Question 1

In the short run when prices don't have enough time to change, the Federal Reserve

Accepted Answer

A)   can influence the level of interest rates in the economy.
B)   cannot influence the level of interest rates in the economy.
C)   can influence the level of interest rates in the economy but generally will not because it would be destabilizing.
D)   can only affect the amount of money in the economy.E) A) and B)
F) A) and D)

Question 2

A rise in the value of a currency is called a(n)

Accepted Answer

A)   depreciation.
B)   appreciation.
C)   consolation.
D)   integration.E) C) and D)
F) B) and C) B

Question 3

If the quantity of money demanded is less than the quantity of money supplied, then the

Accepted Answer

A)   interest rate stays the same.
B)   interest rate will increase.
C)   interest rate will decrease.
D)   effect on the interest rate is indeterminate.E) B) and C)
F) B) and D)

Question 4

The nominal interest rate is determined in the

Accepted Answer

A)   stock market.
B)   money market.
C)   exchange market.
D)   bond market.E) B) and C)
F) A) and C)

Question 5

Once the Fed decides on the interest rate it wants in the federal funds market, its most common method of achieving this rate is by

Accepted Answer

A)   conducting open market operations.
B)   changing reserve requirements.
C)   changing tax rates.
D)   altering exchange rates.E) C) and D)
F) None of the above

Question 6

The Federal Reserve influences the level of interest rates in the short run by changing the

Accepted Answer

A)   demand for money through open market operations.
B)   demand for money through changes in reserve requirements.
C)   supply of money through open market operations.
D)   supply of money through changes in stock market operations.E) B) and D)
F) A) and D)

Question 7

A U.S. company that wishes to sell more to other countries would favor

Accepted Answer

A)   an appreciation of the dollar.
B)   a depreciation of the dollar.
C)   neither an appreciation nor a depreciation of the dollar.
D)   higher interest rates.E) A) and B)
F) A) and C)

Question 8

The prime rate is the interest rate at which banks can borrow from the Fed.

Accepted Answer

A) True 
 B)False

Question 9

Selling government bonds through open market operations allows the Federal Reserve to

Accepted Answer

A)   decrease money in the Treasury.
B)   decrease the money supply in the private sector.
C)   receive discounts on future sales.
D)   receive a high rate of interest on the bonds.E) B) and C)
F) A) and B) B

Question 10

The most commonly used tool in monetary policy is

Accepted Answer

A)   changes in required reserve ratios.
B)   changes in the discount rate.
C)   open market operations.
D)   express lending transactions.E) All of the above
F) A) and B)

Question 11

Decreased investment spending in the economy would be a possible result of

Accepted Answer

A)   a decrease in interest rates.
B)   an open market purchase of bonds by the Fed.
C)   an open market sale of bonds by the Fed.
D)   an increase in the money supply.E) A) and C)
F) C) and D)

Question 12

A change in the reserve requirement is used infrequently by the Fed because it

Accepted Answer

A)   is disruptive to the banking system.
B)   does not influence the money supply.
C)   does not affect bank reserves.
D)   does not affect the money multiplier.E) A) and B)
F) A) and C)

Question 13

An increase in the discount rate

Accepted Answer

A)   reduces the cost of reserves borrowed from the Fed.
B)   signals the Fed's desire to increase the money supply.
C)   signals the Fed's desire to lend increased reserves to banks.
D)   increases the cost of reserves borrowed from the Fed.E) B) and D)
F) A) and C)

Question 14

An increase in the reserve requirement will lead to increased net exports.

Accepted Answer

A) True 
 B)False  False

Question 15

If a bond was to pay off one year from now for $440 and the interest rate is 10 percent, what is the price of the bond?

Accepted Answer

A)   $44
B)   $400
C)   $440
D)   $484E) C) and D)
F) A) and D)

Question 16

Recall the Application about the possible link between the value of the U.S. dollar and the worldwide increase in commodity prices to answer the following question(s) . Starting in the summer of 2010, there was a rise in prices of commodities such as oil and food worldwide. Some economists suggested that monetary policy in the United States was the cause of the worldwide commodity boom.
-According to this Application, some economists noticed that the U.S. dollar ________ largely because monetary policy in the United States had driven interest rates ________.

Accepted Answer

A)   depreciated; down
B)   depreciated; up
C)   appreciated; down
D)   appreciated; upE) A) and B)
F) C) and D)

Question 17

If a bond was to pay off one year from now for $630 and was purchased for $600, what is the interest rate?

