Question 1

If the Fed wants to decrease the quantity of money, it can

Accepted Answer

The Federal Reserve can decrease the quantity of money in the economy by selling U.S. government securities. This action removes money from the banking system, reducing the money supply.

Question 2

At the end of 2013, the Fed was buying about $100 billion of securities per month, a much higher amount than normal. These purchases would ________ the value of the dollar on foreign exchange markets thereby ________ U.S. exports.

Accepted Answer

The Fed's purchases of securities increase the money supply, which tends to lower the value of the dollar on foreign exchange markets. A weaker dollar makes U.S. exports cheaper and more competitive abroad, thereby increasing U.S. exports.

Question 3

Open market purchases by the Fed

Accepted Answer

The answer of Open market purchases by the Fed
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Question 4

If the interest rate on Treasury bills is higher than the federal funds rate, the quantity of overnight loans supplied ________ and the ________ for Treasury bills increases.

Accepted Answer

When the interest rate on Treasury bills is higher than the federal funds rate, banks and other financial institutions are more likely to invest in Treasury bills rather than lend money in the overnight market, leading to a decrease in the quantity of overnight loans supplied. Additionally, the higher interest rate on Treasury bills makes them more attractive to investors, increasing their demand.

Question 5

When the Fed raises the federal funds rate

Accepted Answer

When the Federal Reserve raises the federal funds rate, it makes borrowing more expensive. This tends to attract foreign investors seeking higher returns on their investments, which increases demand for the dollar. As a result, the value of the dollar rises on the foreign exchange market.

Question 6

Long-term interest rates fluctuate ________ short-term interest rates.

Accepted Answer

Long-term interest rates tend to fluctuate less than short-term interest rates because they reflect the average expected future short-term rates, plus a term premium. This makes them generally more stable over time compared to the more volatile short-term rates that can be influenced by immediate monetary policy changes and economic news.

Question 7

Long-term interest rates are ________ than short-term interest rates because long-term loans are ________ than short-term loans.

Accepted Answer

Long-term interest rates are typically higher than short-term rates because the longer duration of the loan represents a greater risk to the lender, including the risk of inflation and the uncertainty of future economic conditions, which they compensate for by charging higher interest rates.

Question 8

The ripple effects that occur when the Fed changes the federal funds rate do NOT include

Accepted Answer

The federal funds rate primarily influences borrowing costs, investment, consumption, and net exports indirectly through exchange rates and economic activity. However, it does not directly change government spending, which is determined by fiscal policy decisions.

Question 9

If the Fed wants to increase the quantity of money, it can

Accepted Answer

The Federal Reserve can increase the quantity of money in the economy by purchasing U.S. government securities. This action injects money directly into the banking system, increasing the money supply.

Question 10

When the Fed lowers the federal funds rate, aggregate demand

Accepted Answer

When the Federal Reserve lowers the federal funds rate, it becomes cheaper for banks to borrow money. This typically leads to lower interest rates for consumers and businesses, encouraging borrowing and spending, which increases aggregate demand.

Question 11

If the Fed raises the federal funds rate so that the exchange rate rises, then imports ________ and exports ________.

Accepted Answer

When the Fed raises the federal funds rate, the exchange rate typically rises, making domestic goods more expensive for foreigners, thus decreasing exports. Conversely, foreign goods become relatively cheaper for domestic consumers, increasing imports.

Question 12

If the Fed lowers the federal funds rate, then

Accepted Answer

Lowering the federal funds rate reduces the cost of borrowing, which can stimulate investment and consumption, leading to a multiplier effect on aggregate demand.

Question 13

When the Fed raises the federal funds rate, in the foreign exchange market people ________ dollars and the price of the dollar ________ on the foreign exchange market.

Accepted Answer

When the Fed raises the federal funds rate, it makes holding dollars more attractive because of higher returns on investments denominated in dollars. This increased demand for dollars leads to a rise in the price of the dollar on the foreign exchange market.

