ECON201: Macroeconomics (practice 3)

The problem of "cyclical asymmetry" refers to the idea that: A) a tight money policy can force a contraction of the money supply, but an easy money policy may not achieve an expansion of the money supply B) the monetary authorities have been less willing to use an easy money policy than they have a tight money policy C) cyclical downswings are typically of longer duration than cyclical upswings. D) an easy money policy can force an expansion of the money supply, but a tight money policy may not achieve a contraction of the money supply.

A) a tight money policy can force a contraction of the money supply, but an easy money policy may not achieve an expansion of the money supply

Answer the next question on the assumption that the legal reserve ratio is 20 percent. Suppose that the Fed sells $500 of government securities to commercial banks buys $500 of securities from individuals, who deposit the cash in checking accounts. As a result of the above transactions, reserves in the banking system will: A) remain unchanged B) rise by $100 C) fall by $100 D) rise by $1000

A) remain unchanged

A change in the legal reserve ratio affects the: A) amount of actual reserves in the banking system B) amount of excess reserves in the banking system C) number of government securities held by the Federal Reserve Banks D) ratio of coins to paper currency in the economy

B) amount of excess reserves in the banking system

If the economy were encountering a serve recession, proper monetary and fiscal policies would call for: A) selling government securities, raising the reserve ratio, lowering the discount rate, and a budgetary surplus B) buying government securities, reducing the reserve ratio, reducing the discount rate, and a budgetary deficit C) buying government securities, raising the reserve ratio, raising the discount rate, and a budgetary surplus D) buying government securities, reducing the reserve ratio, raising the discount rate, and a budgetary deficit.

B) buying government securities, reducing the reserve ratio, reducing the discount rate, and a budgetary deficit

The discount rate is the interest: A) rate at which the central banks lend to the U.S. Treasury B) rate at which the Federal Reserve Banks lend to commercial banks C) yield on long-term government bonds D) rate at which commercial banks lend to the public

B) rate at which the Federal Reserve Banks lend to commercial banks

The purchase of government securities from the public by the Fed will cause: A) commercial bank reserves to decrease B) the money supply to increase C) demand deposits to decrease D) the interest rate to increase

B) the money supply to increase

Open-market operations refer to: A) purchases of stocks in the New York Stock Exchange B) the purchase or sale of government securities by the Fed. C) central bank lending to commercial banks. D) the specifying of loan maximums on stock purchases

B) the purchase or sale of government securities by the Fed.

In the United States monetary policy is the responsibility of the: A) U.S. Treasury B) Department of commerce C) Board of Governors D)U.S. Congress

C) Board of Governers

Suppose the Federal Reserve Bank sell $2 billion of government bonds to the public which pays for them by drawing checks. As a result, commercial bank reserves will: A) increase by $10 billion B) remain unchanged C) decrease by $2 billion D) increase by $2 billion

C) decrease by $2 billion

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

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

The three main tools of monetary policy are: A) tax rate changes, the discount rate, and open-market operations B) tax rate changes, changes in government expenditures, and open-market operations C) the discount rate, the reserve ratio, and open-market operations D) changes in government expenditures, the reserve ratio, and the discount rate

C) the discount rate, the reserve ratio, and open-market operations

A commercial bank can add to its actual reserve by: A) lending money to bank customers B) buying government securities from the public C) buying government securities from a Federal Reserve Bank D) borrowing from a Federal Reserve Bank

D) borrowing from a Federal Reserve Bank

The Fed can change the money supply by: A) changing bank reserves through the sale or purchase of government securities. B) changing the quantities of required and excess reserves by altering the legal reserve ratio C) changing the discount rate so as to encourage or discourage commercial banks in borrowing from the central banks. D) doing all of the above.

D) doing all of the above

When the required reserve ratio is increased, the excess reserves of member banks are: A) reduced, but the multiple by which the commercial banking system can lend is unaffected. B)reduced, but multiple by which the commercial banking system can lend is increased C) increased and the multiple by which the commercial banking system can lend is increased. D)reduced and the multiple by which the commercial banking system can lend is reduced

D) reduced and the multiple by which the commercial banking system can lend is reduced

If the Fed were to increase the legal reserve ratio, we would expect: A) lower interest rates, an expanded GDP, and depreciation of the dollar B) lower interest rates, an expanded FDP, and appreciation of the dollar C) higher interest rates, a contracted GDP, and appreciation of the dollar D) higher interest rates, a contracted FDP, and depreciation of the dollar

C) higher interest rates, a contracted GDP, and appreciation of the dollar