Deck 14: Monetary Policy

Question 1

The key decision maker for general Federal Reserve policy is the:

A) Federal Open Market Committee.
B) Board of Governors.
C) Federal Advisory Council.
D) Regional Federal Reserve banks.

Answer 1

B

Question 2

The use of money and credit controls to change macroeconomic activity is known as:

A) Fiscal policy.
B) Monetary policy.
C) Supply-side policy.
D) Eclectic policy.

Answer 2

B

Question 3

The Board of Governors has ___ members,and they are appointed for ___ year terms.

A) 10;12
B) 7;14
C) 14;7
D) 12;10

Answer 3

B

Question 4

The 12 regional Fed banks do all of the following except:

A) Clear checks between private banks.
B) Lend money to individuals.
C) Provide currency to banks.
D) Hold bank reserves.

Question 5

The key decision maker for U.S.monetary policy is:

A) Congress.
B) The president.
C) The president's cabinet.
D) The Board of Governors.

Question 6

U.S.monetary policy relies on the:

A) Federal Reserve System's control over taxes.
B) Federal Reserve System's control over the money supply.
C) President's control over the printing of money.
D) President's control over interest rates.

Question 7

Which of the following is responsible for holding bank reserves?

A) The Federal Reserve Board of Governors.
B) The 12 regional Federal Reserve banks.
C) The Executive Branch of government.
D) The Fed chairman.

Question 8

Which of the following is responsible for providing currency and cash to banks?

A) The Legislative Branch of government.
B) Comptroller of the Currency.
C) The Federal Reserve System.
D) The U.

Question 9

The twelve regional Federal Reserve banks are responsible for:

A) Accepting deposits from nonbank businesses.
B) Providing currency to other countries.
C) Lending money to individuals.
D) Lending reserves to private banks.

Question 10

The Federal Reserve Board of Governors has:

A) Seven members appointed by the president of the United States.
B) Fourteen members appointed for seven-year terms by the president of the United States.
C) Seven members elected by U.S.citizens.
D) Fourteen members selected by the U.

Question 11

Which of the following is not true about the members of the Federal Reserve Board of Governors?

A) They are appointed to fourteen-year terms by the president of the United States.
B) They are relatively immune to short-term political pressures.
C) They may not be reappointed after serving a full term.
D) They each serve as chairman of the Board of Governors on a rotating basis.

Question 12

Which of the following is often described as the most powerful person in the U.S.economy?

A) The president of the United States.
B) The Speaker of the House of Representatives.
C) The chairman of the House Ways and Means Committee.
D) The chairman of the Federal Reserve.

Question 13

Monetary policy involves the use of money and credit controls to:

A) Move the economy along the aggregate demand curve.
B) Move the economy along the aggregate supply curve.
C) Shift the aggregate demand curve.
D) Shift the aggregate supply curve.

Question 14

The 12 regional Fed banks do not:

A) Provide loans to banks.
B) Hold reserves for banks.
C) Accept deposits from individuals.
D) Provide currency to banks.

Question 15

Checks are cleared between private banks by:

A) The 12 regional Federal Reserve banks.
B) The Executive Branch of government.
C) The Federal Reserve Board of Governors.
D) State banking commissions.

Question 16

Members of the Federal Reserve Board of Governors are appointed for one fourteen-year term:

A) In an effort to isolate the Fed from political pressures.
B) So that Fed decisions will be based on political considerations.
C) To give Congress better control over the money supply.
D) In an effort to make the Fed responsive to voters.

Question 17

Members of the Federal Reserve Board of Governors are appointed for one fourteen-year term so that they:

A) Have time to learn how the Fed operates.
B) Are more likely to make politically acceptable decisions.
C) Make their decisions based on economic,rather than political,considerations.
D) Have enough time to travel to all 12 regional banks.

Question 18

Which of the following serves as the central banker for private banks in the United States?

A) The 12 regional Federal Reserve banks.
B) The Executive Branch of government.
C) The Board of Governors of the Federal Reserve System.
D) The Fed Open Market Committee.

Question 19

Which of the following is true about the chairman of the Federal Reserve Board of Governors?

A) The chairman is elected by the Fed regional bank presidents.
B) The chairman serves a 21-year term.
C) A new chairman is elected as soon as a new U.S.president takes office.
D) The chairman can be reappointed for more than one term.

Question 20

Suppose Alan receives a check for $300 from a bank in Dallas.He deposits the check in his account at his Baltimore bank.Which of the following is Alan's Baltimore bank likely to collect the $300 from?

A) The Baltimore bank's regional Federal Reserve bank.
B) The U.S.Treasury.
C) The main Federal Reserve Bank in Washington,D.C.
D) The Federal Reserve Board of Governors.

