Deck 10: Monetary Policy

Question 1

Through the taking of deposits and making loans banks

A)create more money that physically exists.
B)destroy money that would physically exist if they were not part of the process.
C)leave the system with exactly the same amount of money as physically exists.
D)have no role in the money creation process.

Answer 1

A

Question 2

Which monetary aggregate is the least broad

A)cash held by the public.
B)the monetary base.
C)M1.
D)M2.

Answer 2

A

Question 3

M2 is the total amount of _________ in the economy.

A)coin and paper currency
B)coin, paper currency, and savings accounts
C)coin, paper currency, savings accounts, and small CDs
D)coin, paper currency, savings accounts, small CDs, and large CDs

Answer 3

C

Question 4

Banks

A)create money because they are the ones that print it.
B)create money because they take deposits and make loans.
C)have no role in the money creation process and never have.
D)have no role in the money creation process, though they once did.

Question 5

If the Federal Reserve wished to decrease interest rates using open market operations it would

A)buy U.S. government securities.
B)sell U.S. government securities.
C)buy gold.
D)buy corporate stocks.

Question 6

The Federal Funds Rate is the rate at which

A)the Federal Reserve lends money to the US government.
B)the Federal Reserve lends money to member banks.
C)banks lend money to the Federal Reserve.
D)banks lend to one another to meet reserve requirements.

Question 7

M1 includes

A)cash held by banks and by the public plus deposits at the Federal Reserve.
B)currency plus checkable accounts and traveler's checks.
C)currency plus checkable accounts plus traveler's checks plus small CDs and money market accounts.
D)just cash held by the public.

Question 8

A monetary aggregate is

A)coin.
B)paper currency.
C)coin and paper currency.
D)a measure of the quantity of money in the economy.

Question 9

Open Market Operations refer to the buying and selling of

A)corporate equities.
B)gold.
C)government securities.
D)commodities.

Question 10

Prior to 2003, the Federal Reserve charged the ______ when loaning money directly to banks, and thereby, to signal its intentions.

A)discount rate
B)real interest rate
C)exchange rate
D)primary credit rate

Question 11

The Federal Reserve came into existence in response to

A)the inflation of the Civil War.
B)the depression of the 1930's.
C)the boom and bust nature of the late 19th and early 20th century.
D)a fear of a post-World War II depression.

Question 12

Which monetary aggregate is the broadest

A)cash in the system.
B)the monetary base.
C)M1.
D)M2.

Question 13

The point of Open Market Operations is to

A)influence stock prices.
B)increase or decrease the money supply so as to influence interest rates.
C)increase or decrease the value of gold as to influence the value of foreign currency.
D)influence oil prices.

Question 14

The monetary base includes

A)cash held by banks and by the public plus deposits at the Federal Reserve.
B)currency plus checkable accounts and traveler's checks.
C)currency plus checkable accounts plus traveler's checks plus small CDs and money market accounts.
D)just cash held by the public.

Question 15

Which of the following are goals for monetary policy?

A)Controlling world oil prices.
B)Preventing boom and bust cycles in the economy.
C)Monitoring corruption in the securities industry.
D)Controlling rents.

Question 16

M1 is the total amount of ________ in the economy.

A)coin
B)paper currency and coin
C)checking accounts, coin and paper currency
D)paper currency only

Question 17

When the Federal Reserve loans money to banks, the rate it charges banks with excellent credit is the

A)real interest rate.
B)discount rate.
C)primary credit rate.
D)exchange rate.

Question 18

M2 includes

A)cash held by banks and by the public plus deposits at the Federal Reserve.
B)currency plus checkable accounts and traveler's checks.
C)currency plus checkable accounts plus traveler's checks plus small CDs and money market accounts.
D)just cash held by the public.

Question 19

If the Federal Reserve wished to increase interest rates using open market operations it would

A)buy US government securities.
B)sell US government securities.
C)buy gold.
D)buy corporate stocks.

Question 20

The Federal Reserve governs U.S.

A)monetary policy.
B)discretionary fiscal policy.
C)nondiscretionary fiscal policy.
D)Supreme Court nominations.

