Question 1

To execute the policy of lowering the federal funds rate,the FOMC authorizes the New York Fed to make open-market sales to increase bank reserves until the federal funds rate falls to the target level.

Accepted Answer

The policy of lowering the federal funds rate is executed through open market purchases (not sales) by the New York Fed, which increases bank reserves and lowers the federal funds rate until it reaches the target level.

Question 2

Exhibit 15-8 -In Exhibit 15-8,the demand for money is represented by D₁ and the supply by S₁.If the Fed raises the reserve requirement,the equilibrium will move from

Accepted Answer

The Fed raising the reserve requirement will reduce the money supply, shifting the supply curve to the left. This will move the equilibrium from A to B.

Question 3

Exhibit 15-7 
-Referring to Exhibit 15-7,an increase in the price level will cause a move from

Accepted Answer

The answer of Exhibit 15-7 
-Referring to Exhibit 15-7,an increase...

Question 4

Exhibit 15-8 -In Exhibit 15-8,the demand for money is represented by D₁ and the supply by S₁.If the Fed raises the discount rate,the equilibrium will move from

Accepted Answer

Raising the discount rate makes borrowing more expensive, which reduces the quantity of money demanded. This shifts the demand curve to the left, from D1 to D2. The new equilibrium is at point B, where the quantity of money demanded equals the quantity of money supplied.

Question 5

Exhibit 15-8 -In Exhibit 15-8,the demand for money is represented by D₁ and the supply by S₁.If the Fed sells bonds on the open market,the equilibrium will move from

Accepted Answer

When the Fed sells bonds, it decreases the money supply, shifting the supply curve leftward from S1 to S2, moving the equilibrium from point A to point B.

Question 6

Because __________ the federal funds rate __________ the cost of covering any reserve shortfall,banks are __________ willing to lend to the public.

Accepted Answer

Lowering the federal funds rate reduces the cost of covering any reserve shortfall, making banks more willing to lend to the public.

Question 7

Exhibit 15-7 
-Referring to Exhibit 15-7,a decrease in the interest rate will cause a move from

Accepted Answer

A decrease in the interest rate will cause an increase in the present value of bond payments, making the bond more valuable. This will result in a move along the yield curve from point A to point B.

Question 8

Which of the following is the last step in the sequence?

Accepted Answer

The sequence starts with the effect of a strong dollar on U.S. exporters, then moves to the short-term effects of an increase in the money supply, followed by the long-term effects of low U.S. interest rates on foreign investment. The last step in the sequence is the decline in the value of the dollar, which is caused by these factors and others such as trade deficits and inflation. The choice C accurately describes the last step in the sequence.

Question 9

Since the financial crisis the Fed has tried to increase its transparency by communicating its intention more clearly.Which of the following is not one of the approaches employed by the Fed in this open communication policy?

Accepted Answer

The Fed does not record its meetings and make the audio recording available to the media following every meeting. This statement is false. The Fed does release a statement after every meeting, but it does not release audio recordings of the meetings themselves.

Question 10

Exhibit 15-8 -In Exhibit 15-8,the demand for money is represented by D₁ and the supply by S₁.If the Fed lowers the reserve requirement,the equilibrium will move from

Accepted Answer

The answer of Exhibit 15-8 
-In Exhibit 15-8,the demand for...

Question 11

The Fed's grip is tightest on the

Accepted Answer

The Federal Reserve, also known as the Fed, has the most direct control over the federal funds rate. This is the interest rate that banks charge one another for overnight loans and serves as a benchmark for other rates such as the prime rate, which is the rate that banks charge their best customers. The Fed influences the federal funds rate through its monetary policy decisions, such as changing the target for the federal funds rate or buying/selling Treasury securities. The Fed has less direct control over other rates such as mortgage rates, credit card rates, and student loan rates, which are influenced by market factors and consumer demand.

Question 12

While monetary targets are important,also significant is what Fed officials have to say.Sometimes reassurance is all that's required to calm market jitters.

Accepted Answer

The statement indicates that the opinion or communication of Fed officials can have an impact on the market and may provide reassurance in times of market turbulence.

Question 13

Exhibit 15-7 
-Referring to Exhibit 15-7,a decrease in the level of real GDP will cause a move from

Accepted Answer

The answer of Exhibit 15-7 
-Referring to Exhibit 15-7,a decrease...

Question 14

If the situation is serious enough,the FOMC may act between regular meetings.

Accepted Answer

The FOMC has the ability to act between regular meetings if they deem it necessary due to a serious situation.

Question 15

Exhibit 15-8 -In Exhibit 15-8,the demand for money is represented by D₁ and the supply by S₁.If the Fed lowers the discount rate,the equilibrium will move from

Accepted Answer

When the Fed lowers the discount rate, it decreases the cost of borrowing money, leading to an increase in the demand for money. This shift in the demand for money curve causes the equilibrium to move from point A to point B, resulting in a higher quantity of money held by individuals and a lower interest rate.

Question 16

Exhibit 15-8 -In Exhibit 15-8,the demand for money is represented by D₁ and the supply by S₁.If the Fed buys bonds on the open market,the equilibrium will move from

Accepted Answer

When the Fed buys bonds on the open market, the money supply increases, causing the supply curve to shift to the right from SS1U1B1 to SS1U2B2. As a result, the equilibrium point moves from point A to point B, where the demand and supply curves intersect.

Question 17

In order to become more transparent,the Fed

Accepted Answer

All of the answer choices are correct in explaining how the Fed has become more transparent. The Fed has implemented all of these practices to provide more information to the public about its decisions and policies.

Question 18

Because monetary policy is the main focus of the Fed,it ignores international considerations.

