Week 12 Econ
QUESTION 9 Suppose that the Federal reserve is concerned about the effects of rising stock prices on the economy. What could it do? a. buy bond to raise the interest rate b. buy bonds to lower the interest rate c. sell bonds to raise the interest rate d. sell bonds to lower the interest rate
C (Wrong)
The discount rate is the interest rate that a. banks charge one another for loans. b. banks charge the Fed for loans. c. the Fed charges banks for loans. d. the Fed charges Congress for loans.
c or d
QUESTION 1 The members of the Federal Reserve's Board of Governors a. are appointed by the president of the U.S. and confirmed by the U.S. Senate. b. serve six-year terms. c. are also the presidents of the regional Federal Reserve banks. d. share power equally, with no governor having any more influence or power than any other governor.
A
QUESTION 4 At any meeting of the Federal Open Market Committee, that committee's voting members consist of a. 5 Federal Reserve Regional Bank Presidents and all the members of the Board of Governors. b. 5 Federal Reserve Regional Bank Presidents and 5 members of the Board of Governors. c. 12 Federal Reserve Regional Bank Presidents and all the members of the Board of Governors. d. 12 Federal Reserve Regional Bank Presidents and 5 members of the Board of Governors.
A
Changes in the money supply affect a. prices. b. output. c. unemployment rates. d. All of the above.
a
QUESTION 3 The Federal Reserve a. is responsible for conducting the nation's monetary policy, and it plays a role in regulating banks. b. is responsible for conducing the nation's monetary policy, but it plays no role in regulating banks. c. is not responsible for conducting the nation's monetary policy, and it plays a role in regulating banks. d. is not responsible for conducing the nation's monetary policy, and it plays no role in regulating banks.
a
QUESTION 6 If the Federal Open Market Committee decides to increase the money supply, then the Federal Reserve a. creates dollars and uses them to purchase government bonds from the public. b. sells government bonds from its portfolio to the public. c. creates dollars and uses them to purchase various types of stocks and bonds from the public. d. sells various types of stocks and bonds from its portfolio to the public.
a
The money supply increases when the Fed a. lowers the discount rate. The increase will be larger the smaller the reserve ratio is. b. lowers the discount rate. The increase will be larger the larger the reserve ratio is. c. raises the discount rate. The increase will be larger the smaller the reserve ratio is. d. raises the discount rate. The increase will be larger the larger the reserve ratio is.
a
When the Fed conducts open-market purchases, a. it buys Treasury securities, which increases the money supply. b. it buys Treasury securities, which decreases the money supply. c. it borrows money from member banks, which increases the money supply. d. it lends money to member banks, which decreases the money supply.
a
When the Fed decreases the discount rate, banks will a. borrow more from the Fed and lend more to the public. The money supply increases. b. borrow more from the Fed and lend less to the public. The money supply decreases. c. borrow less from the Fed and lend more to the public. The money supply increases. d. borrow less from the Fed and lend less to the public. The money supply decreases.
a
If the Fed conducts open-market sales, which of the following quantities increase(s)? a. interest rates, prices, and investment spending b. interest rates and prices, but not investment spending c. interest rates and investment, but not prices d. interest rates, but not investment or prices
a (wrong)
QUESTION 21 What actions could be taken to stabilize output in response to a large decrease in U.S. net exports? a. increase government expenditures or increase the money supply b. increase government expenditures or decrease the money supply c. decrease government expenditures or increase the money supply d. decrease government expenditures or decrease the money supply
a gyuess
In a fractional-reserve banking system, an increase in reserve requirements a. increases both the money multiplier and the money supply. b. decreases both the money multiplier and the money supply. c. increases the money multiplier, but decreases the money supply. d. decreases the money multiplier, but increases the money supply.
b
QUESTION 11 Monetary policy a. can be implemented quickly and most of its impact on aggregate demand occurs very soon after policy is implemented. b. can be implemented quickly, but most of its impact on aggregate demand occurs months after policy is implemented. c. cannot be implemented quickly, but once implemented most of its impact on aggregate demand occurs very soon afterward. d. cannot be implemented quickly and most of its impact on aggregate demand occurs months after policy is implemented.
b
QUESTION 14 Which tool of monetary policy does the Federal Reserve use most often? a. term auctions b. open-market operations c. changes in reserve requirements d. changes in the discount rate
b
QUESTION 18 Other things the same, if reserve requirements are increased, the reserve ratio a. increases, the money multiplier increases, and the money supply increases. b. increases, the money multiplier decreases, and the money supply decreases. c. decreases, the money multiplier increases, and the money supply increases. d. decreases, the money multiplier decreases, and the money supply increases.
b
QUESTION 25 If people decide to hold more currency relative to deposits, the money supply a. falls. The larger the reserve ratio is, the more the money supply falls. b. falls. The larger the reserve ratio is, the less the money supply falls. c. rises. The larger the reserve ratio is, the more the money supply rises. d. rises. The larger the reserve ratio is, the less the money supply rises.
b
QUESTION 10 While a television news reporter might state that "Today the Fed lowered the federal funds rate from 5.5 percent to 5.25 percent," a more precise account of the Fed's action would be as follows: a. "Today the Fed told its bond traders to conduct open-market operations in such a way that the equilibrium federal funds rate would decrease to 5.25 percent." b. "Today the Fed lowered the discount rate by a quarter of a percentage point, and this action will force the federal funds rate to drop by the same amount." c. "Today the Fed took steps to decrease the money supply by an amount that is sufficient to decrease the federal funds rate to 5.25 percent." d. "Today the Fed took a step toward contracting aggregate demand, and this was done by lowering the federal funds rate to 5.25 percent."
b (wrong)
Liquidity refers to a. the relation between the price and interest rate of an asset. b. the risk of an asset relative to its selling price. c. the ease with which an asset is converted into a medium of exchange. d. the sensitivity of investment spending to changes in the interest rate.
c
QUESTION 24 The Fed increases the reserve requirement, but it wants to offset the effects on the money supply. Which of the following should it do? a. sell bonds to increase reserves b. sell bonds to decrease reserves c. buy bonds to increase reserves d. buy bonds to decrease reserves
c
QUESTION 2 Which of the following is correct? a. The Federal Reserve has 14 regional banks. The Board of Governors has 12 members who serve 7-year terms. b. The Federal Reserve has 14 regional banks. The Board of Governors has 7 members who serve 14-year terms. c. The Federal Reserve has 12 regional banks. The Board of Governors has 12 members who serve 7-year terms. d. The Federal Reserve has 12 regional banks. The Board of Governors has 7 members who serve 14-year terms.
c (WRONG)
QUESTION 23 When there is a reserve requirement, banks a. must hold exactly the required quantity of reserves. b. may hold more than, but not less than, the required quantity of reserves. c. may hold less than, but not more than, the required quantity of reserves. d. must seek the Fed's permission whenever they wish to expand or contract their loans to customers.
c (wrong)
When conducting an open-market sale, the Fed a. buys government bonds, and in so doing increases the money supply. b. buys government bonds, and in so doing decreases the money supply. c. sells government bonds, and in so doing increases the money supply. d. sells government bonds, and in so doing decreases the money supply.
d
Which of the following groups is largely responsible for carrying out the Fed's tasks of regulating banks and ensuring the health of the financial system? a. FOMC b. the Board of Governors c. the New York Fed d. the regional Federal Reserve Banks
d
If the Fed conducts open-market sales, which of the following quantities increase(s)? a. interest rates, prices, and investment spending b. interest rates and prices, but not investment spending c. interest rates and investment, but not prices d. interest rates, but not investment or prices
guess (c is wrong)