Question 21

The fact that you can use money to compare the value of one good to another is a result of which characteristic?

A)Its use as a medium of exchange.
B)The fact that it is a store of value.
C)The fact that it is a measure of value.
D)The fact that it is backed by gold.

Question 22

Banks with excellent credit can borrow ______ from the Federal Reserve.

A)$1,000,000 per year
B)$1,000,000 per day
C)only an amount equal to their deposits
D)an unlimited amount

Question 23

The money multiplier can be as ____ as the reciprocal of the reserve ratio but is usually ____.

A)high; lower
B)high; constant
C)low; higher
D)low; constant

Question 24

With a reserve ratio of 10%, the banking system can create ____ with each dollar of deposits.

A)$1
B)$2
C)$5
D)$10

Question 25

If the reserve ratio is .20, the money multiplier can be as high as

A)50.
B)20.
C)10.
D)5)

Question 26

Money is useful because it serves as a

A)store of value.
B)stimulus to the printing industry.
C)good memorial to national leaders.
D)never wears out.

Question 27

The property of money that allows us not to worry about "using it before it spoils" is called the

A)medium of exchange.
B)store of value.
C)creation of value.
D)security of value.

Question 28

If the reserve ratio is .05, the money multiplier can be as high

A)as 50.
B)as 20.
C)as 10.
D)as 5.

Question 29

The fact that you can use money to buy things well after the money is earned is a result of which characteristic?

A)Its use as a medium of exchange.
B)The fact that it is a store of value.
C)The fact that it is a measure of value.
D)The fact that it is backed by gold.

Question 30

If the reserve ratio is .10, the money multiplier can be as high as

A)50.
B)20.
C)10.
D)5)

Question 31

The institution that governs monetary policy is

A)the Congress.
B)the President.
C)the Treasury Department.
D)the Federal Reserve.

Question 32

To signal its intention to restrict credit availability, the Federal Reserve could

A)increases the discount rate.
B)pushes the discount rate below the Federal Funds rate.
C)keeps the discount rate equal to the Federal Funds rate.
D)reduces the discount rate by ¼ of a percentage point.

Question 33

Money is useful because it serves as a

A)medium of exchange.
B)stimulus to the printing industry.
C)good memorial to national leaders.
D)never wears out.

Question 34

If the reserve ratio is .02, the money multiplier can be as high as

A)50.
B)20.
C)10.
D)5)

Question 35

The fact that you can use money to buy things is a result of which characteristic?

A)Its use as a medium of exchange.
B)The fact that it is a store of value.
C)The fact that it is a measure of value.
D)The fact that it is backed by gold.

Question 36

The Federal Funds rate is

A)directly determined by the Federal Reserve.
B)determined by market forces but targeted by the Federal Reserve.
C)determined by market forces alone without Federal Reserve influence.
D)determined by Congress.

Question 37

The primary credit rate refers to the rate at which

A)banks lend to one another to meet reserve requirements.
B)the Federal Reserve charges banks (with excellent credit)for loans.
C)banks lend to their best customers.
D)none of these options are correct.

Question 38

The reserve ratio is

A)the percentage of every dollar deposited in a checking account that a bank must maintain in reserves.
B)the percentage of every dollar deposited in a checking account that a bank may loan out.
C)the ratio of loans to available reserves.
D)the ratio of available reserves to loans made.

Question 39

The primary credit rate is

A)determined directly by the Federal Reserve.
B)determined by market forces but targeted by the Federal Reserve.
C)determined by market forces alone without Federal Reserve influence.
D)determined by Congress.

Question 40

The amount of money that a bank must keep on reserve at the Federal Reserve the

A)reserve amount.
B)reserve ratio.
C)portfolio portion.
D)cash reserve portion.

Question 41

The Federal Reserve's long standing tools include

A)open market operations.
B)changing the level of the targeted interest rate.
C)changing the reserve ratio.
D)all of these options are correct.

Question 42

The ______ decides monetary policy.

