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Test 3 (Chapters 13,14,15,16)

Test 3 (Chapters 13,14,15,16) - Version A Q Fall.—— 91...

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Unformatted text preview: Version A Q Fall, __._.——- 91? L} emf MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) 1When the Fed purchases artwork to decorate the conference room at the Federal Reserve Bank of /l) a Kansas City, _ _ \Lcurrency in circulation falls. in Mill/fl l"i"~=.{i‘yi§yl.§ ‘g'fl l t 3&3 2%.!!! reserves rise, but the monetary base falls. : ’ ‘ I S the monetary base rises Wreserves fall. 2) When the Federal Reserve sells a government bond to a bank, reserves in the banking system I, 2) and the monetary base , everything else held constant A decrease; decreases B) decrease; increases C) increase; increases D) increase; decreases ivy» C0 at out (’2 gm” E) 3) If the relationship between the monetary aggregate and the goal variable 15 weak, then X 3) A) monetary aggregate targeting is superior to inflation targeting. @monetary aggregate targeting will not work. C) monetary aggregate targeting is superior to exchange —rate targeting. D) inflation targeting is superior to exchange-rate targeting. Wm mt acts are are genie» is“ are t: is. a if D 4) If the Taylor Principle is not followed and nominal interest rates are increased by less than the X 4) increase in the irflation rate, then real interest rates will and monetary policy will be too . A) rise; loose \EQ fall; tight C) rise; tight 1 j fall; loose 5) An increase in reduces the money supply since it causes the to fall. at; 5) W} A) reserve requirements; monetary base @eserve requirements; money multiplier n 1; . a, a \ interest rates; money multiplier if) 1 '1‘ ”i” R3». 21;. s l D) interest rates; monetary base \ m ‘_ ’ a A “NC; : ._ £5: , if). 6) The monetary base declines when v} 6)’ f w A) Treasury deposits at the Fed decrease B) cash in circulation increases. 1®fioat decreases 1 _ y a a D) the Fed buys securities. m "v f i 7) Everything else held constant, in the market for reserves, when the federal funds rate is 1%, \/ 7) is” increasing the interest rate paid on excess reserves from 1% to 2% A) has no effect on the federal funds rate. B) has an indeterminate effect on the federal funds rate. @raises the federal funds rate. D) lowers the federal funds rate. 1-. F‘ 3‘? {j}! :fifi' ;>_ % ___._, , » any; m n 8) Suppose, at a given federal funds rate, there" 1s an excess demand for reserves in the federal J8) funds market; If the Fed wants the federal funds rate to stay at that level, then it shouid ' - undertake an open market of bonds, everything else held constant If the Fed does _ I nothing, hOWever, the federal funds rate'wiil II; . I ' ‘ E3 purchase; decrease ' . Q3) purchase; increase . . saie; decrease . D) sale; increase - 9) According to the Taylor rule, the Fed should raise the federal funds interest rate when inflation 3/9) \ .«-_. the Fed s inflation target or when real GDP I . the Fed's output target. I - ' A) rises above; rises abOve 13) rises above; drops below (3 drops beiow; rises above \erops below; drops below 10) In the market fOr reserves, it the federal funds rate is above the interest rate paid on excess .\/ I10) 0 - reserves, an open market 'sale the supply of reserves causing the federal funds rate. to everything else held constant ‘Al mcreaSes; decrease I - \lLincreases; increase C) decreases; decrease I @ decreases; increase 11) Everything else held constant, a decrease 1n holdings of excess reserves will mean A) an increase in discount loans . ' B) a decrease in checkable deposits 3;: -/\ _ I C) a decrease inIthe money suppiy. Qan increase in the money supply \118 :5 l Wt 33 “l“ if“? 12) Discount policy affects the money suppiy by affecting the volume of and the . J 12) 1 .3 . A) excess reserves; money multiplier B borrowed reserves; monetary base _ LI . C) borrowed reserves; money multiplier D excess reserves; monetary base - t 13) If float 15 predicted to 1ncrease because of bad weather, the manager of the trading desk at the ‘/ 13)_____ Ll New York Fed bank will likely conduct open market operations to reserves. \A) dynamic; decrease '91 c We Mpg—— 1Q) dynamic; increase C) defensive; increase U. y}. {-3 “Ha/1‘) .(Cfflgefensive; decrease J C 14) If the required reserve ratio is equal to 10 percent, a single bank can increase its loans up to a J14)______ maximum amount equal to if C :4 f Cb \g=~§,\ m y A)10 times its excess reserves )3) 10 percent of its excess reserves. - @ts excess reserves D) its total reserves.