Accepted Answer

While monetary policy is a primary focus of the Fed, it does consider international factors and their potential impact on the US economy. In fact, the Fed monitors global economic and market trends, exchange rates, and international financial developments in order to inform its monetary policy decisions. Additionally, the Fed collaborates with other central banks around the world to coordinate policies and address global economic challenges.

Quiz 16: Monetary Theory and Policy

To execute the policy of lowering the federal funds rate,the FOMC authorizes the New York Fed to make open-market sales to increase bank reserves until the federal funds rate falls to the target level.

Exhibit 15-8 -In Exhibit 15-8,the demand for money is represented by D₁ and the supply by S₁.If the Fed raises the reserve requirement,the equilibrium will move from

Exhibit 15-7 -Referring to Exhibit 15-7,an increase in the price level will cause a move from

Exhibit 15-8 -In Exhibit 15-8,the demand for money is represented by D₁ and the supply by S₁.If the Fed raises the discount rate,the equilibrium will move from

Exhibit 15-8 -In Exhibit 15-8,the demand for money is represented by D₁ and the supply by S₁.If the Fed sells bonds on the open market,the equilibrium will move from

Because the federal funds rate the cost of covering any reserve shortfall,banks are __ willing to lend to the public.

Exhibit 15-7 -Referring to Exhibit 15-7,a decrease in the interest rate will cause a move from

Which of the following is the last step in the sequence?

Since the financial crisis the Fed has tried to increase its transparency by communicating its intention more clearly.Which of the following is not one of the approaches employed by the Fed in this open communication policy?

Exhibit 15-8 -In Exhibit 15-8,the demand for money is represented by D₁ and the supply by S₁.If the Fed lowers the reserve requirement,the equilibrium will move from

The Fed's grip is tightest on the

While monetary targets are important,also significant is what Fed officials have to say.Sometimes reassurance is all that's required to calm market jitters.

Exhibit 15-7 -Referring to Exhibit 15-7,a decrease in the level of real GDP will cause a move from

If the situation is serious enough,the FOMC may act between regular meetings.

Exhibit 15-8 -In Exhibit 15-8,the demand for money is represented by D₁ and the supply by S₁.If the Fed lowers the discount rate,the equilibrium will move from

Exhibit 15-8 -In Exhibit 15-8,the demand for money is represented by D₁ and the supply by S₁.If the Fed buys bonds on the open market,the equilibrium will move from

In order to become more transparent,the Fed

Because monetary policy is the main focus of the Fed,it ignores international considerations.

Quiz 16: Monetary Theory and Policy

To execute the policy of lowering the federal funds rate,the FOMC authorizes the New York Fed to make open-market sales to increase bank reserves until the federal funds rate falls to the target level.

Exhibit 15-8 -In Exhibit 15-8,the demand for money is represented by D1 and the supply by S1.If the Fed raises the reserve requirement,the equilibrium will move from

Exhibit 15-7 -Referring to Exhibit 15-7,an increase in the price level will cause a move from

Exhibit 15-8 -In Exhibit 15-8,the demand for money is represented by D1 and the supply by S1.If the Fed raises the discount rate,the equilibrium will move from

Exhibit 15-8 -In Exhibit 15-8,the demand for money is represented by D1 and the supply by S1.If the Fed sells bonds on the open market,the equilibrium will move from

Because __________ the federal funds rate __________ the cost of covering any reserve shortfall,banks are __________ willing to lend to the public.

Exhibit 15-7 -Referring to Exhibit 15-7,a decrease in the interest rate will cause a move from

Which of the following is the last step in the sequence?

Since the financial crisis the Fed has tried to increase its transparency by communicating its intention more clearly.Which of the following is not one of the approaches employed by the Fed in this open communication policy?

Exhibit 15-8 -In Exhibit 15-8,the demand for money is represented by D1 and the supply by S1.If the Fed lowers the reserve requirement,the equilibrium will move from

The Fed's grip is tightest on the

While monetary targets are important,also significant is what Fed officials have to say.Sometimes reassurance is all that's required to calm market jitters.

Exhibit 15-7 -Referring to Exhibit 15-7,a decrease in the level of real GDP will cause a move from

If the situation is serious enough,the FOMC may act between regular meetings.

Exhibit 15-8 -In Exhibit 15-8,the demand for money is represented by D1 and the supply by S1.If the Fed lowers the discount rate,the equilibrium will move from

Exhibit 15-8 -In Exhibit 15-8,the demand for money is represented by D1 and the supply by S1.If the Fed buys bonds on the open market,the equilibrium will move from

In order to become more transparent,the Fed

Because monetary policy is the main focus of the Fed,it ignores international considerations.

Exhibit 15-8 -In Exhibit 15-8,the demand for money is represented by D₁ and the supply by S₁.If the Fed raises the reserve requirement,the equilibrium will move from

Exhibit 15-8 -In Exhibit 15-8,the demand for money is represented by D₁ and the supply by S₁.If the Fed raises the discount rate,the equilibrium will move from

Exhibit 15-8 -In Exhibit 15-8,the demand for money is represented by D₁ and the supply by S₁.If the Fed sells bonds on the open market,the equilibrium will move from

Because the federal funds rate the cost of covering any reserve shortfall,banks are __ willing to lend to the public.

Exhibit 15-8 -In Exhibit 15-8,the demand for money is represented by D₁ and the supply by S₁.If the Fed lowers the reserve requirement,the equilibrium will move from

Exhibit 15-8 -In Exhibit 15-8,the demand for money is represented by D₁ and the supply by S₁.If the Fed lowers the discount rate,the equilibrium will move from

Exhibit 15-8 -In Exhibit 15-8,the demand for money is represented by D₁ and the supply by S₁.If the Fed buys bonds on the open market,the equilibrium will move from