Review Test Submission: PRACTICE Ch. 34 & 35
The extremely large increase in the inflation rate in 2021 was in large part due to
both A and B.
Projecting that it temporarily may not be able to fulfill every request from depositors wanting to withdraw funds in the coming days, the Bank of Beano decides to borrow money from the Federal Reserve Bank in its district. The interest rate on the loan is called the
discount rate.
The interest rate that banks charge one another on overnight loans of currency held on deposit at the Fed is called the
federal funds rate.
The collateral used for overnight reverse repos is (are)
government securities.
Assume that the MPC is 0.80 and that prices are fully flexible. If the Federal Reserve increases the money supply and investment spending increases by $10 billion, then aggregate demand is likely to
increase by $50 billion.
If the Fed wants to discourage bank lending, it will
increase the interest paid on reserve balances held at the Fed.
Other things equal, a restrictive monetary policy during a period of inflation will
increase the interest rate, reduce investment, and reduce aggregate demand.
Which of the following is considered a limitation of monetary policy?
its cyclical asymmetry
Monetary policy is thought to be
more effective in controlling inflation than in moving the economy out of a recession.
The three main tools of monetary policy are
open-market operations, forward guidance, and changing the administered interest rates.
The fundamental objective of monetary policy is to assist the economy in achieving
price-level stability, full employment, and economic growth.
The reason the Fed is set up as an independent agency of government is to
protect it from political pressure.
An important routine function of the Federal Reserve System is to
provide facilities by which commercial banks and thrift institutions may collect on checks.
The Federal Reserve System performs the following functions except
providing banking services to the general public.
Which of the following Fed actions will decrease the money supply?
raising the overnight reverse repo rate
If the effective federal funds rate is 3.89 percent, which of the following is most likely to be the Fed's target range for the federal funds rate?
3.75 to 4.00
The banks increase their lending when the
Fed buys bonds in the open market.
The paper money used in the United States is
Federal Reserve Notes.
The Federal Reserve System's three administered rates are the
IORB rate, ON RRP rate, and discount rate.
A newspaper headline reads, "Fed Raises Discount Rate for Third Time This Year." This headline indicates that the Federal Reserve is most likely trying to
reduce inflation in the economy.
Suppose the economy is at full employment with a high inflation rate. Which combination of government policies is most likely to reduce the inflation rate?
sell government securities in the open market, do reverse repos, and cut government spending
The liquidity trap refers to the situation where
the Fed adds excess reserves to the banking system, but it has minimal positive effect on lending, investment, or aggregate demand.
Which of the following is least likely to be a problem for monetary policy?
the administrative lag
An expansionary monetary policy is a Fed policy in which
the money supply is increased and interest rates are decreased.
The sale of government securities by the Fed will cause
the money supply to decrease.
If the Federal Reserve System buys government securities,
the money supply will increase.
Which of the following best describes the cause-effect chain of a restrictive monetary policy?
A decrease in the money supply will raise the interest rate, decrease investment spending, decrease aggregate demand, and decrease inflation.
Which of the following best describes the cause-effect chain of expansionary monetary policy?
An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and real GDP.
The three key entities in the Federal Reserve System are the
Board of Governors, 12 Federal Reserve Banks, and the FOMC.
If the economy appears to be operating at potential output, with stable prices and a low level of unemployment, the Fed would be inclined to choose
a neutral monetary policy.
The Federal Open Market Committee (FOMC) is made up of
the seven members of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Bank presidents on a rotating basis.
Checkable deposits are classified as money because
they can be readily used in purchasing goods and paying debts.
Recalling the dual mandate bullseye chart, if an economy is in the southeast quadrant, the Fed should definitely
use expansionary monetary policy.
The major problem facing the economy is high unemployment and weak economic growth. The inflation rate is low and stable. Therefore, the Federal Reserve decides to pursue a policy to increase the rate of economic growth. Which policy changes by the Fed would reinforce each other to achieve that objective?
use optimistic forward guidance, lower the federal funds rate, and lower the IORB rate
Recalling the dual mandate bullseye chart, if an economy is in the northwest quadrant, the Fed should definitely
use restrictive monetary policy.
