Question 1

According to the Taylor rule, if the unemployment rate falls by 1 percent below the full-employment rate, the Fed should lower their
interest rate target by one-half a percentage points.

Accepted Answer

A) True 
 B)False

Question 2

A newspaper headline reads, "Fed Raises Discount Rate for Third Time This Year." This headline indicates that the Federal Reserve is most likely trying to

Accepted Answer

A)   stimulate the economy.
B)   increase the money supply.
C)   reduce the cost of credit.
D)   reduce inﬂationary pressures in the economy.E) A) and B)
F) A) and D)

Question 3

Changes in interest rates, ceteris paribus, cause a shift in

Accepted Answer

A)   neither the investment demand curve nor the aggregate demand curve.
B)   the investment demand curve, but not the aggregate demand curve.
C)   the aggregate demand curve, but not the investment demand curve.
D)   the investment demand curve and the aggregate demand curve.E) None of the above
F) All of the above

Question 4

What is one of the advantages of monetary policy over ﬁscal policy?

Accepted Answer

A)   its control over the size of Federal budget deﬁcits
B)   the quickness with which it can be used
C)   the opportunity for broad political inﬂuence
D)   It can guarantee an expansion of aggregate demand when needed.E) A) and D)
F) C) and D)

Question 5

Which of the following is not a reason why after the Great Recession, when the recovery turned out to be very weak, economic policy in the U.S. had to turn forcefully toward ﬁscal policy?

Accepted Answer

A)   Monetary policy suffered from cyclical asymmetry.
B)   The banking system fell into a liquidity trap.
C)   Interest rates had already been cut to very low levels.
D)   There was a time lag implementing monetary policy.E) None of the above
F) B) and C)

Question 6

If consumers and businesses are especially pessimistic, as in the Great Recession of 2007-2009, and do not want to borrow money from banks, then the use of an expansionary money policy is likened to

Accepted Answer

A)   completing the circle.
B)   pushing on a string.
C)   ﬁlling in the blanks.
D)   checking the list.E) A) and D)
F) B) and C)

Question 7

Differentiate between expansionary and restrictive monetary policies.

Accepted Answer

Expansionary monetary policy attempts to...

Question 8

Which of the following is not a tool of monetary policy?

Accepted Answer

A)   open-market operations
B)   changes in banking laws
C)   changes in the rate of interest paid on reserves held at Federal Reserve Banks
D)   Fed lending or borrowing with repos or reverse reposE) C) and D)
F) A) and C)

Question 9

Which of the following varies directly with the interest rate?

Accepted Answer

A)   the opportunity cost of holding money
B)   the transactions demand for money
C)   the asset demand for money
D)   the level of investmentE) A) and B)
F) B) and D)

Question 10

Before the ﬁnancial crisis of 2008, if the Fed wanted to lower the Federal funds rate, it

Accepted Answer

A)   increased the discount rate.
B)   increased the reserve ratio.
C)   bought bonds from banks and the public.
D)   sold bonds to banks and the public.E) B) and C)
F) C) and D)

Question 11

Big Bucks Bank currently holds $20 million in excess reserves. If the Fed increases the rate of interest it pays on excess reserves held at the Fed, we would expect Big Bucks Bank to

Accepted Answer

A)   use those excess reserves to increase its lending.
B)   not change its lending activity, as excess reserves are not eligible to receive interest paid on reserve accounts.
C)   move a portion of those excess reserves into its required reserve account.
D)   hold more of those excess reserves in its reserve account at the Fed, reducing the amount it is willing to lend.E) None of the above
F) C) and D)

Question 12

Which one of the following is a tool of monetary policy often used by the Fed for altering the reserves of commercial banks?

Accepted Answer

A)   issuing currency
B)   check collection
C)   open-market operations
D)   the required reserve ratioE) None of the above
F) C) and D)

Question 13

Suppose that, for every 1-percentage-point decline of the discount rate, commercial banks collectively borrow an additional $2 billion from Federal Reserve Banks. Also assume that the reserve ratio is 20 percent. If the Fed increases the discount rate from 4.0 percent to
4) 25 percent, bank reserves will

Accepted Answer

A)   increase by $0.5 billion and the money supply will increase by $2.5 billion.
B)   decline by $0.5 billion and the money supply will decline by $2.5 billion.
C)   increase by $0.75 billion and the money supply will increase by $3.75 billion.
D)   increase by $1 billion and the money supply will increase by $5 billion.E) B) and C)
F) C) and D) B

Question 14

Accepted Answer

A)   $125.
B)   $175.
C)   $200.
D)   $225.E) A) and B)
F) All of the above C

Question 15

An expansionary monetary policy increases the money supply, lowers interest rates, and increases aggregate demand.

Accepted Answer

A) True 
 B)False

Question 16

Accepted Answer

A)   increase the money supply from $75 to $150 billion
B)   increase the money supply from $150 to $225 billion
C)   decrease the money supply from $225 to $150 billion
D)   make no change in the money supplyE) A) and B)
F) B) and D) A

Question 17

The effects of expansionary monetary policy are strengthened by a liquidity trap.

