Chapter 34 Sample Test
decrease the prime interest rate
A federal funds rate reduction that is caused by monetary policy will
. aggregate demand curve leftward.
A restrictive monetary policy is designed to shift the:
keep the federal funds rate at 4 percent
According to Taylor's rule, when real GDP is at its potential and inflation is at its target rate of 2 percent, the FED should
raise the real federal funds rate by 3 percentage points
According to the Taylor rule, if inflation has risen by 6 percentage points above its target of 2 percent, the Fed should:
a liability as viewed by the federal reserve banks
Federal Reserve Notes in circulation are
surplus, the sale of securities in the open market, a higher discount rate, and higher reserve requirements
If severe demand-pull inflation was occurring in the economy, proper government policies would involve a government:
Buy bonds in the open market.
If the demand for money increases and the Fed wants interest rates to remain unchanged, which of the following would be appropriate policy?
increase the interest rate and reduce the price level, assuming it is flexible downward.
If the economy is operating in the relatively steep (upper) portion of its aggregate supply curve, a reduction in the money supply will:
interest rate will rise
If the quantity of money demanded exceeds the quantity supplied
rise, causing households and businesses to hold less money
If, in the market for money, the quantity of money demanded exceeds the money supply, the interest rate will
lowered the federal funds target rate.
In an effort to stabilize the banking sector and keep banks lending, from October 2008 to September 2009, the Fed:
federal funds rate
In recent years, the Fed has communicated changes in its monetary policy by announcing changes in its policy targets for the
True
Interest rates and bond prices vary inversely
ig
Monetary policy is expected to have its greatest impact on
Down sloping line or curve from left to right
On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively, the asset demand for money can be represented by
Horizontally adding the transactions and the asset demand for money.
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
commercial bank reserves but not the size of the monetary multiplier
Open-market operations change
increase the interest rate, reduce investment, and reduce aggregate demand
Other things equal, a restrictive monetary policy during a period of demand-pull inflation will
increase both aggregate supply and real output
Other things equal, an increase in productivity will:
discount rate
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:
sponge analogy
The Fed's ability to alter the level of reserves in the banking system is the main idea of the
the opportunity cost of holding money increases as the interest rate rises
The asset demand for money downsloping because
Store of Value
The asset demand for money is most closely related to money functioning as a
stimulate aggregate demand by lowering long-term interest rates.
The objective of Operation Twist was to:
pushing-on-a-string analogy
The possible asymmetry of monetary policy is the central idea of the
affects investment spending while the federal funds rate affects overnight borrowing of bank reserves
The prime interest rate
sell government bonds to commercial banks
To increase the federal funds rate, the Fed can
buy government bonds from the public
To reduce the federal funds rate, the Fed can
Reducing the interest paid on reserves held at the Fed.
Which of the following actions by the Fed most likely increase commercial bank lending?
Interest on reserves held at the Fed
Which of the following monetary policy tools was introduced in 2008?
Open-market operations
Which of the following tools of monetary policy is flexible and able to affect bank reserves quickly
bond prices will fall
other things equal, if the supply of money is reduced
aggregate demand curve rightward.
The purpose of an expansionary monetary policy is to shift the:
pulling the aggregate demand curve leftward than pushing it rightward.
The pushing-on-a-string analogy makes the point that monetary policy may be better at:
decrease aggregate demand
The sale of government bonds by the Federal Reserve Banks to commercial banks will:
Treasury Bills, Treasury Notes, and Treasury bonds
The securities held as assets by the Federal Reserve Banks consist mainly of
a decline in nominal GDP
The total demand for money will shift to the left as a result of
increase the interest paid on reserves held at the Fed
if the Fed wants to discourage commercial bank lending, it will
decrease, increase
Assume the economy is operating at less than full employment. An expansionary monetary policy will cause interest rates to ________, which will ___________ investment spending.
the liquidity trap
In the 1990s and early 2000s, Japan's central bank reduced real interest rates to zero percent, but investment spending did not respond enough to bring the economy out of recession. Japan's experience is an illustration of:
the commercial banks lending ability is increased
When a commercial bank borrows from a Federal Reserve Bank
