Chapter 15

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Which of the following will increase commercial bank reserves?

– The purchase of government bonds in the open market by the Federal Reserve Banks –

Which of the following is a tool of monetary policy?

A) open market operations

In the United States monetary policy is the responsibility of the:

C) Board of Governors of the Federal Reserve System.

The three main tools of monetary policy are:

C) the discount rate, the reserve ratio, and open-market operations

The Fed can change the money supply by:

D) doing all of the above.

Open-market operations refer to:

B) the purchase or sale of government securities by the Fed.

If the Federal Reserve System buys government securities from commercial banks and the public:

C) it will be easier to obtain loans at commercial banks.

The Federal Reserve System regulates the money supply primarily by:

C) altering the reserves of commercial banks, largely through sales and purchases of government bonds.

If the Fed were to increase the legal reserve ratio, we would expect:

C) higher interest rates, a contracted GDP, and appreciation of the dollar.

Assume that the commercial banking system has checkable deposits of $10 billion and excess reserves of $1 billion at a time when the reserve requirement is 20 percent. If the reserve requirement is now raised to 30 percent, the banking system then has:

B) neither an excess nor a deficiency of reserves.

The discount rate is the interest:

B) rate at which the Federal Reserve Banks lend to commercial banks.

Changes in the discount rate are:

-Less important than open-market operations in implementing monetary policy. – interest rate that the Federal reserve charges on loans to banks; fed lowers rate to inc money supply, and dec. by making it higher

Which of the following best describes the cause-effect chain of an easy money policy?

D) An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.

If the Federal Reserve authorities were attempting to reduce demand-pull inflation, the proper policies would be to:

A) sell government securities, raise reserve requirements, and raise the discount rate.

A contraction of the money supply:

A) increases the interest rate and decreases aggregate demand.

If the Fed were to purchase government securities in the open market, we would anticipate:

A) lower interest rates, an expanded GDP, and depreciation of the dollar.

The purpose of a tight money policy is to:

B) raise interest rates and restrict the availability of bank credit.

Monetary policy is expected to have its greatest impact on:

B) Ig.

Assume the economy is operating at less than full employment. An easy money policy will cause interest rates to ________. which will ___________ investment spending.

B) decrease; increase

If severe demand-pull inflation was occurring in the economy, proper government policies would involve a government:

C) surplus and the sale of securities in the open market, a higher discount rate, and higher reserve requirements.

Which of the following has bolstered the case for active monetary policy?

C) the success of monetary policy in helping the economy emerge from the 1990-1991 recession and sustain economic growth through the 1990s

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

A) can be implemented more quickly.

A tight money policy could be offset by:

D) an increase in the velocity of money

Since 1980, U.S. monetary policy has been:

B) relatively successful in controlling inflation and promoting full employment

The Fed directly sets:

C) neither the Federal funds rate nor the prime interest rate.

The benchmark interest rate that banks use as a reference point for a variety of consumer and business loans is the:

B) prime interest rate

Compared with fiscal policy, monetary policy is:

A) quicker and easier to implement.

Other things equal, a tight money policy will:

C) reduce net exports

The pushing-on-a-string analogy makes the point that, monetary policy may be better at:

B) increase GDP.

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