Econ 2105 chp. 15

The ___________________ is the institution designed to control the quantity of money in the economy and also to oversee the: -FOMC -central bank -FFIEC -FDIC

-central bank

Which of the following institutions determines the quantity of money in the economy as its most important task? -U.S. department of the Treasury -FOMC -central bank -Federal reserve board of governors

-central bank

Which of the following are goals of monetary policy? A.price stability, economic growth, and high employment B. price stability, economic growth, and maximizing the value of the dollar relative to other currencies C. maximizing the value of the dollar relative to other currencies, economic growth, and high employment D. price stability, maximizing the value of the dollar relative to other currencies, and high employment

A

If GDP is 2400 and the money supply is 600, then what is the velocity? A. 18.3 B. 4 C. 4.57 D. 12

B

The federal funds rate is ________ of the Fed. A. an objective B. the monetary policy instrument C. a monetary policy rule D. a goal E. a technique

B

The voting members of the Federal Open Market Committee are A. all of the members of the Board of Governors and all of the presidents of the 12 Federal Reserve banks. B. all of the members of the Board of Governors and five of the presidents of the 12 Federal Reserve banks. C. the presidents of the 12 Federal Reserve banks and three members of the Board of Governors. D. only the members of the Board of Governors.

B

Which of the following activities is one of the responsibilities of the Federal Reserve? A. loaning money to other countries that are friendly to the United States B. assisting banks that are in a difficult financial position C. auditing the various agencies and departments of the federal government D. issuing new bonds to finance the federal budget deficit

B

Which of the following events would cause interest rates to increase? A. lower tax rates B. a higher discount rate C. lower reserve requirements D. an open market operation to buy bonds

B

Assume there is no leakage from the banking system and that all commercial banks are loaned up. The required reserve ratio is 16%. If the Fed sells $5 million worth of government securities to the public, the change in the money supply will be A. -$11.75 million. B. -$21 million. C.-$31.25 million. D. -$16 million.

C

If a Central Bank decides it needs to decrease both the aggregate demand and the money supply, then it will: A. follow expansionary monetary policy. B. follow loose monetary policy. C. follow tight monetary policy. D. follow quantitative easing policy.

C

If nominal GDP is 1800 and the money supply is 450, then what is velocity? A. 25 B. 4.5 C. 4 D. 22

C

Monetary policy refers to the actions the Federal Reserve takes to manage A. income tax rates and interest rates to pursue its economic objectives. B. the money supply and income tax rates to pursue its economic objectives. C. the money supply and interest rates to pursue its economic objectives. D. government spending and income tax rates to pursue its economic objectives.

C

When the interest rate rises, bond values A. will either increase or decrease depending on the type of bond. B. are unchanged because the interest rate paid on a bond is fixed. C. fall. D. rise.

C

Which of the following represents an action by the Federal Reserve that is designed to increase the money supply? A. an increase in the discount rate B. a decrease in federal spending C. buying government securities in the open market D. an increase in the required reserve ratio

C

Which of the following represents an action by the Federal Reserve that is designed to increase the money supply? A. an increase in the discount rate B. a decrease in federal tax rates C. a decrease in the required reserve ratio D. selling government securities in the open market

C

Assume that all commercial banks are loaned up. Total deposits in the banking system are $200 million. The required reserve ratio is increased. The money supply will A. not change because there was no change in deposits. B. not change because the required reserve ratio has no impact on money supply. C. increase. D. decrease.

D

The interest rate the Fed charges commercial banks for borrowing funds is the A. open market rate. B.prime rate. C. federal funds rate. D. discount rate.

D

When banks hold a large amount of excess reserves, which of the following tools would the Fed most likely use to encourage banks to lend more of these excess reserves? A. lowering the reserve requirement B. lowering the discount rate C. making an open market sale D. lowering the interest rate it pays to banks on their reserves

D

When the Central Bank acts in a way that causes the money supply to increase while aggregate demand remains unchanged, it is: A. following a contractionary B. following QE C. following a tight D. following an expansionary

D

If the Fed buys U.S. government securities, A.the discount rate will rise. B.the discount rate will fall. C.bank reserves will decrease. D.the federal funds rate will rise. E.the federal funds rate will fall.

E

Monetary policy decisions are made by the A. Federal Reserve Economic Committee. B. Congress of the United States. C. Council of Economic Advisors. D. U.S. Mint. E. Federal Open Market Committee.

E

Which of the following are policy instruments available to the Fed as it tries to achieve its macroeconomic goals? i. government expenditure on goods and services and taxes ii. the government budget deficit or surplus iii. changes in the federal funds rate

III.ONLY

Which of the following is described as an innovative and nontraditional method used by the Federal Reserve to expand the quantity of money and credit during the recent U.S. recession? -increased discount rate -increased reserves requirements -open market operations -QE

QE

Which of the following is considered to be a relatively weak tool of monetary policy? -QE -altering the discount rate -reserve requirement -reducing the money supply

altering the discount rate

The Central Bank has raised its reserve requirements from 10% to 12%. If Southern Bank finds that it is not holding enough in reserves to meet the higher requirements, then it will likely: -keep track of whether money is flowing in or out of the bank -buy bonds to increase the size of its reserve assets -reduce the quantity of money and loans on the balance sheet -borrow for the short term from the central bank

borrow for the short term from the central bank

Atlantic Bank is required to hold 10% of deposits as reserves. If the central bank increases the discount rate, how would Atlantic Bank respond? -by noting a decrease in net worth -by increasing its reserves -its balance sheet will be unchanged -it can make more loans with increased loan assets

by increasing its reserves

What term is used to describe the interest rate charged by the central bank when it makes loans to commercial banks? -discount rate -reserve requirement -fed rate -open market rate

discount rate

The central bank requires Southern to hold 10% of deposits as reserves. Southern Bank's policy prohibits it from holding excess reserves. If the central bank sells $25 million in bonds to Southern Bank which of the following will result? -money supply in the economy decreases -Southern's net worth increases by $25 -decrease in Southern's bond assets by $25 million -increase in southern's loan assets of $25

money supply in the economy decreases

A central bank that desires to reduce the quantity of money in the economy can: -raise the reserve requirement -buy bonds in open market operations -lower the discount rate -engage in QE

raise the reserve requirement

When the central bank lowers the reserve requirement on deposits: -the money supply increases and interest rates decrease -the money supply and interest rates decrease -the money supply and interest rates increase -the money supply decreases and interest rates increase

the money supply increases and interest rates decrease