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. |
Chapter 15
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