Question 1

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

Accepted Answer

The Federal Reserve System is commonly referred to as the central bank of the United States.

Question 2

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

Accepted Answer

Money has a certain value at a specific point in time, but that value can fluctuate based on economic factors and other variables.

Question 3

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

Accepted Answer

The Federal Reserve System, the central banking system of the United States, was established in 1913, which was relatively late compared to central banks in Europe, such as the Bank of England (established in 1694) or the Banque de France (established in 1800).

Question 4

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

Accepted Answer

Money refers to the actual physical currency and coins, while income refers to the monetary payments received for work or through investments. They are often used interchangeably in casual conversation but have different economic meanings.

Question 5

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

Accepted Answer

Income refers to the amount of money earned over a certain period of time, such as a month or a year. Therefore, it must be qualified by a length of time to accurately reflect the financial situation of an individual or entity.

Question 6

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

Accepted Answer

The Federal Open Market Committee (FOMC) is responsible for implementing monetary policy in the United States. One tool at its disposal is to buy (or sell) government securities, which affects the money supply and ultimately interest rates.

Question 7

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

Accepted Answer

Monetary policy refers to the actions taken by the Federal Reserve (Fed) to manage the money supply and achieve economic objectives such as price stability, full employment, and sustainable economic growth.

Question 8

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

Accepted Answer

In recessions, interest rates on risky securities usually increase while interest rates on Treasury securities usually decrease as investors flock to safer assets.

Question 9

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

Accepted Answer

When the federal funds rate rises, banks' opportunity cost of holding excess reserves increases because they could earn interest by lending out those reserves instead of holding onto them.

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.

Accepted Answer

When the federal funds rate is lower, the cost of borrowing funds is also lower. Therefore, the opportunity cost of holding excess reserves (which could have been lent out) is lower when the federal funds rate is at 8 percent than when it is at 10 percent.

Question 11

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.

Accepted Answer

This is true. The Federal Reserve was established in 1913 to address financial panics and provide stability to the banking system by acting as a lender of last resort and regulating the money supply.

Question 12

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

Accepted Answer

The answer of When someone asks how much money you...

Question 13

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

Accepted Answer

The Federal Reserve Bank, established in 1913, was modeled after various national banking systems but not directly after the European Central Bank (ECB), which was established later in 1998.

Question 14

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

Accepted Answer

The demand for reserves is influenced by changes in the economy's income and the level of prices. As the economy grows and prices rise, banks and other financial institutions will require more reserves. Conversely, if the economy contracts and prices fall, the demand for reserves will decrease.

Question 15

Open market operations affect the supply of reserves.

Accepted Answer

Open market operations involve the buying or selling of government securities by central banks, which affects the amount of reserves available in the banking system. Buying securities injects reserves into the system while selling securities withdraws reserves. Therefore, open market operations have a direct impact on the supply of reserves.

Question 16

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

Accepted Answer

The Federal Reserve System is often called the "central bank" of the United States and acts as a banker for other banks. It provides services such as transferring funds, processing checks, and lending money to other banks in times of need.

Question 17

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

Accepted Answer

Unconventional monetary policies often involve large-scale lending to banks and purchasing assets other than Treasury bills, such as mortgage-backed securities or corporate bonds. These measures are used to stimulate economic growth and increase liquidity in financial markets during times of crisis.

Question 18

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

Accepted Answer

An increase in the average price level typically leads to an increase in the demand for reserves, as individuals and firms may need to hold more money to make purchases at the higher prices. Therefore, the statement is false.

Question 19

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

Accepted Answer

The Federal Reserve's principal tool in the manipulation of aggregate demand is the monetary policy, specifically through changes in interest rates and controlling the money supply. The personal income tax is a tool of fiscal policy controlled by the government.

Question 20

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.

Accepted Answer

The answer of The Federal Reserve Open Market Committee includes...

Quiz 13: Monetary Policy: Conventional and Unconventional