Question 1

Increases in the discount rate

Accepted Answer

A)   are a tool of contractionary monetary policy.
B)   do not affect bank behavior.
C)   serve to expand the money supply.
D)   encourage banks to hold less than the required amount of reserves.

Question 2

Which of the following is FALSE?

Accepted Answer

A)   To the extent that there are lags in the implementation of monetary policy, its effectiveness is lessened.
B)   An increase in the money supply will increase the purchasing power of a dollar.
C)   An expansionary monetary policy will increase aggregate demand.
D)   A contractionary monetary policy will decrease aggregate demand.

Question 3

If the Fed decreases the reserve requirement,

Accepted Answer

A)   banks will issue more loans.
B)   banks will issue fewer loans.
C)   consumers will save more.
D)   consumers will save less.

Question 4

How would the money supply expand if the Fed follows a monetary rule?

Accepted Answer

The money supply wou...

Question 5

The Fed currently announces an _________ _________ target when it announces monetary policy.

Accepted Answer

The answer of The Fed currently announces an _________ _________...

Question 6

If the Fed follows a _________ _________ , it will increase the money supply at a rate of growth equal to the rate of economic growth.

Accepted Answer

The answer of If the Fed follows a _________ _________...

Question 7

How are bond prices affected when interest rates rise?

Accepted Answer

The answer of How are bond prices affected when interest...

Question 8

If the Fed sells U.S. government securities on the open market,

Accepted Answer

A)   there will be no effect on the money supply, but aggregate demand will decrease.
B)   there will be no effect on the money supply, but aggregate demand will increase.
C)   reserves in the banking system will decrease.
D)   interest rates will decrease.

Question 9

Monetary policy is expansionary if it serves to _________ the supply of credit.

Accepted Answer

The answer of Monetary policy is expansionary if it serves...

Question 10

An increase in bond prices is usually accompanied by

Accepted Answer

A)   an increase in interest rates.
B)   a decrease in the quantity of investment.
C)   a decrease in interest rates.
D)   an increase in the opportunity cost of holding money.

Question 11

To the extent that there are time lags present in the implementation of monetary policy, its effectiveness is lessened.

Accepted Answer

A) True 
 B)False

Question 12

If Federal Reserve chairman Alan Greenspan announces a reduction in interest rates, this means that

Accepted Answer

A)   the Fed will be following a contractionary monetary policy.
B)   the Fed will be buying government securities on the open market.
C)   the Fed will be selling government securities on the open market.
D)   the Fed will be increasing the required reserve ratio.

Question 13

The Fed would be pursuing an expansionary monetary policy if it were

Accepted Answer

A)   selling bonds.
B)   raising the discount rate.
C)   lowering the required reserve ratio.
D)   lowering bond prices.

Question 14

An open market purchase of bonds by the Fed injects _________ into the banking system.

Accepted Answer

The answer of An open market purchase of bonds by...

Question 15

Which of the following is not an effect of an increase in the money supply?

Accepted Answer

A)   People try to buy more goods and services
B)   Banks have excess reserves
C)   Aggregate supply increases
D)   Price level increases

Question 16

Contractionary monetary policy is used to combat _________.

Accepted Answer

The answer of Contractionary monetary policy is used to combat...

Question 17

How are bond prices affected when the Federal Reserve purchases bonds?

Accepted Answer

The answer of How are bond prices affected when the...

Question 18

Which of the following tools does the Fed rarely use?

Accepted Answer

A)   Changing the discount rate
B)   Buying government bonds
C)   Selling government bonds
D)   Changing the required reserve ratio

Question 19

Changes in the money supply affect interest rates and levels of spending, but they have no effect on the price level.

Accepted Answer

A) True 
 B)False

Question 20

When the Fed buys government securities on the open market,

Accepted Answer

A)   bond prices will fall.
B)   interest rates will increase.
C)   the money supply will contract.
D)   it is engaging in expansionary monetary policy.

Exam 14: The Monetary Policy Approach to Stabilization

An increase in bond prices is usually accompanied by

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How are bond prices affected when the Federal Reserve purchases bonds?

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When the Fed buys government securities on the open market,

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Which of the following is FALSE?

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How are bond prices affected when interest rates rise?

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An open market purchase of bonds by the Fed injects _________ into the banking system.

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The Fed currently announces an _________ _________ target when it announces monetary policy.

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The Fed would be pursuing an expansionary monetary policy if it were

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If the Fed follows a _________ _________ , it will increase the money supply at a rate of growth equal to the rate of economic growth.

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Monetary policy is expansionary if it serves to _________ the supply of credit.

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Increases in the discount rate

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Which of the following is not an effect of an increase in the money supply?

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How would the money supply expand if the Fed follows a monetary rule?

Correct AnswerverifiedThe money supply wou...View AnswerShow Answer

If the Fed decreases the reserve requirement,

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If the Fed sells U.S. government securities on the open market,

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Contractionary monetary policy is used to combat _________.

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If Federal Reserve chairman Alan Greenspan announces a reduction in interest rates, this means that

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Which of the following tools does the Fed rarely use?

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To the extent that there are time lags present in the implementation of monetary policy, its effectiveness is lessened.

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Changes in the money supply affect interest rates and levels of spending, but they have no effect on the price level.

Correct AnswerverifiedShow Answer

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The Fed currently announces an _ _ target when it announces monetary policy.

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If the Fed follows a _ _ , it will increase the money supply at a rate of growth equal to the rate of economic growth.

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The money supply wou...
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