reserve ratio, reducing the discount rate, and a budgetary deficit. C) buying government securities, raising the reserve ratio, raising the discount rate, and a budgetary surplus. D) buying government securities, reducing the reserve ratio, raising the discount rate, and a budgetary deficit.
B
Refer to the above market for money diagrams. If the Federal Reserve increased the stock of money, the: A. S curve would shift leftward and the equilibrium interest rate would rise. B. S curve would shift rightward and the equilibrium interest rate would fall. C. D3 would shift leftward and the equilibrium interest rate would fall. D. D3 curve would shift leftward and the equilibrium interest rate would rise.
B
If the Fed were to increase the legal reserve ratio, we would expect: A. lower interest rates, an expanded GDP, and depreciation of the dollar. B. lower interest rates, an expanded GDP, and appreciation of the dollar. C. higher interest rates, a contracted GDP, and appreciation of the dollar. D. higher interest rates, a contracted GDP, and depreciation of the dollar.
C
The three main tools of monetary policy are: A. tax rate changes, the discount rate, and open-market operations. B. tax rate changes, changes in government expenditures, and open-market operations. C. the discount rate, the reserve ratio, and open-market operations. D. changes in government expenditures, the reserve ratio, and the discount rate.
C
When a commercial bank borrows from a Federal Reserve Bank: A) the supply of money automatically increases. B) it indicates that the commercial bank is unsound financially. C) the commercial bank's lending ability is increased. D) the commercial bank's reserves are reduced.
C
When a commercial bank borrows from a Federal Reserve Bank: A. the supply of money automatically increases. B. it indicates that the commercial bank is unsound financially. C. the commercial bank's lending ability is increased. D. the commercial bank's reserves are reduced.
C
Which of the following tools of monetary policy has not been used since 1992? A. the discount rate B. open market operations C. the reserve ratio D. the Federal funds rate
C
Assume that the commercial banking system has checkable deposits of $10 billion and excess reserves of $1 billion at a time when the reserve requirement is 20 percent. If the reserve requirement is now raised to 30 percent, the banking system then has: A. excess reserves of only $.5 billion. B. excess reserves of $2 billion. C. a deficiency of reserves of $.5 billion. D. neither an excess nor a deficiency of reserves.
D
Assume the reserve ratio is 25 percent and Federal Reserve Banks buy $4 million of U.S. securities from the public, which deposits this amount into checking accounts. As a result of these transactions, the supply of money is: A. not directly affected, but the money-creating potential of the commercial banking system is increased by $12 million. B. directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $16 million. C. directly reduced by $4 million and the money-creating potential of the commercial banking system is decreased by an additional $12 million. D. directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $12 million.
D
Which of the following best describes the cause-effect chain of an easy money policy? A) A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP. B) A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. C) An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. D) An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.
D
Which of the following best describes the cause-effect chain of an expansionary monetary policy? A. A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP. B. A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. C. An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. D. An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.
D
Money market deposit accounts are included in: A) M1 only. B) both M1 and M2. C) both M2 and M3. D) M3 only.
C
One of the strengths of monetary policy relative to fiscal policy is that monetary policy: 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.
A
The Federal funds rate is the interest rate that _______ charge(s) _______. A. banks; other banks. B. the Fed; commercial banks. C. banks; their best corporate customers. D. banks; on federal student loans.
A
The value of money varies: A. inversely with the price level. B. directly with the volume of employment. C. directly with the price level. D. directly with the interest rate.
A
An increase in nominal GDP increases the demand for money because: A. interest rates will rise. B. more money is needed to finance a larger volume of transactions. C. bond prices will fall. D. the opportunity cost of holding money will decline.
B
Federal Reserve Notes in circulation are: A. an asset as viewed by the Federal Reserve Banks. B. a liability as viewed by the Federal Reserve Banks. C. neither an asset nor a liability as viewed by the Federal Reserve Banks. D. part of M1, but not of M2 or MZM.
B
It is costly to hold money because: A. deflation may reduce its purchasing power. B. in doing so one sacrifices interest income. C. bond prices are highly variable. D. the velocity of money may decline.
