Econ Chapter 28
10. The quantitative easing policies adopted by the Federal Reserve are usually thought of as: A. short term loans to fill out reserves. B. temporary emergency measures. C. traditional monetary policies. D. a relatively weak tool.
B
15. Atlantic Bank is required to hold 10% of deposits as reserves. If the central bank increases the discount rate, how would Atlantic Bank respond? A. by noting a decrease in net worth B. by increasing its reserves C. its balance sheet will be unchanged D. it can make more loans with increased loan assets
B
42. If GDP is 1800 and the money supply is 300, then what is the velocity? A. 18.3 B. 8 C. 4.57 D. 6
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12. Central Bank policy requires Northern Bank to hold 10% of its deposits as reserves. Northern Bank policy prevents it from holding excess reserves. If the central bank purchases $30 million in bonds from Northern Bank what will be the result? A. Northern's loan assets increase by $30 million B. Northern's bond assets increase by $30 million C. Northern's net worth changes by $30 million D. the money supply in the economy decreases
A
13. The central bank requires Southern to hold 10% of deposits as reserves. Southern Bank's policy prohibits it from holding excess reserves. If the central bank sells $25 million in bonds to Southern Bank which of the following will result? A. the money supply in the economy decreases B. Southern's net worth increases by $25 million C. decrease in Southern's bond assets by $25 million D. increase in Southern's loan assets of $25 million
A
19. When the central bank lowers the reserve requirement on deposits: A. the money supply increases and interest rates decrease. B. the money supply and interest rates decrease. C. the money supply and interest rates increase. D. the money supply decreases and interest rates increase.
A
26. When a Central Bank makes a decision that will cause an increase in both the money supply and aggregate demand, it is: A. following a loose monetary policy. B. following a tight monetary policy. C. following a contractionary monetary policy. D. reversing quantitative easing.
A
31. Regardless of the outcome in the long run, ______________________ always has the effect of stimulating the economy in the short run. A. expansionary monetary policy B. contractionary monetary policy C. reverse quantitative easing policy D. tight monetary policy
A
33. According to the quantity theory, if constant growth in the money supply is combined with fluctuating velocity, which of the following is most likely to result? A. unpredictable rises and falls in nominal GDP B. monetary policy will become inevitably imprecise C. quantity of credit rises above where it otherwise be D. innovations relating to banking and finance
A
39. If the original level of aggregate demand is AD0, then an expansionary monetary policy that shifts aggregate demand to AD1 will only: A. create an inflationary increase in price level. B. create an increase in GDP. C. create an increase in unemployment. D. create a deflationary loss in price level.
A
43. If the economy is at equilibrium as shown in the diagram above, then a contractionary monetary policy will A. increase unemployment, but have little effect on inflation. B. increase unemployment and decrease inflation. C. increase output and increase inflation. D. have no effect on output, but increase inflation.
A
6. What term is used to describe the interest rate charged by the central bank when it makes loans to commercial banks? A. discount rate B. reserve requirement C. Fed rate D. open market rate
A
9. A central bank that desires to reduce the quantity of money in the economy can: A. raise the reserve requirement. B. buy bonds in open market operations. C. lower the discount rate. D. engage in quantitative easing.
A
1. Which of the following institutions determines the quantity of money in the economy as its most important task? A. U.S. Department of the Treasury B. Federal Open Market Committee C. Central Bank D. Federal Reserve Board of Governors
C
2. The ___________________ is the institution designed to control the quantity of money in the economy and also to oversee the: A. FOMC; passing of tax and spending bills. B. Central Bank; safety and stability of the banking system. C. FFIEC; day-to-day democratic control of policy. D. FDIC; responsibility for deposit insurance.
B
20. Which of the following events would cause interest rates to increase? A. lower tax rates B. a higher discount rate C. lower reserve requirements D. an open market operation to buy bonds
B
22. How are the specific interest rates for the lending and borrowing markets determined? A. U.S. Treasury Department Board policy B. by the forces of supply and demand C. through open market operations D. by altering the discount rate
B
25. When a Central Bank takes action to decrease the money supply and increase the interest rate, it is following: A. a loose monetary policy. B. a contractionary monetary policy. C. a expansionary monetary policy. D. a quantitative easing policy.
B
28. When banks hold excess reserves because they don't see good lending opportunities: A. it negatively affects contractionary monetary policy. B. it negatively affects expansionary monetary policy. C. expansionary monetary policy is unaffected. D. contractionary monetary policy is unaffected.
B
34. According to the basic quantity equation of money, if price and output fall while velocity increases, then: A. the quantity of money will rise. B. the quantity of money will fall. C. the quantity of money will rise before it falls. D. the quantity of money will rise slowly.
