Deck 30: Monetary Policy: Conventional and Unconventional

Question 1

As the federal funds rate rises, the banks' opportunity cost of holding excess reserves falls.

Answer 1

False

Question 2

The Federal Reserve's principal tool in the manipulation of aggregate demand is the personal income tax.

Answer 2

False

Question 3

The Federal Reserve System can be described as a bank for bankers.

Answer 3

True

Question 4

The central bank in the United States is known as the Federal Reserve System.

Question 5

Money is a concept that has a certain value at a point in time.

Question 6

Recessions are typically associated with increases on interest rates on risky securities coupled with increases on interest rates on Treasury securities.

Question 7

Open market operations affect the supply of reserves.

Question 8

The Federal Reserve Bank was modeled after the European Central Bank.

Question 9

The United States was among the first of the modern industrial nations to establish a central banking system.

Question 10

The opportunity cost of holding excess reserves will be lower at an 8 percent federal funds rate in comparison to a 10 percent federal funds rate.

Question 11

Unconventional monetary policies include massive lending to banks and open-market purchases of assets other than Treasury bills.

Question 12

An increase in the average price level will lead to a decrease in the demand for reserves.

Question 13

The Federal Reserve Open Market Committee includes the seven members of the Board of Governors, presidents of five of the twelve district banks, and the Secretary of the Treasury.

Question 14

The demand for reserves depends on income and the price level.

Question 15

The Federal Open Market Committee oversees the money supply through the purchase and sale of government securities.

Question 16

Money and income are used interchangeably by noneconomists but mean different things.

Question 17

Monetary policy is the system of actions taken by the Fed to influence the money supply.

Question 18

When someone asks how much money you made this year, they are using the term "money" correctly.

Question 19

The Fed's founders viewed the Fed as a means of maintaining the money supply during economic contractions and as a lender of last resort.

Question 20

When you use the word income, you mean a value that must be qualified by a length of time.

Question 21

Personal consumption spending is the most sensitive component of aggregate demand to monetary policy.

Question 22

As interest rates rise, banks seek to decrease their loans and, thereby, shrink the money supply.

Question 23

There is a positive relationship between the quantity of reserves supplied and the federal funds rate.

Question 24

At higher interest rates, banks will want to hold more reserves.

Question 25

The demand for reserves will increase at lower levels of GDP.

Question 26

Individual banks always respond quickly and significantly to changes in the discount rate.

Question 27

To increase the money supply, the Fed purchases government securities from banks, paying for them with new reserves.

Question 28

Contractionary monetary policy shifts the reserve supply schedule inward.

Question 29

Open market operations refer to the purchase and sales of stocks listed on the New York Stock Exchange.

Question 30

To decrease the money supply, the Fed purchases government securities, which decreases government spending.

Question 31

The money supply can be increased by decreasing the required reserve ratio.

Question 32

The Fed frequently uses the discount rate and the required reserve ratio as instruments of monetary policy.

Question 33

The Fed can drive up interest rates by selling government securities and decreasing the money supply.

Question 34

We should expect to see home construction activity decrease when interest rates increase.

Question 35

The rate of interest that the Fed charges banks on loans is called the reserve rate.

Question 36

The Fed has control over bank reserves and complete control over the money supply.

Question 37

The creation of new bank reserves could lead to a multiple increase in the money supply.

Question 38

An increase in the interest rate is associated with an increase in bond prices.

Question 39

The Fed carries out monetary policy chiefly by influencing the demand for reserves schedule.

Question 40

An increase in the money supply should cause the expenditure schedule to shift upward.

Question 41

The current chair of the Federal Reserve System is

A) Tim Geithner.
B) Hillary Clinton.
C) Ben Bernanke.
D) Alan Greenspan.
E) John Boehner.

Question 42

In the Keynesian causal chain, changes in GDP cause changes in the level of interest rates.

Question 43

Higher price levels will eventually lead to lower interest rates as people reduce their demand for money.

Question 44

Who is considered to be the most powerful man in the economic world by many observers?

A) Federal Reserve chairman
B) EU Central Bank President
C) Director-General of the WTO
D) World Bank President

Question 45

The Federal Reserve System functions as America's

A) tax collector.
B) stock and bond market.
C) savings bank.
D) central bank.

Question 46

Money supply is to income as

A) real is to ideal.
B) stock is to flow.
C) real is to nominal.
D) flow is to stock.

Question 47

The Fed's principal objective is to

A) make profits to pay into the U.S.Treasury.
B) collect tax revenues.
C) supervise the business decisions of banks.
D) manage the money supply and interest rates.

Question 48

Which of the following phrases would be used to describe an income amount?

A) per year
B) per month
C) per week
D) All of the above are correct.

Question 49

Income is measured as

A) average cash holdings per time period.
B) change in cash holdings per time period.
C) some amount per time period.
D) some amount at a point in time.

Question 50

Which of the following is an income number?

A) M₁
B) M2
C) GDP
D) cash

Question 51

Which of the following would indicate that the dollar amount being analyzed is money?

A) M₁ money stock of $1.4 trillion at the end of 2010
B) Microsoft profits of $500 billion in 2010
C) The first quarter of 2002
D) Nominal GDP in 2010 of $14.7 trillion

Question 52

Part of the reason that people confuse money and income is because

A) money is tangible, but income is intangible.
B) money serves as the unit of account.
C) money is abstract, but income is concrete.
D) income is almost impossible to measure.

Question 53

The principal difference between income and money is that income is a ____ and money is a ____.