A)chairperson of the Federal Reserve Board
B)Federal Open Market Committee
C)President
D)Congress

Question 43

The transmission mechanism in monetary policy is the

A)decision making process.
B)name given to describe the easing of monetary policy.
C)manner in which a buying or selling of bonds ultimately impacts important macroeconomic variables such as real GDP.
D)name given to describe the tightening of monetary policy.

Question 44

The Federal Reserve's long standing tools includes

A)tax rate changes.
B)government spending policies.
C)changing the level of the targeted interest rate.
D)labor regulations.

Question 45

The Federal Reserve has

A)direct control over macroeconomic variables such as unemployment and inflation.
B)indirect influence over macroeconomic variables such as unemployment and inflation through the use of intermediate targets.
C)no control or influence over any significant macroeconomic variables.
D)oversight on issues of the environment

Question 46

The Federal Reserve's long standing tools includes

A)tax rate changes.
B)changing the reserve ratio.
C)government spending policies.
D)labor regulations.

Question 47

When engaging in open market operations to stimulate the economy the Federal Reserve will

A)buy short term U.S. Treasuries.
B)sell short term U.S. Treasuries.
C)buy gold.
D)sell gold.

Question 48

The Federal Reserve's long standing tools includes

A)open market operations.
B)tax rate changes.
C)government spending policies.
D)labor regulations.

Question 49

When the Federal Reserve wishes to, in the long run, decrease inflation it

A)will increase the money supply by buying bonds.
B)will increase the money supply by selling bonds.
C)will decrease the money supply by selling bonds.
D)has no policy options that will accomplish this.

Question 50

If the monetary base is directly controlled by the Federal Reserve the supply of overnight money is

A)upward sloping.
B)downward sloping.
C)flat.
D)vertical.

Question 51

The target for the Federal Reserve is

A)the Federal Funds rate though it has been a monetary aggregate.
B)and always has been a monetary aggregate.
C)and always has been the Federal Funds rate.
D)and always has been inflation.

Question 52

When the Federal Reserve wishes to, in the short run, increase real GDP it

A)will increase the money supply by buying bonds.
B)will increase the money supply by selling bonds.
C)will decrease the money supply by selling bonds.
D)has no policy options that will accomplish this.

Question 53

The Federal Reserve expanded their traditional tools set in the 2007-2009 recession to include

A)tax rate changes.
B)government spending policies.
C)labor regulations.
D)the purchase of long term Treasuries.

Question 54

When the Federal Reserve wishes to, in the long run, increase real GDP it

A)will increase the money supply by buying bonds.
B)will increase the money supply by selling bonds.
C)will decrease the money supply by selling bonds.
D)has no policy options that will accomplish this.

Question 55

The Federal Reserve expanded their traditional tools set in the 2007-2009 recession to include

A)tax rate changes.
B)government spending policies.
C)labor regulations.
D)the purchase of corporate paper.

Question 56

Using the traditional tools of monetary policy the Federal Reserve has direct control over _____ and through that an ability to impact ____.

A)monetary base; short term interest rates
B)long term interest rates; mortgage rates
C)mortgage rates; real GDP
D)unemployment; inflation

Question 57

If the Federal Reserve has indirect influence of the loanable funds (short term)interest rate, the supply of those loanable funds is likely

A)upward sloping.
B)downward sloping.
C)flat.
D)vertical.

Question 58

The Federal Open Market Committee

A)decides what mortgage interest rates will be.
B)decides what the Federal Funds rate target will be.
C)submits recommendations on Federal Funds Rates to Congress.
D)submits recommendations on Federal Funds Rates to the President.

Question 59

The Federal Reserve expanded their traditional tools set in the 2007-2009 recession to include

A)tax rate changes.
B)government spending policies.
C)labor regulations.
D)the purchase of mortgage backed securities.

Question 60

When the Federal Reserve wishes to, in the short run, decrease inflation it

A)will increase the money supply by buying bonds.
B)will increase the money supply by selling bonds.
C)will decrease the money supply by selling bonds.
D)has no policy options that will accomplish this.