Question 21

A change in the reserve requirement is the tool used least often by the Fed because it:

A) Does not affect bank reserves.
B) Can cause abrupt changes in the money supply.
C) Does not affect the money multiplier.
D) Has no impact on the lending capacity of the banking system.

Question 22

Suppose the banks in the Federal Reserve System have $400 million in transactions accounts and the reserve requirement is 0.10.Ceteris paribus,if the reserve requirement is decreased to 0.05,then excess reserves will increase by:

A) $1 million.
B) $20 million.
C) $40 million.
D) $2 billion.

Question 23

The money multiplier:

A) Is the number of deposit dollars the banking system can create from $1 of excess reserves.
B) Decreases as the required reserve ratio decreases.
C) Is equal to excess reserves plus required reserves.
D) Is equal to the required reserve ratio times transactions deposits.

Question 24

The reserve requirement:

A) Is the most frequently used tool by the Fed.
B) Changes required reserves but not excess reserves.
C) Does not affect the lending capacity for a bank.
D) Affects the level of bank reserves.

Question 25

The money multiplier:

A) Is equal to the required reserve ratio times transactions deposits.
B) Gets larger as the required reserve ratio increases.
C) Is the reciprocal of the required reserve ratio.
D) Represents the lending capacity of an individual bank.

Question 26

The chairman of the Federal Reserve Board of Governors:

A) Is elected by U.S.voters.
B) Will typically change following each presidential election.
C) Serves a four-year term and can be reappointed.
D) Is always closely tied to the same political party as the president.

Question 27

Which of the following is not a basic monetary policy tool used by the Fed?

A) The discount rate.
B) Reserve requirements.
C) Open-market operations.
D) The income tax rate.

Question 28

Which of the following is not true about excess reserves?

A) They change when the reserve requirement changes.
B) They are equal to the required reserve ratio times transactions deposits.
C) They are bank reserves beyond what the bank is required to hold.
D) They represent the dollars an individual bank can lenD.

Question 29

Required reserves:

A) Are equal to the required reserve ratio times total reserves.
B) Are the minimum amount of reserves a bank is required to hold.
C) Represent the dollars a bank can lend.
D) Must be held in a bank's vault.

Question 30

Which of the following is not a basic monetary policy tool used by the Fed?

A) Deposit insurance
B) The reserve requirement
C) The discount rate
D) The sale and purchase of Treasury bonds

Question 31

All of the following are true about the basic money supply except:

A) It includes credit card balances.
B) It includes currency held by the public.
C) It includes money kept in transactions accounts.
D) It is known as M1.

Question 32

Required reserves:

A) Must be held at the regional Fed bank.
B) Represent the dollars that a bank can lend.
C) Are the minimum amount of reserves a bank is required to hold.
D) Are equal to total reserves minus expected reserves.

Question 33

Excess reserves are:

A) Bank reserves in excess of required reserves.
B) Legal reserves in excess of lending reserves.
C) Transactions deposits plus traveler's checks.
D) Total reserves plus deficient reserves.

Question 34

Suppose the banks in the Federal Reserve System have $1 billion in transactions accounts and the reserve requirement is 0.20.Ceteris paribus,if the reserve requirement is increased to 0.25,then excess reserves will:

A) Increase by $250 million.
B) Increase by $50 million.
C) Decrease by $250 million.
D) Decrease by $50 million.

Question 35

Ceteris paribus,if the Fed raises the reserve requirement,then:

A) The money multiplier increases.
B) The lending capacity of the banking system decreases.
C) Excess reserves increase.
D) Required reserves decrease.

Question 36

Which of the following is not a basic monetary policy tool used by the Fed?

A) The discount rate.
B) The reserve requirement.
C) Taxes.
D) Open-market operations.

Question 37

Ceteris paribus,if the Fed reduces the reserve requirement,then:

A) Total reserves increase.
B) Total deposits decrease.
C) The lending capacity of the banking system increases.
D) The money multiplier decreases.

Question 38

The basic money supply:

A) Is controlled by Congress and the U.S.Treasury.
B) Includes savings accounts.
C) Includes currency and transactions accounts.
D) Includes money market mutual funds.

Question 39

A change in the reserve requirement affects:

A) The money multiplier and excess reserves.
B) Excess reserves and the discount rate.
C) The discount rate and the federal funds rate.
D) The money multiplier and the federal funds rate.

Question 40

Suppose the banks in the Federal Reserve System have $1 billion in transactions accounts and the reserve requirement is 0.10.Ceteris paribus,if the reserve requirement is increased to 0.20,then excess reserves will:

A) Increase by $100 million.
B) Increase by $200 million.
C) Decrease by $100 million.
D) Decrease by $200 million.

