ch 16 quiz

Item9 The Federal Reserve System regulates the money supply primarily by: controlling the production of coins at the U.S. mint. altering the reserve requirements of commercial banks and thereby the ability of banks to make loans. altering the reserves of commercial banks, largely through sales and purchases of government bonds. restricting the issuance of Federal Reserve Notes because paper money is the largest portion of the money supply.

altering the reserves of commercial banks, largely through sales and purchases of government bonds. Correct

Item11 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: Multiple Choice prime rate. federal funds rate. Treasury bill rate. discount rate.

discount rate.

Item6 Answer the question on the basis of the following table: Refer to the given table. An increase in the money supply of $20 billion will cause the equilibrium interest rate to: fall by 4 percentage points. fall by 2 percentage points. rise by 4 percentage points. rise by 2 percentage points.

fall by 2 percentage points. Correct

It is costly to hold money because: deflation may reduce its purchasing power. in doing so, one sacrifices interest income. bond prices are highly variable. the rate at which money is spent may decline. Next Visit question mapQuestion 2 of 20 Total 2 of 20 Prev

in doing so, one sacrifices interest income

If the Fed wants to discourage commercial bank lending, it will: Multiple Choice increase the interest paid on reserves held at the Fed. decrease the interest paid on reserves held at the Fed. buy government securities from commercial banks. lower the federal funds rate target.

increase the interest paid on reserves held at the Fed.

If the Fed were to reduce the legal reserve ratio, we would expect: lower interest rates, an expanded GDP, and a higher rate of inflation. lower interest rates, an expanded GDP, and a lower rate of inflation. higher interest rates, a contracted GDP, and a higher rate of inflation. higher interest rates, a contracted GDP, and a lower rate of inflation.

lower interest rates, an expanded GDP, and a higher rate of inflation.

the transactions demand for money is most closely related to money functioning as a: unit of account. medium of exchange. store of value. measure of value.

medium of exchange. Correct

If severe demand-pull inflation was occurring in the economy, proper government policies would involve a government: deficit, the purchase of securities in the open market, a higher discount rate, and higher reserve requirements. deficit, the sale of securities in the open market, a higher discount rate, and lower reserve requirements. surplus, the sale of securities in the open market, a higher discount rate, and higher reserve requirements. surplus, the purchase of securities in the open market, a lower discount rate, and lower reserve requirements.

surplus, the sale of securities in the open market, a higher discount rate, and higher reserve requirements.

The federal funds rate is the interest rate that _______ charge(s) _______. Multiple Choice banks; other banks the Fed; commercial banks banks; their best corporate customers banks; on federal student loans

banks; other banks Correct

To reduce the federal funds rate, the Fed can: Multiple Choice buy government bonds from the public. increase the discount rate. increase the prime interest rate. sell government bonds to commercial banks.

buy government bonds from the public. Correct

One of the strengths of monetary policy relative to fiscal policy is that monetary policy: Multiple Choice can be implemented more quickly. is subject to closer political scrutiny. does not produce a net export effect. entails a larger spending income multiplier effect on real GDP.

can be implemented more quickly. Correct

Item12 When the Fed lends money to a commercial bank, the bank: Multiple Choice increases its reserves and enhances its ability to extend credit to bank customers. decreases its reserves and reduces its ability to extend credit to bank customers. pays the federal funds interest rate on the loan. pays the prime interest rate on the loan.

increases its reserves and enhances its ability to extend credit to bank customers.

Item3 Refer to the diagram of the market for money. The vertical money supply curve Sm reflects the fact that: bond prices and interest rates are inversely related. the stock of money is determined by the Federal Reserve System and does not change when the interest rate changes. the rate at which money is spent is zero. lower interest rates result in lower opportunity costs of supplying money.

the stock of money is determined by the Federal Reserve System and does not change when the interest rate changes. Correct

Which of the following is not a tool of monetary policy? Open-market operations. Changes in banking laws. Changes in the rate of interest paid on reserves held at Federal Reserve Banks. Changes in the reserve ratio.

Changes in banking laws.

Which of the following tools of monetary policy is considered the most important on a day-to-day basis? Multiple Choice The discount rate. The reserve ratio. Open-market operations. Paying interest on reserves.

Open-market operations.

Which of the following best describes the cause-effect chain of a restrictive monetary policy? Multiple Choice A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP. A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. An increase in the money supply will lower the interest rate, decrease investment spending, and increase aggregate demand and GDP.

A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP.

Assuming government wishes to either increase or decrease the level of aggregate demand, which of the following pairs are not consistent policy measures? Multiple Choice A tax increase and an increase in the money supply. A tax reduction and an increase in the money supply. A reduction in government expenditures and a decline in the money supply. A tax increase and an increase in the interest rate.

A tax increase and an increase in the money supply.

Item5 Answer the question on the basis of the following table: Refer to the given table. The equilibrium interest rate is: Multiple Choice 2 percent. 4 percent. 6 percent. 8 percent.

8 percent.

If the Federal Reserve System buys government securities from commercial banks and the public: commercial bank reserves will decline. commercial bank reserves will be unaffected. it will be easier to obtain loans at commercial banks. the money supply will contract.

it will be easier to obtain loans at commercial banks. Correct

Other things equal, if there is an increase in nominal GDP: Multiple Choice the demand for money will decrease. the interest rate will rise. bond prices will rise. consumption spending will fall.

the interest rate will rise. Correct