Question 1

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

Accepted Answer

As the federal funds rate rises, the interest rate banks can earn by lending out excess reserves also increases. Therefore, the opportunity cost of holding excess reserves rises, not falls.

Question 2

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 monetary policy, such as adjusting interest rates and the money supply. The personal income tax is primarily used by the federal government for revenue purposes and to influence income distribution.

Question 3

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

Accepted Answer

The Federal Reserve System acts as a central bank that serves as a banker for other banks, providing them with services such as loans and reserves, and regulating the money supply in the economy.

Question 4

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

Accepted Answer

The central bank in the United States is the Federal Reserve System, often referred to as the Fed.

Question 5

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

Accepted Answer

Money is a concept that can be quantified and has a certain value at a point in time. The value of money can change over time due to various economic and social factors.

Question 6

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

Accepted Answer

During recessions, interest rates on risky securities usually increase while interest rates on Treasury securities decrease as a result of a flight to safety.

Question 7

Open market operations affect the supply of reserves.

Accepted Answer

Open market operations involve the buying and selling of government securities by the central bank to influence the supply of reserves in the banking system. When the central bank buys securities, it injects reserves into the system, increasing the supply. When it sells securities, it drains reserves from the system, decreasing the supply. Therefore, open market operations directly impact the supply of reserves.

Question 8

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 9

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 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 opportunity cost of holding excess reserves is also lower, as banks can earn a higher return by lending out those reserves. When the federal funds rate is higher, the opportunity cost of holding excess reserves is also higher, as the potential return from lending out those reserves becomes less attractive.

Question 11

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

Accepted Answer

Unconventional monetary policies such as quantitative easing involve large scale purchases of assets such as mortgage-backed securities and long-term government bonds, in addition to massive lending to banks.

Question 12

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 will lead to an increase in the demand for reserves, as it becomes more expensive to purchase goods and services, leading to an increase in demand for money to make payments.

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.

Accepted Answer

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

Question 14

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

Accepted Answer

The demand for reserves increases as income and the price level increase. This is because higher income and higher prices lead to increased transactions and economic activity, which require more reserves to facilitate.

Question 15

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

Accepted Answer

This is true. The Federal Open Market Committee (FOMC) is a key monetary policymaking body of the Federal Reserve System in the United States. One of its main tools to control the money supply is conducting open market operations, which involve buying and selling government securities to influence the level of reserves in the banking system and thus the availability of credit and the cost of borrowing.

Question 16

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

Accepted Answer

Money refers to the actual currency or coins used in transactions, while income refers to the money earned from one's job or investments.

Question 17

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

Accepted Answer

This is correct. Monetary policy involves various actions taken by the Federal Reserve to affect the money supply, interest rates, and the overall health of the economy.

Question 18

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 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.

Accepted Answer

This statement is true. The Federal Reserve System was established in 1913 with the primary goals of promoting price stability, maintaining moderate long-term interest rates, and providing a stable financial system. One of the key functions of the Fed is to act as a lender of last resort to banks and other financial institutions during times of financial stress. Additionally, the Fed is responsible for regulating the money supply through various monetary policy tools such as open market operations, reserve requirements, and the discount rate.

Question 20

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

Accepted Answer

Income is a measure of how much money someone earns during a specific period, such as a week, month, or year. Therefore, it is a value that must be qualified by a length of time.

Quiz 30: Monetary Policy: Conventional and Unconventional