Question 41

The purchase and sale of government bonds by the Fed for the purpose of altering bank reserves is referred to as:

A) Open-market operations.
B) Closed-market operations.
C) Discounting.
D) Expansionary fiscal policy.

Question 42

The policy lever most commonly used by the Fed is:

A) Changes in the discount rate.
B) Buying and selling bonds.
C) Changes in the reserve requirement.
D) Foreign-exchange operations.

Question 43

Which of the following lends reserves to private banks?

A) The Legislative Branch of government
B) Comptroller of the Currency
C) State banking commissions
D) The Federal Reserve System

Question 44

If the Fed wants to reduce bank reserves,it can:

A) Raise the discount rate or buy bonds on the open market.
B) Reduce the minimum reserve ratio or sell bonds on the open market.
C) Raise the discount rate or sell bonds on the open market.
D) Decrease the minimum reserve ratio or reduce the discount rate.

Question 45

Ceteris paribus,if the Fed raises the discount rate,then:

A) The money multiplier decreases.
B) The lending capacity of the banking system increases.
C) Excess reserves decrease.
D) The incentive to borrow reserves decreases.

Question 46

The principal mechanism for directly changing the reserves of the banking system is:

A) The discount rate.
B) The reserve requirement.
C) Open-market operations.
D) The federal funds rate.

Question 47

If the Fed wants to increase bank reserves,it can:

A) Raise the discount rate.
B) Buy government bonds from the public.
C) Increase the minimum reserve ratio.
D) Decrease the money multiplier.

Question 48

Ceteris paribus,if the Fed reduces the discount rate,then:

A) The incentive to borrow funds increases.
B) Required reserves decrease.
C) The money multiplier increases.
D) Total reserves decrease.

Question 49

Suppose the banks in the Federal Reserve System have $100 million in transactions accounts and the reserve requirement is 0.10.Ceteris paribus,if the reserve requirement is decreased to 0.07,then excess reserves will increase by:

A) $3 million.
B) $7 million.
C) $10 million.
D) $700 billion.

Question 50

By raising or lowering the ______,the Fed changes the cost of money for banks,which impacts the incentive to borrow reserves.

A) Reserve ratio
B) Discount rate
C) Money multiplier
D) Yield

Question 51

The buying and selling of government bonds to influence reserves in the banking system is the responsibility of the:

A) Twelve regional Federal Reserve banks.
B) Executive Branch of the government.
C) Board of Governors of the Federal Reserve.
D) Federal Open Market Committee.

Question 52

If the Fed wishes to increase the money supply it can:

A) Raise the federal funds rate.
B) Sell bonds on the open market.
C) Decrease the discount rate.
D) Increase the required reserve ratio.

Question 53

When the Fed makes bonds more or less attractive,it influences the:

A) Open market decision.
B) Money multiplier.
C) Portfolio decision.
D) Reserve decision.

Question 54

If the Fed wishes to decrease the money supply it can:

A) Raise the discount rate.
B) Buy bonds on the open market.
C) Decrease the required reserve ratio.
D) Decrease the federal funds rate.

Question 55

If the Fed wants to increase bank reserves,it can:

A) Buy bonds.
B) Raise the discount rate.
C) Raise the reserve requirement.
D) Sell bonds.

Question 56

The rate of interest banks charge each other for lending reserves is the:

A) Federal funds rate.
B) Discount rate.
C) Money multiplier.
D) Excess reserve rate.

Question 57

Which of the following is not a possible source of last-minute reserves for a private bank?

A) Selling bonds.
B) Borrowing reserves from other banks.
C) Raising the discount rate.
D) Borrowing reserves from the Federal Reserve System.

Question 58

If a bank does not have enough reserves,it can:

A) Buy bonds on the open market.
B) Raise the interest rate it charges borrowers.
C) Borrow reserves from the discount window.
D) Make more loans.

Question 59

The discount rate is the interest rate charged by:

A) The Federal Reserve when it lends money to private banks.
B) A private bank when it lends money to another private bank.
C) A private bank when it lends money to commercial customers.
D) A regional Fed bank when it lends money to another regional Fed bank.

Question 60

If the Fed wants to decrease the money supply,it can:

A) Increase the money multiplier.
B) Decrease the discount rate.
C) Sell government bonds.
D) Decrease the minimum reserve ratio.

Question 61

Using aggregate supply and demand curves drawn according to the Keynesian view,which of the following will occur if the Fed buys bonds in the open market and the economy is below full employment?

A) Aggregate demand will shift to the left and the unemployment rate will rise.
B) Aggregate demand will shift to the right and the unemployment rate will fall.
C) Aggregate demand will shift to the left and the price level will remain unchanged.
D) Aggregate demand will shift to the right and the price level will fall.