Question 61

An increase in the discount rate would be an example of

A)expansionary fiscal policy.
B)expansionary monetary policy.
C)contractionary fiscal policy.
D)contractionary monetary policy.

Question 62

A reduction of the reserve ratio would be an example of

A)expansionary fiscal policy.
B)expansionary monetary policy.
C)contractionary fiscal policy.
D)contractionary monetary policy.

Question 63

An increase in the monetary base (the supply of overnight money)will shift the

A)supply of loanable funds to the right.
B)supply of loanable funds to the left.
C)demand for loanable funds to the right.
D)demand for loanable funds to the left.

Question 64

Contractionary monetary policy would shift the

A)aggregate demand curve to the right.
B)aggregate demand curve to the left.
C)aggregate supply curve up and to the left.
D)aggregate supply curve down and to the right.

Question 65

An decrease in the discount rate would be an example of

A)expansionary fiscal policy.
B)expansionary monetary policy.
C)contractionary fiscal policy.
D)contractionary monetary policy.

Question 66

When the transmission mechanism breaks down macroeconomists call this the

A)liquidity trap.
B)crowding out.
C)crowding in.
D)debt ceiling.

Question 67

A sale of government debt as part of open market operations would be an example of

A)expansionary fiscal policy.
B)expansionary monetary policy.
C)contractionary fiscal policy.
D)contractionary monetary policy.

Question 68

If the Federal Reserve wished to engage in expansionary monetary policy it could

A)raise the primary credit rate.
B)purchase government debt.
C)raise the reserve ratio.
D)sell government debt.

Question 69

Between 2001 and 2003 the Federal Reserve cut interest rates 12 times. This is an example of

A)discretionary fiscal policy.
B)nondiscretionary fiscal policy.
C)expansionary monetary policy.
D)contractionary monetary policy.

Question 70

A purchase of government debt as part of open market operations would be an example of

A)expansionary fiscal policy.
B)expansionary monetary policy.
C)contractionary fiscal policy.
D)contractionary monetary policy.

Question 71

Expansionary monetary policy would shift the

A)aggregate demand curve to the right.
B)aggregate demand curve to the left.
C)aggregate supply curve up and to the left.
D)aggregate supply curve down and to the right.

Question 72

An decrease in the target for the federal funds rate would be an example of

A)expansionary fiscal policy.
B)expansionary monetary policy.
C)contractionary fiscal policy.
D)contractionary monetary policy.

Question 73

An increase in the reserve ratio would be an example of

A)expansionary fiscal policy.
B)expansionary monetary policy.
C)contractionary fiscal policy.
D)contractionary monetary policy.

Question 74

The property of money that allows us to avoid finding a trading partner for all of our goods (bartering)is called the

A)medium of exchange.
B)store of value.
C)creation of value.
D)security of value.

Question 75

If the Federal Reserve wished to engage in expansionary monetary policy it could

A)raise the primary credit rate.
B)sell government debt.
C)lower the reserve ratio.
D)raise the Federal Funds rate target.

Question 76

If the Federal Reserve wished to engage in expansionary monetary policy it could

A)raise the primary credit rate.
B)lower the federal funds rate target.
C)raise the reserve ratio.
D)sell government debt.

Question 77

Between 2004 and 2005 the Federal Reserve raised interest rates 11 times. This is an example of

A)discretionary fiscal policy.
B)nondiscretionary fiscal policy.
C)expansionary monetary policy.
D)contractionary monetary policy.

Question 78

If the Federal Reserve wished to engage in expansionary monetary policy it could

A)lower the primary credit rate.
B)sell government debt.
C)raise the reserve ratio.
D)raise the Federal Funds rate target.

Question 79

Between 1999 and 2000 the Federal Reserve raised interest rates 5 times. This is an example of

A)discretionary fiscal policy.
B)nondiscretionary fiscal policy.
C)expansionary monetary policy.
D)contractionary monetary policy.

Question 80

An increase in the target for the federal funds rate would be an example of

A)expansionary fiscal policy.
B)expansionary monetary policy.
C)contractionary fiscal policy.
D)contractionary monetary policy.