Question 1

In 1998, Japan decided to make the Bank of Japan, its central bank,

Accepted Answer

A)   more independent.
B)   more concerned with fighting inflation.
C)   subject to direct control by the Japanese prime minister.
D)   subject to direct control by the Diet, the Japanese parliament.

Question 2

The Federal Reserve System was established by Congress in 1914

Accepted Answer

A)   as a result of a breakthrough in economic theory.
B)   against significant opposition from the banking sector.
C)   because of the need for a central bank.
D)   as the world's first central bank.

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

As a knowledgeable investor in 2007, you should have realized that as interest rates fell, bond prices would

Accepted Answer

A)   also fall.
B)   rise.
C)   become more volatile, like stock prices.
D)   fall but not by as much as stock prices.

Question 5

Explain the relationship between interest rates and (1) investments in housing, and (2) business investments.

Accepted Answer

As the interest cost of a home mortgage ...

Question 6

Banks will hold additional excess reserves when

Accepted Answer

A)   loans to customers look safe and interest rates are high.
B)   they anticipate a bank audit.
C)   loans to customers look risky and interest rates are low.
D)   the economy is booming and there is a large demand for loans.

Question 7

The Federal Open Market Committee meets

Accepted Answer

A)   once a month.
B)   eight times a year.
C)   four times a year.
D)   semi-annually.

Question 8

At the time of its founding, which tool was thought to be the most useful for the Fed?

Accepted Answer

A)   changing the reserve requirement
B)   altering deposit interest rates
C)   lending to banks
D)   open market operations

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Some form of financial distress can become a full-blown recession if risk lead to ____ interest rates and ____ aggregate demand.

Accepted Answer

A)   higher; increased
B)   higher; decreased
C)   lower; increased
D)   lower; decreased

Question 11

Which of the following will increase interest rates in the short run?

Accepted Answer

A)   an decrease in reserve requirements
B)   open market sales by the Fed
C)   a decrease in real GDP
D)   an decrease in the price level

Question 12

During the stock market crash of October 1987, the Fed

Accepted Answer

A)   raised the discount rate.
B)   raised reserve requirements.
C)   increased lending to member banks.
D)   sold government securities.

Question 13

A system that requires banks to keep 100 percent reserves

Accepted Answer

A)   would reduce the Fed's ability to control the money supply.
B)   would undermine the effectiveness of reserve requirement changes.
C)   would increase the Fed's ability to control the money supply.
D)   could be implemented with little change in bank policy.

Question 14

The Federal Reserve Board of Governors

Accepted Answer

A)   serve at the pleasure of the president similar to other cabinet positions.
B)   report directly to Congress and are controlled by Congress.
C)   consists of 12 members, one from each district bank.
D)   is structurally independent of the executive and legislative branches of the federal government.

Question 15

Table 13-1
EFFECTS OF AN OPEN MARKET TRANSACTION ON THE BALANCE SHEETS OF BANKS AND THE FED (In millions of dollars) 
   BANKS  FEDERAL RESERVE SYSTEM  ASSETS  LIAB.  ASSETS  LIAB.  Reserves +$10 U.S. Gov’t  Bank Reserves  U.S. Gov’t  Sec. +$10+$10 Securities - $10 \begin{array}{cccc}	ext { BANKS }&&	ext { FEDERAL RESERVE SYSTEM }\	ext { ASSETS } & 	ext { LIAB. } & 	ext { ASSETS } & 	ext { LIAB. } \	ext { Reserves }+\$ 10 && 	ext { U.S. Gov&#x27;t } & 	ext { Bank Reserves } \	ext { U.S. Gov&#x27;t } && 	ext { Sec. }+\$ 10 & +\$ 10\	ext { Securities - \$10 }\end{array} BANKS  ASSETS  Reserves +$10 U.S. Gov’t  Securities - $10 ​ LIAB. ​ FEDERAL RESERVE SYSTEM  ASSETS  U.S. Gov’t  Sec. +$10​ LIAB.  Bank Reserves +$10​ 
-In Table 13-1, if the required reserve ratio is 10 percent, what will happen to the money supply? Use the oversimplified money multiplier in your calculations.

Accepted Answer

A)   The money supply will decrease by $100 million.
B)   The money supply will decrease by $10 million.
C)   The money supply will not change.
D)   The money supply will increase by $10 million.
E)   The money supply will increase by $100 million.

Question 16

The immediate impetus for the establishment of the Federal Reserve System came from

Accepted Answer

A)   severe outbreaks of inflation in the early 1900s.
B)   four severe banking panics between 1873 and 1907.
C)   the discovery of gold in Alaska.
D)   the desire to copy the founding of the Bank of England.