Question 62

Restrictive monetary policy will:

A) Decrease the lending capacity for banks.
B) Reduce interest rates.
C) Cause a rightward shift of aggregate demand.
D) Raise the equilibrium price level.

Question 63

Which of the following is not a monetary policy tool for shifting the aggregate demand curve?

A) Open-market operations.
B) Government spending.
C) The discount rate.
D) The reserve requirement.

Question 64

To decrease the money supply the Fed can:

A) Reduce the reserve requirement,raise the discount rate,or sell bonds.
B) Raise the reserve requirement,raise the discount rate,or sell bonds.
C) Raise the reserve requirement,reduce the discount rate,or buy bonds.
D) Raise the reserve requirement,raise the discount rate,or buy bonds.

Question 65

Aggregate demand is the:

A) Total quantity of output demanded at alternative price levels.
B) Total quantity of output demanded but only at full employment.
C) Quantity of goods demanded by the largest corporations in the country.
D) Quantity of new goods and services produceD.

Question 66

Ceteris paribus,which of the following will occur if the Fed buys bonds through open-market operations?

A) The aggregate supply curve should shift leftward.
B) The aggregate supply curve should shift rightward.
C) The aggregate demand curve should shift leftward.
D) The aggregate demand curve should shift rightwarD.

Question 67

If the Fed buys more bonds from the public,then the money supply will:

A) Decrease and the aggregate demand curve will shift to the right.
B) Increase and the aggregate demand curve will shift to the right.
C) Increase and the aggregate demand curve will shift to the left.
D) Decrease and the aggregate demand curve will shift to the left.

Question 68

The shape of the _____ curve determines the impact of an aggregate demand shift on prices and output.

A) Marginal revenue
B) Total cost
C) Production possibilities
D) Aggregate supply

Question 69

As the money supply increases,interest rates _______ and aggregate demand shifts to the ______.

A) Increase;left
B) Increase;right
C) Decrease;left
D) Decrease;right

Question 70

Which of the following will cause an increase in aggregate demand?

A) Restrictive fiscal policy.
B) An increase in the reserve requirement.
C) Expansionary monetary policy.
D) The sale of bonds by the FeD.

Question 71

Given Keynesian assumptions about the shape of the aggregate supply curve and an economy suffering a recession,which of the following is most likely to occur if the Fed pursues expansionary monetary policy?

A) The equilibrium price level and output will both increase until full employment is reached.
B) The equilibrium price level and output will both decrease.
C) The equilibrium price level will increase but output will stay the same.
D) The equilibrium output will increase but the price level will stay the same until full employment is reacheD.

Question 72

When the Fed sells bonds in the open market,interest rates _______ and aggregate demand shifts to the ______.

A) Rise;left
B) Rise;right
C) Fall;left
D) Fall;right

Question 73

If the Fed sells more bonds to the public,then the money supply will:

A) Decrease and the aggregate demand curve will shift to the right.
B) Increase and the aggregate demand curve will shift to the right.
C) Increase and the aggregate demand curve will shift to the left.
D) Decrease and the aggregate demand curve will shift to the left.

Question 74

Which of the following will occur if the Fed raises the reserve requirement,ceteris paribus?

A) The aggregate supply curve should shift leftward.
B) The aggregate supply curve should shift rightward.
C) The aggregate demand curve should shift leftward.
D) The aggregate demand curve should shift rightwarD.

Question 75

The different shapes of the aggregate supply curve:

A) Determine the level of reserves held by the banking system.
B) Result in the Fed's need for total control of the money supply.
C) Determine the impact of monetary policy on price level and output.
D) Explain why the Fed must respond to market instability.

Question 76

When the Fed announces that it is raising the federal funds rate,this signals its intention to _______ bonds in the open market and _______ the money supply.

A) Buy;reduce
B) Buy;increase
C) Sell;reduce
D) Sell;increase

Question 77

Expansionary monetary policy will:

A) Reduce the lending capacity for banks.
B) Raise interest rates.
C) Encourage people to borrow more money.
D) Reduce the equilibrium price level.

Question 78

Which of the following will cause a decrease in aggregate demand?

A) Restrictive monetary policy.
B) A decrease in the reserve requirement.
C) Expansionary monetary policy.
D) The purchase of bonds by the FeD.

Question 79

Which of the following cannot be used to shift aggregate demand?

A) A change in government spending.
B) A change in taxes.
C) Monetary policy.
D) A change in the price level.

Question 80

To increase the money supply the Fed can:

A) Reduce the reserve requirement,reduce the discount rate,or sell bonds.
B) Raise the reserve requirement,reduce the discount rate,or sell bonds.
C) Reduce the reserve requirement,reduce the discount rate,or buy bonds.
D) Raise the reserve requirement,raise the discount rate,or buy bonds.