Question 1

Refer to the graph above. If the supply of money was $200 billion, the interest rate would be:

Accepted Answer

A)   1 percent
B)   2 percent
C)   3 percent
D)   4 percentE) A) and B)
F) A) and C)

Question 2

When the Federal Reserve raises the target Federal funds rate, it:

Accepted Answer

A)   Sells government securities to increase the excess reserves available for overnight loan
B)   Buys government securities to increase the excess reserves available for overnight loan
C)   Sells government securities to decrease the excess reserves available for overnight loan
D)   Buys government securities to decrease the excess reserves available for overnight loanE) A) and D)
F) B) and C)

Question 3

f1 B)  Sf2 C)  Sf3 D)  Sf4" class="answers-bank-image d-inline" rel="preload" > Refer to the figure above. If the Federal funds market is at equilibrium at point B and the Federal Reserve decides to change the rate by a percentage point in order to reduce the chances of the economy going into recession, the supply of funds curve will have to shift to:

Accepted Answer

A)   Sf1
B)   Sf2
C)   Sf3
D)   Sf4E) C) and D)
F) B) and D)

Question 4

The fundamental objective of monetary policy is to assist the economy in achieving:

Accepted Answer

A)   A rapid pace of economic growth
B)   A money supply which is based on the gold standard
C)   A full-employment, noninflationary level of total output
D)   A balanced-budget consistent with full-employmentE) A) and B)
F) None of the above

Question 5

If nominal GDP is $4,000 billion and the amount of money demanded for transactions purposes is $800 billion, it can generally be concluded that:

Accepted Answer

A)   The asset demand for money is $3,200 billion
B)   The total demand for money is $4,800 billion
C)   On average, each dollar will be spent five times a year
D)   The supply of money needs to be increased to meet the demandE) None of the above
F) All of the above

Question 6

If nominal GDP is $800 billion and, on average, each dollar is spent four times in the economy over a year, then the quantity of money demanded for transactions purposes will be:

Accepted Answer

A)   $200 billion
B)   $400 billion
C)   $800 billion
D)   $3,200 billionE) None of the above
F) B) and C)

Question 7

1, AD2, and AD3 labels indicate the level of investment spending associated with each curve. All figures are in billions. The economy is at point Y on the investment demand curve. Given these conditions, what policy should the Fed pursue to achieve a noninflationary full-employment level of real GDP? A)  Increase aggregate demand from AD3 to AD2 B)  Decrease the money supply from $225 to $150 billion C)  Increase interest rates from 4 to 8 percent D)  Make no change in monetary policy" class="answers-bank-image d-inline" rel="preload" > Refer to the graphs above, in which the numbers in parentheses near the AD1, AD2, and AD3 labels indicate the level of investment spending associated with each curve. All figures are in billions. The economy is at point Y on the investment demand curve. Given these conditions, what policy should the Fed pursue to achieve a noninflationary full-employment level of real GDP?

Accepted Answer

A)   Increase aggregate demand from AD3 to AD2
B)   Decrease the money supply from $225 to $150 billion
C)   Increase interest rates from 4 to 8 percent
D)   Make no change in monetary policyE) A) and B)
F) A) and D)

Question 8

1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve. All figures are in billions. A shift in the aggregate demand curve from AD3 to AD2 can be achieved by Federal Reserve action to: A)  Increase the reserve ratio B)  Increase the discount rate C)  Buy government securities in the open market D)  Sell government securities in the open market" class="answers-bank-image d-inline" rel="preload" > Refer to the graphs above, in which the numbers in parentheses near the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve. All figures are in billions. A shift in the aggregate demand curve from AD3 to AD2 can be achieved by Federal Reserve action to:

Accepted Answer

A)   Increase the reserve ratio
B)   Increase the discount rate
C)   Buy government securities in the open market
D)   Sell government securities in the open marketE) All of the above
F) A) and D)

Question 9

Compared to fiscal policy, monetary policy has a much shorter:

Accepted Answer

A)   Recognition lag
B)   Administrative lag
C)   Operational lag
D)   Effects lagE) All of the above
F) None of the above

Question 10

Which of the following is a monetary policy intended to rein in inflation?

Accepted Answer

A)   Increase the money supply to shift the aggregate demand curve rightward
B)   Reduce interest rates to increase investment spending
C)   Reduce the interest paid on banks' reserves
D)   Decrease the money supply to shift the aggregate demand curve leftwardE) B) and C)
F) B) and D)

Question 11

There is an asset demand for money because households and business firms use money as a store of value.

