Ch. 3 Markets and Institutions
1. The monetary base exceeds the money supply.
F
12. An increase in the money supply should ultimately cause security prices to decrease.
F
15. Increasing interest rates increase wealth and encourage spending.
F
16. Easy monetary policy strengthens the dollar.
F
18. Stable employment is one of the objectives of monetary policy.
F
19. There is definitely a tradeoff between stable prices and full employment.
F
23. The Fed exclusively controls the money supply.
F
25. Real investment is encouraged by rising interest rates.
F
27. Transaction deposits, such as DDAs, expand when the Fed sells securities.
F
28. When the Fed increases the Fed Funds Rate, financial institutions "go to the Window".
F
29. Monetary policy only works in the short term.
F
30. Monetary policy only works in the long term.
F
33. The Fed is powerless against "technical factors".
F
34. High stock prices are a goal of monetary policy.
F
36. The primary policy tool used by the Fed to meet its monetary policy goals are to change reserve requirements, to devaluing the US$, and to change bank regulations.
F
37. If the Fed was instead targeting interest rates and money demand dropped the Fed would likely increase the money supply.
F
5. If cash drains increase, the Fed may offset their effects with open market sales.
F
9. A significant move by the Fed toward a "tight" money policy is likely to enhance exports.
F
24. Interest rates and the money supply tend to vary inversely, at least in the short term.
T
26. Monetary policy first affects financial markets and institutions, then the real economy.
T
3. The Federal Reserve decreases the monetary base whenever it sells government securities.
T
31. "Cash drains" are an example of a "technical factor".
T
32. Reserve requirements are not useful for "fine tuning."
T
35. The goals of U.S. monetary policy were set by Congress.
T
38. The expected effect of quantitative easing (QE) in 2010 and 2011 is to lower long-term interest rates to boost the economy.
T
39. The Federal Open Market Committee (FOMC) is the major monetary policy making body of the U.S. Federal Reserve System.
T
4. When reserve requirements are increased, interest rates should increase.
T
6. The Fed substantially controls M1 by controlling total reserves of depository institutions.
T
7. When the Fed sells an asset to the private sector, the monetary base declines.
T
8. When a bank orders currency from the Fed, the monetary base does not change.
T
11. A decrease in the monetary base is related to
a. decrease in credit availability. b. increasing interest rates. c. decreased investment. d. all of the above
17. An contraction in the U.S. money supply should
a. increase domestic interest rates b. cause the exchange value of the dollar to increase. c. cause U.S. exports to decrease. d. all of the above.
15. If the money supply increases too rapidly
a. inflationary expectations will rise.
10. Generally, plant and equipment investment spending will decrease if
a. interest rates rise while inflation remains unchanged. b. inflation decreases while interest rates remain unchanged. c. reserve requirements rise. d. any of the above
6. The money supply
a. is exclusively controlled by the Fed. b. is smaller than the monetary base c. excludes any interest-bearing deposits d. none of the above.
30. Monetarists and Keynesians agree that
a. monetary policy influences the real sector
29. Which of the following was not a responsibility of the early Federal Reserve System
a. replace the National Banking system
2. Deposits tend to expand whenever:
a. reserve requirements decrease.
5. Ordinarily the money supply will decrease if:
a. the Fed makes fewer loans at its discount window. b. the Fed sells securities on the open market. c. the Fed raises reserve requirements. d. all of the above.
27. The "tools" of monetary policy, whether "viable" or not, include all the following except
d. changes in the Federal Funds rate.
12. A decrease in reserve requirements will definitely cause
d. excess reserves to increase.
22. Monetary policy probably affects all of the following except
d. federal government budget outlays.
23. Monetary policies directed toward increased economic growth may have what impact upon the value of the dollar in relation to other currencies?
d. none of the preceding
10. Housing investment is sensitive to changes in interest rates.
T
11. Decreasing interest rates increase financial wealth and encourage consumer spending.
T
13. Restrictive monetary policy in the United States may slow down net exports and GNP.
T
14. Monetarists think changing the money supply impacts economic units directly rather than just through interest rates.
T
17. A prolonged "tight" monetary policy can be associated with falling bond prices.
T
2. The cash-holding behavior of the public affects the monetary base.
T
20. Unexpected high levels of inflation aid debtors at the expense of lenders.
T
21. An increase in Federal Reserve float increases the monetary base.
T
22. Cash drains decrease the monetary base, but not the money supply.
T
25. M2 includes
a. currency in circulation b. demand deposits c. both
26. Which of the following is not a channel of transmission of monetary policy?
a. Reg Q interest rate ceilings
19. Monetary policy impacts the economy
a. by affecting real spending directly. b. by affecting real spending through the financial sector. c. by changing interest rates and the cost of housing. d. all of the above
24. Monetarists believe that an increase in the money supply, all else equal, will cause:
a. consumption expenditures to rise.
34. Which of the following was a responsibility of the early Federal Reserve System?
a. to control the money supply b. to safeguard the national payment system c. to establish a more rigorous bank supervisory system d. all of the above
31. Velocity of money
a. varies inversely with the money supply b. varies directly with GDP c. is not under the Fed's exclusive control d. all of the above
8. An increase in the assets of Federal Reserve banks
b. increases the monetary base.
33. Influence of monetary policy on the financial sector is
b. inevitable
9. Consumption spending should increase if
b. reserve requirements decrease.
16. Unemployment should fall if
b. wages increase and people expect prices to be stable.
21. Changes in spending caused by changing security values are called the
b. wealth effect
35. The Federal Reserve System established
c. a source of liquidity for the banking system.
28. Which of the following would most likely decrease the Federal Funds rate?
c. decrease in reserve requirements.
13. Sustained open market buying by the Fed will cause
c. depository institutions to lend more freely.
3. An increase in excess reserves will cause
c. depository institutions to lend more freely.
20. Restrictive monetary policy first impacts the market, security prices and interest rates.
c. money, decreasing, increasing
7. Which of the following tools of monetary policy has the greatest impact?
c. open market operations
32. Influence of monetary policy on the real sector is
c. significant
1. The monetary base will decrease when:
c. the Fed sells securities on the open market.
4. The velocity of money measures:
c. the relationship between the money supply and economic activity.
18. The intended longer run impact of monetary policy is
c. to influence change consumption and investment spending.
14. An expansion in the U.S. money supply
c. will cause U.S. exports to increase.