- . - 1";ng 15) Although it enjoys a high degree of independence, the Fed is still subject to the influence of ‘j 15) ' Congress because ' ' ELCongress can remove members of the Board of Governors at will ACongress can pass legislation that would restrict the Fed's independenCe Eg:%;Congress can wimhold the Fed‘ s appropriations 13) Congress determines the budget of the Fed O 3- We; ' \l/ 16) The case for Federal Reserve independence does not include the idea that $11 16) 0 A) a Federal Reserve under the control of Congress or the president might make the so—called political business cycle more pronounced. ' B)”.political pressure would impart an inflationarybias to monetary policy. @increasing political pressures would lead to a contractionary bias to monetary policy. D) a politically insulated Fed would be more concerned with long -run objectives and thus be a defender of a sound dollar and a stable price level. 17) If the Fed injects reserves into the banking system and they are held as excess reserves, then the 3}) 17) E we? supply . . . . . . s e We :2.» x we Mincreases by a multiple of the 1mt1al increase in reserves. 1:). 1 W m”; L; a , r. '@does not change. 5C) increases by only the initial increase in reserves. ”W l C '31:; £51) I ' \Ql‘increases by only one—half the initial increase in reserves. \ i DU) CO 1* {2: {wt fife-r39“? 123$ 18) Which Federal Reserve Bank president always has a vgte in th Federal Open Market Committee? 9" 18) \_/ A) Boston B) San Francisco léCfNew York ' D) Minneapolis k 19) A in market interest rates relative to the discount rate will cause discount borrowing to X 19) B . . don‘t 4 ares «filer A) fall; remain unchanged @rlse; increase ethyl—Tr» tofiil“ 13"?) HE"? re C). fall; increase D) rise; decrease ’39 f“ C13” 5'5“"? E’ 1. 20) Everything else held constant, assume there is a rise in the acceptance of debit cards; this would )1 20) ft) caue the money multiplier to and the money supply to . . increase; increase B) decrease; decrease \)J C, 7;) ,l‘\ ‘ll’l :17 I)“ We C) increase; decrease D) decrease; increase '- {/3 ‘ 21) Everything else held constant, in the market for reserves, when the federal funds rate is 3%, d 21) if} raising the discount rate from 5% to 6% A) raises the federal funds rate. 13) has no effect on the. federal funds rate. . C) has an indeterminate effect on the federal funds rate. D) lowers the federal funds rate. 22) The Federal Open Market Committee consists of the tflseven members of the Board of Governors and five presidents of the regional Fed banks. B) seven members of the Board of Governors and seven presidents of the regional Fed banks. C) five senior members of the seven—member Board of Governors. D) twelve regional Fed bank presidents and the chairman of the Board of Governors. xi )2\ 23) A credit-driven bubble arises when in lending causes in asset prices which \/ 23) 3V. can cause in lending. A) a decrease; a decrease; an increase B) a decrease; a decrease; a further decrease @an increase; an increase; a further increase D) a decrease; an increase; an increase i\ 24) In the market for reserves, if the federal funds rate is between the discount rate and the interest . 34 24) V rate paid on excess reserves a in the reserve requirement decreases the demand for - reserves, the federal funds interest rate, everything else held constant A) rise; lowering )3) decline; raising ‘C\) rise; raising . @decline; lowering 25) Price stability is desirable because A) everyone is better off when prices are stable. £3? inflation creates uncertainty, maldng it difficult to plan for the future C) it guarantees full employment D) price stability increases the profitability of the Fed. :3 26) Suppose that from a new checkable deposit, First National Bark holds two million dollars in \j 26) ‘ vault cash, eight million dollars on deposit with the Federal Reserve, and 'one million dollars in: required reserves. Given this information, we can say First National Bank has miilion ' dollars in excess reserves. if) ' - A) three Bane _ C) ten D) eleven £52., ' TQ:Z'%:‘1|Q-\ :53) i4” 27) Since the Federal Reserve Sets the required reserve ratio to less than one, one dollar of reserves V 27) can support of checkable deposits. , more than-one dollar - B) exactly twice the amount l/ ; fix“ a C) less than one dollar D) exactly one dollar V W 28) If the central bank targets a monetary aggregate, it is likely to lose control over the interest rate :34 28) ”la because [email protected] fluctuations in the demand for reserves. B) of fluctuations in the business cycle. C) bond values will tend to remain stable. D) of fluctuations in the consumption function. 29) Everything else held constant, when the federal funds rate is the interest. rate paidon X 29) D reserves, the quantity of reserves demanded rises when the federal funds rate. . Rabove, rises - B) below, fails C) below, rises I I {D} above, falls . ‘ 7 :{lg' 30) Monetary policy is considered time—inconsistent because ' ’ 30) 2 3 @policymakers are tempted to pursue discretionary policy that is more expansionary in the short run. _ _ 7 B) policymakers are tempted to pursue discretionary policy that is more contractionary in the short run. C) of the lag limes associated with the recognition of a potential economic problem and the implementation of monetary policy. 7 D) of the lag times associated with the implementation of monetary policy and its effect on the "economy. ...
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