Accepted Answer

A) True 
 B)False

Question 18

The Fed's response to the zero lower bound problem was quantitative easing (or "QE") , where the Fed buys large amounts of bonds in order to

Accepted Answer

A)   lower the interest rates.
B)   increase banks' reserves.
C)   lower bond prices.
D)   reduce money supply.E) B) and C)
F) A) and D)

Question 19

One of the strengths of monetary policy relative to ﬁscal policy is that monetary policy

Accepted Answer

A)   can be implemented more quickly.
B)   is subject to closer political scrutiny.
C)   does not produce a net export effect.
D)   entails a larger spending income multiplier effect on real GDP.E) B) and D)
F) C) and D)

Question 20

Explain two strengths of monetary policy for achieving economic stability.

Accepted Answer

Monetary policy has two key ad...

Exam 16: Interest Rates and Monetary Policy

According to the Taylor rule, if the unemployment rate falls by 1 percent below the full-employment rate, the Fed should lower their interest rate target by one-half a percentage points.

Correct Answer
verified

A newspaper headline reads, "Fed Raises Discount Rate for Third Time This Year." This headline indicates that the Federal Reserve is most likely trying to

Correct Answer
verified

Changes in interest rates, ceteris paribus, cause a shift in

Correct Answer
verified

What is one of the advantages of monetary policy over ﬁscal policy?

Correct Answer
verified

Which of the following is not a reason why after the Great Recession, when the recovery turned out to be very weak, economic policy in the U.S. had to turn forcefully toward ﬁscal policy?

Correct Answer
verified

If consumers and businesses are especially pessimistic, as in the Great Recession of 2007-2009, and do not want to borrow money from banks, then the use of an expansionary money policy is likened to

Correct Answer
verified

Differentiate between expansionary and restrictive monetary policies.

Correct Answer
verified
Expansionary monetary policy attempts to...
View Answer

Which of the following is not a tool of monetary policy?

Correct Answer
verified

Which of the following varies directly with the interest rate?

Correct Answer
verified

Before the ﬁnancial crisis of 2008, if the Fed wanted to lower the Federal funds rate, it

Correct Answer
verified

Big Bucks Bank currently holds $20 million in excess reserves. If the Fed increases the rate of interest it pays on excess reserves held at the Fed, we would expect Big Bucks Bank to

Correct Answer
verified

Which one of the following is a tool of monetary policy often used by the Fed for altering the reserves of commercial banks?

Correct Answer
verified

Correct Answer
verified
B

Correct Answer
verified
C

An expansionary monetary policy increases the money supply, lowers interest rates, and increases aggregate demand.

Correct Answer
verified

Correct Answer
verified
A

The effects of expansionary monetary policy are strengthened by a liquidity trap.

Correct Answer
verified

The Fed's response to the zero lower bound problem was quantitative easing (or "QE") , where the Fed buys large amounts of bonds in order to

Correct Answer
verified

One of the strengths of monetary policy relative to ﬁscal policy is that monetary policy

Correct Answer
verified

Explain two strengths of monetary policy for achieving economic stability.

Correct Answer
verified
Monetary policy has two key ad...
View Answer

Exam 16: Interest Rates and Monetary Policy

According to the Taylor rule, if the unemployment rate falls by 1 percent below the full-employment rate, the Fed should lower their interest rate target by one-half a percentage points.

Correct AnswerverifiedShow Answer

A newspaper headline reads, "Fed Raises Discount Rate for Third Time This Year." This headline indicates that the Federal Reserve is most likely trying to

Correct AnswerverifiedShow Answer

Changes in interest rates, ceteris paribus, cause a shift in

Correct AnswerverifiedShow Answer

What is one of the advantages of monetary policy over ﬁscal policy?

Correct AnswerverifiedShow Answer

Which of the following is not a reason why after the Great Recession, when the recovery turned out to be very weak, economic policy in the U.S. had to turn forcefully toward ﬁscal policy?

Correct AnswerverifiedShow Answer

If consumers and businesses are especially pessimistic, as in the Great Recession of 2007-2009, and do not want to borrow money from banks, then the use of an expansionary money policy is likened to

Correct AnswerverifiedShow Answer

Differentiate between expansionary and restrictive monetary policies.

Correct AnswerverifiedExpansionary monetary policy attempts to...View AnswerShow Answer

Which of the following is not a tool of monetary policy?

Correct AnswerverifiedShow Answer

Which of the following varies directly with the interest rate?

Correct AnswerverifiedShow Answer

Before the ﬁnancial crisis of 2008, if the Fed wanted to lower the Federal funds rate, it

Correct AnswerverifiedShow Answer

Big Bucks Bank currently holds $20 million in excess reserves. If the Fed increases the rate of interest it pays on excess reserves held at the Fed, we would expect Big Bucks Bank to

Correct AnswerverifiedShow Answer

Which one of the following is a tool of monetary policy often used by the Fed for altering the reserves of commercial banks?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedB

Correct AnswerverifiedC

An expansionary monetary policy increases the money supply, lowers interest rates, and increases aggregate demand.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedA

The effects of expansionary monetary policy are strengthened by a liquidity trap.

Correct AnswerverifiedShow Answer

The Fed's response to the zero lower bound problem was quantitative easing (or "QE") , where the Fed buys large amounts of bonds in order to

Correct AnswerverifiedShow Answer

One of the strengths of monetary policy relative to ﬁscal policy is that monetary policy

Correct AnswerverifiedShow Answer

Explain two strengths of monetary policy for achieving economic stability.

Correct AnswerverifiedMonetary policy has two key ad...View AnswerShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Expansionary monetary policy attempts to...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
B

Correct Answer
verified
C

Correct Answer
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Correct Answer
verified
A

Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Monetary policy has two key ad...
View Answer