Question 14

Monetary policy produces ripple effects, some of which happen quickly and some that can take years to produce change. Which of the following changes immediately? The

Accepted Answer

The answer of Monetary policy produces ripple effects, some of...

Question 15

Monetary policy produces ripple effects, some of which happen quickly and some that can take years to produce change. Which of the following takes the longest to change? The

Accepted Answer

The inflation rate typically takes the longest to change in response to monetary policy adjustments. This is because it involves a wide array of economic activities and prices across the economy, and it takes time for monetary policy changes to filter through the economy and affect the general price level.

Question 16

When the Fed lowers the federal funds rate, the U.S. dollar ________ on the foreign exchange market and ________.

Accepted Answer

When the Federal Reserve lowers the federal funds rate, it makes borrowing cheaper, which tends to stimulate economic activity by encouraging spending and investment. This can lead to a depreciation of the U.S. dollar on the foreign exchange market, as lower interest rates make dollar-denominated assets less attractive to investors, reducing demand for the dollar. Additionally, a cheaper dollar makes U.S. goods more competitive abroad, potentially increasing exports and decreasing imports, which contributes to an increase in aggregate demand.

Question 17

Which of the following increases the quantity of money?

Accepted Answer

The Fed's purchase of a government security increases the quantity of money because it injects money directly into the banking system, thereby increasing the reserves of banks and allowing them to create more money through lending.

Question 18

If the U.S. interest rate rises, the exchange rate ________ and net exports ________.

Accepted Answer

When the U.S. interest rate rises, it attracts more foreign capital, increasing the demand for the dollar, which causes the exchange rate to rise. A stronger dollar makes U.S. exports more expensive for foreigners, reducing net exports.

Question 19

If the Fed lowers the federal funds rate so that the exchange rate falls, then imports ________ and exports ________.

Accepted Answer

When the Fed lowers the federal funds rate, it typically leads to a depreciation of the domestic currency, making imports more expensive (thus decreasing) and exports cheaper for foreign buyers (thus increasing).

Question 20

To increase the quantity of money in the economy, the Federal Reserve is likely to

Accepted Answer

Buying government securities in open market operations is a method used by the Federal Reserve to increase the money supply in the economy. This action puts more money into the banking system, encouraging lending and lowering interest rates.

Quiz 14: Monetary Policy

If the Fed wants to decrease the quantity of money, it can

At the end of 2013, the Fed was buying about $100 billion of securities per month, a much higher amount than normal. These purchases would the value of the dollar on foreign exchange markets thereby U.S. exports.

Open market purchases by the Fed

If the interest rate on Treasury bills is higher than the federal funds rate, the quantity of overnight loans supplied and the for Treasury bills increases.

When the Fed raises the federal funds rate

Long-term interest rates fluctuate ________ short-term interest rates.

Long-term interest rates are than short-term interest rates because long-term loans are than short-term loans.

The ripple effects that occur when the Fed changes the federal funds rate do NOT include

If the Fed wants to increase the quantity of money, it can

When the Fed lowers the federal funds rate, aggregate demand

If the Fed raises the federal funds rate so that the exchange rate rises, then imports and exports .

If the Fed lowers the federal funds rate, then

When the Fed raises the federal funds rate, in the foreign exchange market people dollars and the price of the dollar on the foreign exchange market.

Monetary policy produces ripple effects, some of which happen quickly and some that can take years to produce change. Which of the following changes immediately? The

Monetary policy produces ripple effects, some of which happen quickly and some that can take years to produce change. Which of the following takes the longest to change? The

When the Fed lowers the federal funds rate, the U.S. dollar on the foreign exchange market and .

Which of the following increases the quantity of money?

If the U.S. interest rate rises, the exchange rate and net exports .

If the Fed lowers the federal funds rate so that the exchange rate falls, then imports and exports .

To increase the quantity of money in the economy, the Federal Reserve is likely to