B
The Fed sets the discount rate at 1 percentage point above: A. the prime lending rate. B. the Fed target for the Federal funds rate. C. the rate of inflation. D. the rate paid on series EE saving bonds.
B
The largest component of the money supply (M1) is: A. currency in bank vaults. B. currency in circulation. C. checkable deposits. D. stock certificates.
B
Other things equal, if the supply of money is reduced: A. the demand for money will increase. B. the interest rates will fall. C. bond prices will fall. D. investment spending will increase.
C
An increase in the reserve ratio: A) increases the size of the spending income multiplier. B) decreases the size of the spending income multiplier. C) increases the size of the monetary multiplier. D) decreases the size of the monetary multiplier.
D
Money functions as: A) a store of value. B) a unit of account. C) a medium of exchange. D) all of the above.
D
Money functions as: A. a store of value. B. a unit of account. C. a medium of exchange. D. all of the above.
D
Suppose a commercial banking system has $100,000 of outstanding checkable deposits and actual reserves of $35,000. If the reserve ratio is 20 percent, the banking system can expand the supply of money by the maximum amount of: A. $122,000. B. $175,000. C. $300,000. D. $75,000.
D
The asset demand for money: A. varies inversely with the level of real GDP. B. is unrelated to both the interest rate and the level of GDP. C. varies directly with the level of nominal GDP. D. varies inversely with the rate of interest.
D
When the Fed buys securities on the open market, the securities it purchases are usually a. Bonds issued by private corporations b. Securities issued by foreign governments c. Securities issued by state and local governments d. Securities issued by the U.S. Treasury
d
All else equal, when the Federal Reserve Banks engage in an easy money policy, the interest rates received on newly issued government bonds usually: A) fall. B) rise. C) remain constant. D) move in the same direction as the bonds' price.
a
Assume that a single commercial bank has no excess reserves and that the reserve ratio is 20 percent. If this bank sells a bond for $1,000 to a Federal Reserve Bank, it can expand its loans by a maximum of: A) $1,000. B) $2,000. C) $800. D) $5,000.
a
Assume that the legal reserve ratio is 20 percent. Suppose that the FED sells $500 of government securities to commercial banks and buys $500 of securities from individuals, who deposit the cash in checking accounts. As a result of the above transactions, reserves in the banking system will: A) remain unchanged. B) rise by $100. C) fall by $100. D) rise by $1000.
a
If the Fed decreases the money supply, which of the following will occur in the short run a. The interest rate will increase, the price level will decrease, and real output will decrease b. The interest rate will increase, the price level will increase, and real output will decrease c. The interest rate will decrease, the price level will decrease, and real output will increase d. The interest rate will decrease, the price level will increase, and real output will decrease
a
Monetary policy that attempts to increase employment and output in the short run involves a. Increasing the money supply b. Increasing the discount rate c. Increasing the required reserve ratio d. Selling securities to banks
a
One of the strengths of monetary policy relative to fiscal policy is that monetary policy: 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.
a
Other things equal, an increase in input prices will: A) reduce aggregate supply and reduce real output. B) increase the interest rate and lower the international value of the dollar. C) increase aggregate supply and increase the price level. D) increase net exports, increase investment, and reduce aggregate demand.
a
The discount rate is the rate of interest at which: A) Federal Reserve Banks lend to commercial banks. B) savings and loan associations lend to some builders. C) Federal Reserve Banks lend to large corporations. D) commercial banks lend to large corporations.
a
When a commercial bank uses the Fed's discount window it a. Is availing of the Fed's service as a "lender of last resort" b. IS attempting to improve its profits by securing a lower interest loan c. Is acquiring additional reserves to help improve the profits of another bank d. Decreases its reserve holdings
a
Which of the following actions by the Fed would cause the money supply to increase? a. Purchases of government bonds from banks b. An increase in the reserve requirement c. An increase in the discount rate d. Sales of government bonds to the public
a
The Federal Funds rate is the rate of interest at which: A) Federal Reserve Banks lend to commercial banks. B) commercial banks lend reserves to other commercial banks. C) Federal Reserve Banks lend to large corporations. D) commercial banks lend to large corporations.