Accepted Answer

A) True 
 B)False

Question 12

A bond with no expiration date is priced at $10,000 when the interest rate in the economy is 6%. If the interest rate falls to 5.5%, then this bond's price would decrease.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following Fed actions increases the excess reserves of commercial banks?

Accepted Answer

A)   Selling bonds to the public
B)   Selling bonds to commercial banks
C)   Increasing the discount rate
D)   Lower the reserve ratioE) A) and D)
F) C) and D)

Question 14

In a supply-and-demand graph for the Federal funds market, the demand curve is downward-sloping because:

Accepted Answer

A)   Higher rates give banks less incentive to lend to other banks
B)   Higher rates give banks more incentive to borrow reserves
C)   Lower rate give banks less incentive to borrow reserves
D)   Lower rates give banks more incentive to borrow reservesE) None of the above
F) All of the above

Exam 16: Interest Rates and Monetary Policy

If nominal GDP is $4,000 billion and the amount of money demanded for transactions purposes is $800 billion, it can generally be concluded that:

Correct Answer
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When the Federal Reserve raises the target Federal funds rate, it:

Correct Answer
verified

Correct Answer
verified

In a supply-and-demand graph for the Federal funds market, the demand curve is downward-sloping because:

Correct Answer
verified

There is an asset demand for money because households and business firms use money as a store of value.

Correct Answer
verified

Compared to fiscal policy, monetary policy has a much shorter:

Correct Answer
verified

Which of the following is a monetary policy intended to rein in inflation?

Correct Answer
verified

A bond with no expiration date is priced at $10,000 when the interest rate in the economy is 6%. If the interest rate falls to 5.5%, then this bond's price would decrease.

Correct Answer
verified

Which of the following Fed actions increases the excess reserves of commercial banks?

Correct Answer
verified

Refer to the graph above. If the supply of money was $200 billion, the interest rate would be:

Correct Answer
verified

Correct Answer
verified

Refer to the figure above. If the Federal funds market is at equilibrium at point B and the Federal Reserve decides to change the rate by a percentage point in order to reduce the chances of the economy going into recession, the supply of funds curve will have to shift to:

Correct Answer
verified

The fundamental objective of monetary policy is to assist the economy in achieving:

Correct Answer
verified

If nominal GDP is $800 billion and, on average, each dollar is spent four times in the economy over a year, then the quantity of money demanded for transactions purposes will be:

Correct Answer
verified

Exam 16: Interest Rates and Monetary Policy

If nominal GDP is $4,000 billion and the amount of money demanded for transactions purposes is $800 billion, it can generally be concluded that:

Correct AnswerverifiedShow Answer

When the Federal Reserve raises the target Federal funds rate, it:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In a supply-and-demand graph for the Federal funds market, the demand curve is downward-sloping because:

Correct AnswerverifiedShow Answer

There is an asset demand for money because households and business firms use money as a store of value.

Correct AnswerverifiedShow Answer

Compared to fiscal policy, monetary policy has a much shorter:

Correct AnswerverifiedShow Answer

Which of the following is a monetary policy intended to rein in inflation?

Correct AnswerverifiedShow Answer

A bond with no expiration date is priced at $10,000 when the interest rate in the economy is 6%. If the interest rate falls to 5.5%, then this bond's price would decrease.

Correct AnswerverifiedShow Answer

Which of the following Fed actions increases the excess reserves of commercial banks?

Correct AnswerverifiedShow Answer

Refer to the graph above. If the supply of money was $200 billion, the interest rate would be:

Correct AnswerverifiedShow Answer

Refer to the graphs above, in which the numbers in parentheses near the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve. All figures are in billions. A shift in the aggregate demand curve from AD3 to AD2 can be achieved by Federal Reserve action to:

Correct AnswerverifiedShow Answer

Refer to the figure above. If the Federal funds market is at equilibrium at point B and the Federal Reserve decides to change the rate by a percentage point in order to reduce the chances of the economy going into recession, the supply of funds curve will have to shift to:

Correct AnswerverifiedShow Answer

The fundamental objective of monetary policy is to assist the economy in achieving:

Correct AnswerverifiedShow Answer

If nominal GDP is $800 billion and, on average, each dollar is spent four times in the economy over a year, then the quantity of money demanded for transactions purposes will be:

Correct AnswerverifiedShow Answer

Correct Answer
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