The main policy-making body of the Federal Reserve System in the
a. Federal Advisory Council
b. Council of Economic Advisors
*c. Board of Governors
d. Federal Banking Committee
The most important and widely used monetary took of the Fed is
*a. Open market operations
b. The reserve requirement
c. The discount rate
d. The margin requirement
It is common for commercial banks with surplus balances in their accounts to lend reserves overnight to
banks with deficiencies of reserves. The interest rate that pertains to these loans is the
a. Discount rate
b. Prime rate
*c. Federal funds rate
d. Commercial load rate
To combat recession, the Fed would adopt a (an)
a. Contractionary monetary policy that shifts the aggregate demand curve to the right
b. Contractionary monetary policy that shifts the aggregate demand curve to the left
*c. Expansionary monetary policy that shifts the aggregate demand curve to the right
d. Expansionary monetary policy that shifts the aggregate demand curve to the left
To counteract demand-pull inflation, the Fed would
a. Decrease the discount rate, decrease the required reserve ratio, and buy securities in the open
market
b. Decrease the discount rate, decrease the required reserve ratio, and sell securities in the open
market
c. Increase the discount rate, increase the required reserve ratio, and buy securities in the open
market
*d. Increase the discount rate, increase the required reserve ratio, and sell securities in the open
market
Concerning the short-run effects of monetary policy, an increase in the money supply works mainly
through decreases in
a. Interest rates that result in additional investment and an increase in aggregate supply
*b. Interest rates that result in additional investment and an increase in aggregate demand
c. The purchasing power of money that result in decline consumption and a decrease in aggregate
demandd. The purchasing power of money that result in declining consumption and a decrease in
aggregate supply
To correct an “overheating” stock market, the Federal Reserve would:
a. Increase the dollar’s exchange
*b. Increase the margin requirement
c. Decrease the prime rate
d. Decrease the federal funds rate
If the Fed decreases the money supply, which of the following will occur in the short run
*a. The interest rate will increase, the price level will decrease, and real output will decrease
b. The interest rate will increase, the price level will increase, and real output will decrease
c. The interest rate will decrease, the price level will decrease, and real output will increase
d. The interest rate will decrease, the price level will increase, and real output will decrease
When the Fed buys securities on the open market, the securities it purchases are usually
a. Bonds issued by private corporations
b. Securities issued by foreign governments
c. Securities issued by state and local governments
*d. Securities issued by the U.S. Treasury
To combat demand-pull inflation, the Federal Reserve would
a. Increase the money supply and shift the aggregate demand curve leftward
b. Increase the money supply and shift the aggregate demand curve rightward
*c. Decrease the money supply and shift the aggregate demand curve leftward
d. Decrease the money supply and shift the aggregate demand curve rightward
To combat a recession, the Federal Reserve could
a. Increase the required reserve ratio, increase the discount rate, and/or sell securities on the open
market
b. Increase required reserve ratio, decrease the discount rate, and/or buy securities on the open
market
c. Decrease the required ratio, decrease the discount rate, and/or sell securities on the open
market
*d. Decrease the required reserve ratio, decrease the discount rate, and/or buy securities on the
open market
Open market operations
*a. Refer to the purchase or sale of securities by the Fed
b. Are only undertaken to slow down the growth of money supply in the economy
c. Are always undertaken on explicit orders from Congress
d. Refer to foreign exchange operations of the Fed
When a commercial bank uses the Fed’s discount window it
*a. Is availing of the Fed’s service as a “lender of last resort”
b. IS attempting to improve its profits by securing a lower interest loan
c. Is acquiring additional reserves to help improve the profits of another bank
d. Decreases its reserve holdingsMonetary policy that attempts to increase employment and output in the short run involves
*a. Increasing the money supply
b. Increasing the discount rate
c. Increasing the required reserve ratio
d. Selling securities to banks
An increase in the required reserve ratio
a. Leads to an increase in the monetary supply
b. Leads to a decrease in the discount rate
c. May lead to an expansion in aggregate demand
*d. May be part of a contractionary monetary policy package
When the Fed decreases the discount rate, it may be pursuing
a. Contractionary fiscal policy
b. Contractionary monetary policy
*c. Expansionary monetary policy
d. Anti-inflationary policy
The purpose of a restrictive monetary policy is to:
a. Alleviate recessions
*b. Raise interest rates and restrict the availability of bank credit
c. Increase aggregate demand and GDP
d. Increase investment spending
Which of the following actions by the Fed would cause the money supply to increase?
*a. Purchases of government bonds from banks
b. An increase in the reserve requirement
c. An increase in the discount rate
d. Sales of government bonds to the public
Assume the economy is operating at less than full employment. An expansionary monetary policy will
cause interest rate to ______, which will ______ investment spending.
a. decrease; decrease
*b. decrease; increase
c. increase; increase
d. increase; decrease
Which of the following best describes the cause-effect chain of a restrictive monetary policy?
a. A decrease in the money supply will lower the interest rate, increase investment spending, and
increase aggregate demand and GDP
*b. A decrease in the money supply will raise the interest rate, decrease investment spending and
decrease aggregate demand and GDP.
c. An increase in the money supply will raise the interest rate, decrease investment spending, and
decrease aggregate demand and GDPd. An increase in the money supply will lower the interest rate, decrease investment spending, and
increase aggregate demand and GDP.
The discount rate is the interest:
a. Rate at which the central banks lend to the U.S. Treasury.
*b. Rate at which the Federal Reserve Banks lend to commercial banks.
c. Yield on long-term government bonds
d. Rate at which commercial banks lend to the public
A commercial bank can add to its actual reserves by:
a. Lending money to bank customers
b. Buying government securities from the public
c. Buying government securities from a Federal Reserve Bank
*d. Borrowing from a Federal Reserve Bank.
Open-market operations refer to
a. Purchases of stocks in the New York Stock Exchange
*b. The purchase or sale of government securities by the Fed
c. Central bank lending to commercial banks.
d. The specifying of load maximums on stock purchases
If the Federal Reserve System buys government securities from commercial banks and the public:
a. Commercial bank servers will decline.
*b. The money supply to increase
c. Demand deposits to decrease
d. The interest rate to increase