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Exam 12: Monetary Policy and the Federal Reserve

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Question 41

Multiple Choice

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One of the serious drawbacks of the deposit insurance system in the United States is that:

A) bank failures continue to occur regularly.
B) the system took away the Federal Reserve's ability to conduct open-market operations.
C) the system took away the Federal Reserve's ability to change reserve requirements.
D) if insured intermediaries make many bad loans, the taxpayers may be responsible for covering the losses.

E) C) and D)
F) None of the above

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Question 42

Multiple Choice

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In an economy where planned aggregate spending is given by PAE = 5,500 + 0.6Y - 20,000r, the interest rate is currently 2 percent (0.02) .If potential output equals 8,000, the central bank must ______ the interest rate to close the ______ gap.

A) lower; expansionary
B) lower; recessionary
C) raise; recessionary
D) raise; expansionary

E) A) and B)
F) B) and C)

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Question 43

Multiple Choice

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Because an increase in the nominal interest rate raises the opportunity costs of holding money, the money demand curve:

The money demand curve relates ______ to the ________.

Based on the information in the table, we can conclude that, in 1932, each of the following events occurred except:

During the Christmas shopping season, the demand for money increases significantly.To offset the increase in money demand, the Fed must ______ the money supply, which will put ______ pressure on nominal interest rates.

Financial markets pay close attention to changes in the federal funds rate because these changes:

A higher real interest rate ______ saving and ______ consumption spending.

To close a recessionary gap, the Fed ______ interest rates which ______ planned aggregate spending and ______ short-run equilibrium output.

The money demand curve will shift to the right if:

Prior to January 2000, the demand for money increased as people anticipated Y2K problems.If the Fed had taken no action to offset this increase in money demand, then nominal interest rates would have:

In Macroland, currency held by the public is 2,000 econs, bank reserves are 300 econs, and the desired (and current) reserve/deposit ratio is 15 percent.If commercial banks borrow 100 econs in reserves from the Central Bank through discount window lending, then the money supply in Macroland will ______, assuming that the public does not wish to change the amount of currency it holds.

The ______ is the interest rate commercial banks pay to the Fed; the ______ is the interest rate commercial banks charge each other for short-term loans.

Any target value of the nominal interest rate chosen by the Federal Reserve implies a specific value for ______.

The benefit of holding money is _______, while the opportunity cost of holding money is _______.

Which of the following would be expected to decrease the demand for money in the U.S.?

If commercial banks are maintaining a 5 percent reserve/deposit ratio and the Fed lowers the required reserve ratio to 3 percent, then banks may ______ their loans and deposits, and the money supply may _____.

The interest rate that commercial banks charge each other for very short-term loans is called the:

A reserve requirement set by the Federal Reserve is the:

The Federal Reserve consists of ______ regional banks, ______ governors on the Board of Governors, and ______ voting members of the Federal Open Market Committee.