Question 17

The reason that the Fed does not actively use discount rate policy to control the money supply is because the Fed

Accepted Answer

A)   acts when a majority of member banks agree on policy and the banks rarely agree.
B)   earns interest on discounting and cannot afford to lose the revenue.
C)   does not know how banks will respond to discount rate changes.
D)   has been directed by Congress to set the discount rate at a permanent level.

Question 18

The Federal Reserve System is

Accepted Answer

A)   controlled by the Department of the Treasury.
B)   the central bank for the United States.
C)   completely similar to the Bank of England.
D)   All of the above are correct.

Question 19

Contractionary monetary policy shifts the reserve supply schedule inward.

Accepted Answer

A) True 
 B)False

Question 20

Are money and income the same thing?

Accepted Answer

A)   No, money is measured at a point in time and income is measured for a period of time.
B)   No, money is measured for a period of time and income is measured at a point in time.
C)   Yes, they are just measured in different ways.
D)   Yes, the only difference is real versus nominal.

Exam 30: Monetary Policy: Conventional and Unconventional

The immediate impetus for the establishment of the Federal Reserve System came from

Correct Answer
verified

The Federal Reserve System was established by Congress in 1914

Correct Answer
verified

Some form of financial distress can become a full-blown recession if risk lead to interest rates and aggregate demand.

Correct Answer
verified

Explain the relationship between interest rates and (1) investments in housing, and (2) business investments.

Correct Answer
verified
As the interest cost of a home mortgage ...
View Answer

As a knowledgeable investor in 2007, you should have realized that as interest rates fell, bond prices would

Correct Answer
verified

Contractionary monetary policy shifts the reserve supply schedule inward.

Correct Answer
verified

A system that requires banks to keep 100 percent reserves

Correct Answer
verified

Correct Answer
verified

The Federal Reserve Board of Governors

Correct Answer
verified

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

Correct Answer
verified

At the time of its founding, which tool was thought to be the most useful for the Fed?

Correct Answer
verified

Which of the following will increase interest rates in the short run?

Correct Answer
verified

During the stock market crash of October 1987, the Fed

Correct Answer
verified

The Federal Open Market Committee meets

Correct Answer
verified

Are money and income the same thing?

Correct Answer
verified

The Federal Reserve System is

Correct Answer
verified

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

Correct Answer
verified

In 1998, Japan decided to make the Bank of Japan, its central bank,

Correct Answer
verified

The reason that the Fed does not actively use discount rate policy to control the money supply is because the Fed

Correct Answer
verified

Banks will hold additional excess reserves when

Correct Answer
verified

Exam 30: Monetary Policy: Conventional and Unconventional

The immediate impetus for the establishment of the Federal Reserve System came from

Correct AnswerverifiedShow Answer

The Federal Reserve System was established by Congress in 1914

Correct AnswerverifiedShow Answer

Some form of financial distress can become a full-blown recession if risk lead to ____ interest rates and ____ aggregate demand.

Correct AnswerverifiedShow Answer

Explain the relationship between interest rates and (1) investments in housing, and (2) business investments.

Correct AnswerverifiedAs the interest cost of a home mortgage ...View AnswerShow Answer

As a knowledgeable investor in 2007, you should have realized that as interest rates fell, bond prices would

Correct AnswerverifiedShow Answer

Contractionary monetary policy shifts the reserve supply schedule inward.

Correct AnswerverifiedShow Answer

A system that requires banks to keep 100 percent reserves

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Federal Reserve Board of Governors

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

At the time of its founding, which tool was thought to be the most useful for the Fed?

Correct AnswerverifiedShow Answer

Which of the following will increase interest rates in the short run?

Correct AnswerverifiedShow Answer

During the stock market crash of October 1987, the Fed

Correct AnswerverifiedShow Answer

The Federal Open Market Committee meets

Correct AnswerverifiedShow Answer

Are money and income the same thing?

Correct AnswerverifiedShow Answer

The Federal Reserve System is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In 1998, Japan decided to make the Bank of Japan, its central bank,

Correct AnswerverifiedShow Answer

The reason that the Fed does not actively use discount rate policy to control the money supply is because the Fed

Correct AnswerverifiedShow Answer

Banks will hold additional excess reserves when

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Some form of financial distress can become a full-blown recession if risk lead to interest rates and aggregate demand.

Correct Answer
verified

Correct Answer
verified
As the interest cost of a home mortgage ...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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