B
37. In good economic times, a surge in lending exaggerates the episode of economic growth. Which of the following adaptations of monetary policy can moderate these exaggerated effects? A. price stability to reinforce effect of deposit insurance B. monitoring asset prices and leverage C. quantitative easing when banks are under stress D. inflation-targeting lender of last resort policies
B
41. If GDP is 2400 and the money supply is 600, then what is the velocity? A. 18.3 B. 4 C. 4.57 D. 12
B
45. The diagram above refers to a private closed economy. In this instance, the equilibrium GDP is: A. $60 billion. B. $180 billion. C. between $60 and $180 billion. D. $60 billion at all levels of GDP.
B
7. Which of the following is considered to be a relatively weak tool of monetary policy? A. quantitative easing B. altering the discount rate C. reserve requirements D. reducing the money supply
B
14. Central bank policy requires all banks to hold 10% of deposits as reserves. Pacific Bank policy prevents it from holding excess reserves. Suppose banks cannot trade any of the bonds they already have. If the central bank decides to lower the reserve requirement to 9%, which of the following will result? A. the money supply in the economy decreases B. decrease of $1 million in Pacific's net worth C. increase of $1 million in Pacific's loan assets D. increase of Pacific's bond assets by $1million
C
18. When the central bank decides it will sell bonds using open market operations: A. interest rates decrease. B. the money supply increases. C. the money supply decreases. D. the money supply is unaffected.
C
24. If a Central Bank decides it needs to decrease both the aggregate demand and the money supply, then it will: A. follow expansionary monetary policy. B. follow loose monetary policy. C. follow tight monetary policy. D. follow quantitative easing policy.
C
27. ____________________________ will often cause monetary policy to be considered counterproductive because it makes it hard for the central bank to know when the policy will take effect? A. Altering the discount rate B. Reserve requirements C. Long and variable time lags D. Quantitative easing
C
29. If the economy is in recession with high unemployment and output below potential GDP, then __________________ would cause the economy to return to its potential GDP? A. a tight monetary policy B. fewer loanable funds C. a loose monetary policy D. higher interest rates
C
32. What is the name given to the macroeconomic equation MV = PQ? A. basic velocity of money equation B. basic quantity equation of output C. basic quantity equation of money D. basic velocity of price equation
C
35. If nominal GDP is 1800 and the money supply is 450, then what is velocity? A. 25 B. 4.5 C. 4 D. 22
C
38. If you were to survey central bankers from around the world and ask them what they believe the primary task of monetary policy should be, what would the most popular answer likely be? A. leverage cycle B. bank runs C. fighting inflation D. bank supervision
C
4. Which of the following is a traditional tool used by the Fed during recessions? A. quantitative easing B. higher interest rates C. open market operations D. coins and paper currency
C
40. If nominal GDP is 2700 and the money supply is 900, what is velocity? A. 25 B. 13.5 C. 3 D. .33
C
5. Which of the following terms is used to describe the proportion of deposits that banks are legally required to deposit with the central bank? A. discount requirements B. deposit requirements C. reserve requirements D. monetary requirements
C
23. When the Central Bank acts in a way that causes the money supply to increase while aggregate demand remains unchanged, it is: A. following a contractionary monetary policy. B. following quantitative easing policy. C. following a tight monetary policy. D. following an expansionary monetary policy.
D
11. Which of the following is described as an innovative and nontraditional method used by the Federal Reserve to expand the quantity of money and credit during the recent U.S. recession? A. increased discount rate B. increased reserves requirements C. open market operations D. quantitative easing
D
16. The Central Bank has raised its reserve requirements from 10% to 12%. If Southern Bank finds that it is not holding enough in reserves to meet the higher requirements, then it will likely: A. keep track of whether money is flowing in or out of the bank. B. buy bonds to increase the size of its reserve assets. C. reduce the quantity of money and loans on the balance sheet. D. borrow for the short term from the central bank.
D
17. When the central bank decides to increase the discount rate, the: A. money supply increases. B. interest rates decrease. C. interest rates are unaffected. D. interest rates increase.
D
21. When the Federal Reserve announces that it is implementing a new interest rate policy, the ____________________ will be affected? A. real interest rate B. consumer lending rate C. nominal interest rate D. federal funds rate
D
3. Which of the following institutions oversees the safety and stability of the U.S. banking system? A. Office of the Comptroller of the Currency B. Federal Financial Institutions Examination Council C. Federal Open Market Committee D. The Federal Reserve
D
30. The central bank uses a ____________________ monetary policy to offset business related economic contractions and expansions? A. laissez faire B. loose C. contractionary D. countercyclical
D
36. If GDP is 3600 and the money supply is 300, what is the velocity? A. 18 B. 8 C. 4.57 D. 12
D
44. If the economy is at equilibrium as shown in the diagram above, then an expansionary monetary policy will: A. have no effect on both unemployment and inflation. B. reduce unemployment, but increase inflation. C. reduce both unemployment and inflation. D. reduce unemployment, but have little effect on inflation.
D
8. A central bank that wants to increase the quantity of money in the economy will: A. raise the discount rate. B. sell bonds in open market operations. C. reverse quantitative easing. D. buy bonds in open market operations.
D