b
Assume the economy is operating at less than full employment. An expansionary monetary policy will cause interest rate to ______, which will ______ investment spending. a. decrease; decrease b. decrease; increase c. increase; increase d. increase; decrease
b
Concerning the short-run effects of monetary policy, an increase in the money supply works mainly through decreases in a. Interest rates that result in additional investment and an increase in aggregate supply b. Interest rates that result in additional investment and an increase in aggregate demand c. The purchasing power of money that result in decline consumption and a decrease in aggregate demand d. The purchasing power of money that result in declining consumption and a decrease in aggregate supply
b
If the Federal Reserve System buys government securities from commercial banks and the public: a.Commercial bank servers will decline. b. The money supply to increase c. Demand deposits to decrease d. The interest rate to increase
b
If the economy were encountering a severe recession, proper monetary and fiscal policies would call for: A) selling government securities, raising the reserve ratio, lowering the discount rate, and a budgetary surplus. B) buying government securities, reducing the reserve ratio, reducing the discount rate, and a budgetary deficit. C) buying government securities, raising the reserve ratio, raising the discount rate, and a budgetary surplus. D) buying government securities, reducing the reserve ratio, raising the discount rate, and a budgetary deficit.
b
Open-market operations change: A) the size of the monetary multiplier, but not commercial bank reserves. B) commercial bank reserves, but not the size of the monetary multiplier. C) neither commercial bank reserves nor the size of the monetary multiplier. D) both commercial bank reserves and the size of the monetary multiplier
b
Open-market operations refer to a. Purchases of stocks in the New York Stock Exchange b.The purchase or sale of government securities by the Fed c. Central bank lending to commercial banks d. The specifying of load maximums on stock purchases
b
Since 1980, U.S. monetary policy has been: A) highly erratic, causing rising inflation and unemployment. B) very successful in controlling inflation and promoting full employment. C) partly responsible for the increase in the natural rate of unemployment. D) of secondary importance to fiscal policy in stabilizing the economy.
b
Stock market price quotations best exemplify money serving as a: (4 points) a. store of value. b. unit of account. c. medium of exchange. d. index of satisfaction.
b
If the Fed were to purchase government securities in the open market, we would anticipate: A) lower interest rates, an expanded GDP, and depreciation of the dollar. B) lower interest rates, an expanded GDP, and appreciation of the dollar. C) higher interest rates, a contracted GDP, and depreciation of the dollar. D) lower interest rates, a contracted GDP, and appreciation of the dollar.
A
If the Federal Reserve authorities were attempting to reduce demand-pull inflation, the proper policies would be to: A. sell government securities, raise reserve requirements, and raise the discount rate. B. buy government securities, raise reserve requirements, and raise the discount rate. C. sell government securities, lower reserve requirements, and lower the discount rate. D. sell government securities, raise reserve requirements, and lower the discount rate.
A
If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as: A) a medium of exchange. B) a store of value. C) a unit of account. D) an economic investment.
A
The Federal funds rate is the interest rate that _______ charge(s) _______. A. banks; other banks. B. the Fed; commercial banks. C. banks; their best corporate customers. D. banks; on federal student loans.
A
The discount rate is the rate of interest at which: A) Federal Reserve Banks lend to commercial banks. B) savings and loan associations lend to some builders. C) Federal Reserve Banks lend to large corporations. D) commercial banks lend to large corporations.
A
Answer the next question(s) on the basis of the following information for a bond having no expiration date: bond price = $1000; bond fixed annual interest payment = $100; bond annual interest rate = 10 percent. 13. Refer to the above information. If the price of this bond falls by $200, the interest rate will: A. fall by 2.5 percentage points. B. rise by 2.5 percentage points. C. fall by 5 percentage points. D. rise by 5 percentage points.
B
Assume the reserve ratio is 25 percent and Federal Reserve Banks buy $4 million of U.S. securities from the public, which deposits this amount into checking accounts. As a result of these transactions, the supply of money is: A. directly reduced by $4 million and the money-creating potential of the commercial banking system is decreased by an additional $12 million. B. directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $12 million. C. not directly affected, but the money-creating potential of the commercial banking system is increased by $12 million. D. directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $16 million.
B