Accepted Answer

A)   3 percent
B)   5 percent
C)   15 percent
D)   30 percentE) A) and B)
F) A) and C)

Question 18

Recall the Application about the Fed's expanded involvement in the economy following the financial crisis in 2008 to answer the following question(s) .
-Recall the Application. Prior to the financial crisis in 2008, the Fed's traditional method of conducting monetary policy to expand the money supply was

Accepted Answer

A)   purchasing Treasury securities.
B)   purchasing mortgage-backed securities.
C)   lowering reserve requirements.
D)   raising the discount rate.E) A) and B)
F) A) and D)

Question 19

A decrease in the discount rate

Accepted Answer

A)   reduces the cost of borrowing from the Fed.
B)   signals the Fed's desire to decrease the money supply.
C)   signals the Fed's desire to reduce lending to commercial banks.
D)   increases the cost of reserves borrowed from the Fed.E) A) and C)
F) B) and C)

Question 20

An open market ________ by the Fed increases interest rates and ________ output.

Accepted Answer

A)   sale; increases
B)   sale; decreases
C)   purchase; increases
D)   purchase; decreasesE) A) and C)
F) A) and D)

Exam 14: The Federal Reserve and Monetary Policy

In the short run when prices don't have enough time to change, the Federal Reserve

Correct Answer
verified

A rise in the value of a currency is called a(n)

Correct Answer
verified
B

If the quantity of money demanded is less than the quantity of money supplied, then the

Correct Answer
verified

The nominal interest rate is determined in the

Correct Answer
verified

Once the Fed decides on the interest rate it wants in the federal funds market, its most common method of achieving this rate is by

Correct Answer
verified

The Federal Reserve influences the level of interest rates in the short run by changing the

Correct Answer
verified

A U.S. company that wishes to sell more to other countries would favor

Correct Answer
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The prime rate is the interest rate at which banks can borrow from the Fed.

Correct Answer
verified

Selling government bonds through open market operations allows the Federal Reserve to

Correct Answer
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B

The most commonly used tool in monetary policy is

Correct Answer
verified

Decreased investment spending in the economy would be a possible result of

Correct Answer
verified

A change in the reserve requirement is used infrequently by the Fed because it

Correct Answer
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An increase in the discount rate

Correct Answer
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An increase in the reserve requirement will lead to increased net exports.

Correct Answer
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False

If a bond was to pay off one year from now for $440 and the interest rate is 10 percent, what is the price of the bond?

Correct Answer
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Correct Answer
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If a bond was to pay off one year from now for $630 and was purchased for $600, what is the interest rate?

Correct Answer
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A decrease in the discount rate

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An open market by the Fed increases interest rates and output.

Correct Answer
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Exam 14: The Federal Reserve and Monetary Policy

In the short run when prices don't have enough time to change, the Federal Reserve

Correct AnswerverifiedShow Answer

A rise in the value of a currency is called a(n)

Correct AnswerverifiedB

If the quantity of money demanded is less than the quantity of money supplied, then the

Correct AnswerverifiedShow Answer

The nominal interest rate is determined in the

Correct AnswerverifiedShow Answer

Once the Fed decides on the interest rate it wants in the federal funds market, its most common method of achieving this rate is by

Correct AnswerverifiedShow Answer

The Federal Reserve influences the level of interest rates in the short run by changing the

Correct AnswerverifiedShow Answer

A U.S. company that wishes to sell more to other countries would favor

Correct AnswerverifiedShow Answer

The prime rate is the interest rate at which banks can borrow from the Fed.

Correct AnswerverifiedShow Answer

Selling government bonds through open market operations allows the Federal Reserve to

Correct AnswerverifiedB

The most commonly used tool in monetary policy is

Correct AnswerverifiedShow Answer

Decreased investment spending in the economy would be a possible result of

Correct AnswerverifiedShow Answer

A change in the reserve requirement is used infrequently by the Fed because it

Correct AnswerverifiedShow Answer

An increase in the discount rate

Correct AnswerverifiedShow Answer

An increase in the reserve requirement will lead to increased net exports.

Correct AnswerverifiedFalse

If a bond was to pay off one year from now for $440 and the interest rate is 10 percent, what is the price of the bond?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If a bond was to pay off one year from now for $630 and was purchased for $600, what is the interest rate?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A decrease in the discount rate

Correct AnswerverifiedShow Answer

An open market ________ by the Fed increases interest rates and ________ output.

Correct AnswerverifiedShow Answer

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B

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B

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False

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An open market by the Fed increases interest rates and output.

Correct Answer
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