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| 1 | |
The component of aggregate demand most affected by monetary policy is net exports. |
| | A) | True |
| | B) | False |
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| 2 | |
Refer to the following:
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Suppose the interest rate is currently 4% and the Fed determines that investment of $20 is required to reach full employment GDP. To target this outcome, the Fed might: |
| | A) | sell bonds to the public |
| | B) | lower the discount rate |
| | C) | lower the reserve requirement |
| | D) | announce an expansionary monetary policy |
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| 3 | |
The discount rate is: |
| | A) | determined by the supply of and demand for interbank overnight loans |
| | B) | the rate commercial banks charge to their best customers |
| | C) | set by the Fed |
| | D) | the lowest rate available to prospective homeowners for mortgage loans |
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| 4 | |
The transactions demand for money varies inversely with the interest rate whereas the asset demand varies directly with the interest rate. |
| | A) | True |
| | B) | False |
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| 5 | |
Suppose the economy is in a recession and is running a trade deficit. Fed purchases of bonds from the public will likely: |
| | A) | expand the economy and reduce the trade deficit |
| | B) | expand the economy but worsen the trade deficit |
| | C) | contract the economy further but reduce the trade deficit |
| | D) | contract the economy and worsen the trade deficit |
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| 6 | |
Which of the following will cause the aggregate demand curve to shift to the left? |
| | A) | a reduction in interest rates |
| | B) | an expansionary monetary policy |
| | C) | a reduction in the reserve requirement |
| | D) | Fed sales of bonds to the public |
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| 7 | |
Two primary assets of the Federal Reserve Banks are: |
| | A) | Securities and Federal Reserve notes outstanding |
| | B) | Securities and Treasury deposits |
| | C) | Federal Reserve notes outstanding and reserves of commercial banks |
| | D) | Securities and loans to commercial banks |
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| 8 | |
The Fed does not pay interest on bank reserves. Consequently: |
| | A) | the Fed rarely uses changes in open market operations to conduct monetary policy |
| | B) | an expansionary monetary policy is more effective in achieving its goals than a restrictive monetary policy |
| | C) | banks and thrifts hold only small amounts of excess reserves |
| | D) | the Fed rarely uses changes in the discount rate to conduct monetary policy |
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| 9 | |
An increase in the money supply will: |
| | A) | reduce interest rates, increasing investment and GDP |
| | B) | reduce interest rates, reducing investment and GDP |
| | C) | raise interest rates, reducing investment and GDP |
| | D) | raise interest rates, increasing investment and lowering GDP |
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| 10 | |
Fed sales of bonds to the public will cause: |
| | A) | investment to increase |
| | B) | aggregate demand to shift to the left |
| | C) | an increase in the money supply |
| | D) | lower interest rates |
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