Macro Ch. 11

The Federal Reserve System: I. is the central bank for the United States. II. is a United States government owned bank. III. is a branch of the Treasury of the United States. a. I and III only b. I, II, and III c. I only d. I and II only

c. I only

The Board of Governors of the Federal Reserve System is: a. appointed by the state governors in each Federal Reserve district. b. elected by the member banks' presidents. c. appointed by the president of the United States and confirmed by the Senate. d. appointed by the Secretary of the Treasury.

c. appointed by the president of the United States and confirmed by the Senate.

Which of the following are monetary policy goals? I. maintain high interest rates II. keep unemployment rates low III. reduce the size of the banking sector IV. prevent high rates of inflation a. I, II, and III b. I, II, III, and IV c. II, III, and IV d. II and IV

d. II and IV

Which organization is directly responsible for conducting Monetary Policy in the United States? a. The Federal Open Market Committee b. The Federal Reserve Bank of New York c. U.S. Congress d. The United States Treasury

a. The Federal Open Market Committee

When the Federal Reserve conducts open market transactions, it: a. buys or sells previously issued government bonds b. makes credit available to financial institutions in crisis c. buys or sells corporate bonds in the bond market. d. issues government bonds to raise funds for the government.

a. buys or sells previously issued government bonds

If inflation is a threat, then the Fed will be expected to engage in: a. contractionary monetary policy b. policies to increase the money supply c. policies to lower the rate of interest d. expansionary monetary policy

a. contractionary monetary policy

If the Fed sells government bonds, bank reserves will: a. decrease, leading to a decrease in the money supply. b. increase, leading to a decrease in the money supply. c. decrease, leading to an increase in the money supply. d. increase, leading to an increase in the money supply.

a. decrease, leading to a decrease in the money supply.

A liquidity trap is said to exist when a change in monetary policy has no effect on: a. interest rates and investment b. the money supply c. aggregate supply d. the natural level of employment

a. interest rates and investment

If bond prices fall; a. interest rates rise, which in turn, discourage investment. b. interest rates fall, which in turn, stimulate investment. c. interest rates fall, which in turn, discourage investment. d. interest rates rise, which in turn, stimulate investment.

a. interest rates rise, which in turn, discourage investment.

If the Fed acts to decrease the money supply; a. it will increase the required reserve ratio (rrr). b. it will decrease the interest offered on excess reserves c. it will decrease the discount rate d. it will decrease the required reserve ratio

a. it will increase the required reserve ratio (rrr).

The major tools of monetary policy available to the Federal Reserve System are: a. reserve requirements, open-market operations, and the discount rate. b. the discount rate, margin regulations, and moral suasion. c. reserve requirements, margin regulations, and moral suasion. d. open-market operations, margin regulations, and moral suasion.

a. reserve requirements, open-market operations, and the discount rate.

An increase in interest rates (due to a decrease in the money supply) will: a. not change aggregate demand b. increase aggregate demand c. reduce aggregate demand d. decrease aggregate supply in the short run and in the long run

c. reduce aggregate demand

Which of the following is true regarding the reserve requirements?: a. the Fed changes them frequently because doing so simplifies banking operations b. the Fed changes them frequently because they are a power monetary policy tool c. the Fed does not change them much at all because doing so would make banking operations more difficult d. the Fed does not change them much at all because taxation has more impact as a monetary policy tool

c. the Fed does not change them much at all because doing so would make banking operations more difficult

Which of the following statements is true if interest rates were zero?: a. the supply of bonds will increase b. The demand for bonds increases because bonds will be a more attractive alternative to money. c. Bonds and money will become perfect substitutes since both are non-interest earning assets and optimal for making purchases. d. People will hold their wealth in the form of money rather than in bonds.

d. People will hold their wealth in the form of money rather than in bonds.

Which of the following are primary functions of a central bank? I. act as a regulator of banks II. issue government bonds III. set monetary policy IV. regulate dividend payments by corporations a. I, II, III, IV b. I and III c. I and II d. I, II, III

b. I and III

The _____ rate is the interest rates charged when a bank lends reserves to another bank. a. prime b. federal funds c. reserve rate d. discount

b. federal funds

Which of the following is not a function of the Federal Reserve System? a. it acts as a central bank b. it determines tax levels in conjunction with the U.S. Treasury c. It acts as a banker to banks d. it sets monetary policy

b. it determines tax levels in conjunction with the U.S. Treasury

During an economic slump, policies that lower interest rates may not actually boost investment because: a. investment is never affected by interest rate changes b. of pessimistic expectations by businesses about the future of the economy. c. lower interest rates tend to discourage investment, all other things unchanged. d. taxes may have been decreased during a recessionary period.

b. of pessimistic expectations by businesses about the future of the economy.

The seven members of the Board of Governors serve 14-year terms to: a. better understand the economy b. reduce political influence c. provide steady employment d. inhibit independent decisions

b. reduce political influence

When the Fed conducts an open market sale, it: a. reduces the money supply and lowers interest rates b. reduces the money supply and raises interest rates c. increases the money supply and raises interest rates d. increases the money supply and lowers interest rates

b. reduces the money supply and raises interest rates

When the Fed sells bonds in the open market, we can expect: a. bond prices to rise and interest rates to fall b. bond prices and interest rates to rise c. bond prices to fall and interest rates to rise d. bond prices and interest rates to fall

c. bond prices to fall and interest rates to rise

Suppose the economy experiences a recessionary gap. Expansionary monetary policy that increases the money supply will: a. decrease real GDP and increase the price level b. decrease real GDP and decrease the price level c. increase real GDP and increase the price level d. increase the real GDP and decrease the price level

c. increase real GDP and increase the price level

When a member bank borrows reserves from the Fed; a. it pays an interest rate equivalent to the coupon rate on long-term government bonds. b. it pays an interest rate equal to the federal funds in the reserves market. c. it pays an interest rate called the discount rate. d. it pays no interest rate but is required to repay the loan within the stipulated period.

c. it pays an interest rate called the discount rate.

What happens in the money market when there is an increase in the supply of money? a. The equilibrium quantity of money decreases and the equilibrium interest rate decreases. b. The equilibrium quantity of money decreases and the equilibrium interest rate increases. c. The equilibrium quantity of money increases and the equilibrium interest rate increases. d. The equilibrium quantity of money increases and the equilibrium interest rate decreases.

d. The equilibrium quantity of money increases and the equilibrium interest rate decreases.

Suppose the economy experiences a recessionary gap. Expansionary monetary policy will: a. increase interest rates and increase investment b. decrease interest rates and decrease investment c. increase interest rates and decrease investment d. decrease interest rates and increase investment

d. decrease interest rates and increase investment

What are the three types of monetary policy lags? a. the recognition lag, the implementation lag, and the government lag. b. the recognition lag, the inflation lag, and the impact lag c. the recognition lag, the identification lag, and the implementation lag. d. the recognition lag, the implementation lag, and the impact lag.

d. the recognition lag, the implementation lag, and the impact lag.