A) schedule, curve
B) point, line
C) stock, flow
D) flow, stock

Question 54

The Federal Reserve System was established by Congress in 1914

A) as a result of a breakthrough in economic theory.
B) against significant opposition from the banking sector.
C) because of the need for a central bank.
D) as the world's first central bank.

Question 55

The inflationary effect of an expansionary monetary policy depends on the slope of the aggregate supply curve.

Question 56

Income is to money as

A) short story is to novel.
B) video is to digital photo.
C) song is to symphony.
D) entree is to dessert.

Question 57

People are often heard saying, "She makes good money." An economic interpretation of this statement would be that

A) she has an honest job.
B) she makes money that is not counterfeit.
C) she has a high income.
D) there is little inflation.

Question 58

The central bank of the United States is known as the

A) Internal Revenue Service.
B) Federal Reserve System.
C) Federal Deposit Insurance Corporation.
D) Department of Commerce.

Question 59

Are money and income the same thing?

A) No, money is measured at a point in time and income is measured for a period of time.
B) No, money is measured for a period of time and income is measured at a point in time.
C) Yes, they are just measured in different ways.
D) Yes, the only difference is real versus nominal.

Question 60

Which of the following phrases indicates that income is being spoken of?

A) Tuesday, at 12:30 p.m.
B) July 14, 1948
C) from January 1 to March 30
D) yesterday afternoon

Question 61

The actual control of the Federal Reserve System resides in the

A) Congress of the United States.
B) member banks.
C) Senate Banking Committee.
D) Board of Governors.

Question 62

Which of the following observations is true?

A) State governments are the shareholders of the Fed.
B) The Fed chairman is appointed for a ten year term.
C) FOMC decisions largely determine short-term interest rates.
D) Member banks proportionately share all of Federal Reserve's profits.

Question 63

Members of the Board of Governors of the Federal Reserve System are

A) elected by member banks to serve four-year terms.
B) appointed by Congress for 14-year terms.
C) appointed by the president for 14-year terms.
D) appointed by the Supreme Court for lifetime terms.

Question 64

In making policies about the nation's money supply, the Federal Reserve Board

A) operates as an independent entity.
B) must consult each member bank.
C) must consult with Congress.
D) must coordinate all activity with the White House.

Question 65

The main reason the United States established a central bank was

A) a desire for a strong centralized financial authority.
B) to follow the conclusions of economic theory.
C) severe inflation after the Civil War.
D) disastrous experiences with financial panics.

Question 66

When the Federal Reserve System was first established, its founders intended the Fed to

A) assist the Treasury in collecting taxes.
B) be primarily responsible for government regulations.
C) pursue an active monetary policy to stabilize the economy.
D) provide protection against financial panics by acting as the lender of last resort.

Question 67

The president has influence on Federal Reserve policy because

A) he can veto any Fed policy.
B) he appoints the board members and the chair.
C) he can fire the chair.
D) he can replace board members at any time.

Question 68

The Federal Open Market Committee consists of

A) the president and the Board of Governors.
B) Congresspeople, Senators, and the Board of Governors.
C) the Secretary of the Treasury and the Board of Governors.
D) the Board of Governors and five district bank presidents.

Question 69

The monetary policies carried out by the Fed

A) must be ratified by Congress.
B) must be consistent with fiscal policies passed by Congress.
C) are sometimes inconsistent with fiscal policy.
D) must be approved by the president.

Question 70

Each Federal Reserve district bank is a corporation owned by

A) the member banks in the district.
B) the people of the United States.
C) the U.S.Department of the Treasury.
D) federal securities owners.

Question 71

The principal objective of the Federal Reserve System is to

A) circulate coins and paper Federal Reserve Notes.
B) subsidize the income of member banks.
C) help stabilize the economy through monetary policy.
D) make profits to remit to the Treasury Department.

Question 72

In reality, commercial banks function most like ____ of the district Federal Reserve Banks.

A) stockholders
B) regulators
C) customers
D) competitors

Question 73

Members of the Board of Governors of the Fed are

A) elected to two-year terms by the Electoral College.
B) appointed by the president for four-year terms and confirmed by the Congress.
C) appointed by the president for 14-year terms and confirmed by the Senate.
D) appointed by the president for 14-year terms and confirmed by the Supreme Court.

Question 74

The Federal Open Market Committee meets

A) once a month.
B) eight times a year.
C) four times a year.
D) semi-annually.

Question 75

The Federal Reserve System is

A) controlled by the Department of the Treasury.
B) the central bank for the United States.
C) completely similar to the Bank of England.
D) All of the above are correct.

Question 76

The immediate impetus for the establishment of the Federal Reserve System came from

A) severe outbreaks of inflation in the early 1900s.
B) four severe banking panics between 1873 and 1907.
C) the discovery of gold in Alaska.
D) the desire to copy the founding of the Bank of England.

Question 77

Technically, the Federal Reserve district banks are corporations whose stockholders are the

A) state governments in each district.
B) citizens of the United States.
C) Departments of Treasury and Commerce.
D) member banks.

Question 78

The Fed is unlike other central banks in that it

A) has 12 branches.
B) is completely centralized.
C) has no real powers.
D) also has control over fiscal policy.

Question 79

The Federal Reserve System is controlled by the

A) U.S.Department of the Treasury.
B) House of Representatives and the Senate.
C) Board of Governors.
D) President of the United States.

Question 80

The Federal Reserve System was established

A) at the request of farmers to keep down interest rates.
B) because Americans believe in centralization of authority.
C) after four severe bank panics between 1873 and 1907.
D) as part of the Treasury Department.