Question 1

An excess demand for money drives interest rates down.

Accepted Answer

A) True 
 B)False

Question 2

If the quantity of money demanded equals the quantity of money supplied, then the interest rate will:

Accepted Answer

A)   remain constant.
B)   fall.
C)   equal zero.
D)   rise.

Question 3

An increase in U.S. interest rates, holding Canadian interest rates unchanged, will cause the U.S. dollar to appreciate against the Canadian dollar.

Accepted Answer

A) True 
 B)False

Question 4

In a graph where the interest rate is on the y- axis and the quantity of money is on the x- axis, a money supply curve that is drawn as a vertical line implies that:

Accepted Answer

A)   the interest rate is independent of the quantity of money.
B)   the money market is in equilibrium.
C)   the demand for money is independent of the interest rate.
D)   the money supply is independent of the interest rate.

Question 5

Which choice is true?

Accepted Answer

A)   A higher interest rate causes lower investment, higher demand, and higher real GDP.
B)   A higher interest rate causes lower investment, lower demand, and lower real GDP.
C)   A higher interest rate causes higher investment, lower demand, and lower real GDP.
D)   A lower interest rate causes lower investment, higher demand, and higher real GDP.

Question 6

An appreciation of a country's currency is likely to:

Accepted Answer

A)   decrease exports but not change imports.
B)   decrease exports and decrease imports.
C)   increase its GDP.
D)   decrease its GDP.

Question 7

Figure 14.4
-Refer to Figure 14.4. If the Fed wants to reduce the economy's market interest rate from 6 percent to 4 percent, and the reserve ratio is 10 percent, then it needs to _______.

Accepted Answer

A)   buy $20 in government bonds
B)   buy $200 in government bonds
C)   sell $200 in government bonds
D)   sell $20 in government bonds

Question 8

Which of the following sequence of events would follow an open market purchase of bonds?

Accepted Answer

A)   
B)   
C)   
D)

Question 9

A country's currency appreciates relative to a foreign currency if:

Accepted Answer

A)   the country's GDP increases faster than the foreign country's GDP.
B)   the prices of goods in the home country increases faster than in the foreign country.
C)   it takes more foreign currency to buy the home currency.
D)   All of the above are correct.

Question 10

Explain the trade- off between holding bonds and holding money. Why don't people keep all their assets in the forms that are the easiest to use for making transactions?

Accepted Answer

The opportunity cost of holding money is...

Question 11

Which of the following sequence of events would follow a decrease in the reserve requirement?

Accepted Answer

A)   
B)   
C)   
D)

Question 12

When the economy is in a boom, the interest rates _______ and the bond prices _______.

Accepted Answer

A)   increase; increase
B)   decrease; increase
C)   increase; decrease
D)   decrease; decrease

Question 13

The price of one country's currency in terms of another country's currency is called the:

Accepted Answer

A)   exchange rate.
B)   balance of trade.
C)   currency valuation.
D)   terms of trade.

Question 14

If the Federal Reserve wants interest rates to decrease, it will buy government bonds.

Accepted Answer

A) True 
 B)False

Question 15

Recall Application 3, "The Effectiveness of Committees," to answer the following questions:
-According to the application, later research by Alan Blinder showed that:

Accepted Answer

A)   the wisdom of the leader magnifies the superiority of the decisions of the committee.
B)   the wisdom of the leader magnifies the inferiority of the decisions of the committee.
C)   the wisdom of the whole group contributes to the superiority of committee decisions than the wisdom of the leader alone.
D)   the wisdom of the leader contributes to superiority of committee decisions than the average wisdom of the group.

Question 16

Which of the following is a tool used by the Fed to control the money supply?

Accepted Answer

A)   the reserve requirement
B)   open market operations
C)   the discount rate
D)   All of the above are correct.

Question 17

When the Fed lowers the required reserve ratio, the money supply _______ and banks' reserves _______.

Accepted Answer

A)   increases; remain constant
B)   remains constant; decrease
C)   decreases; decrease
D)   increases; increase

Question 18

A depreciation of the U.S. dollar will likely cause U.S. net exports to _______ and U.S. real GDP to _______.

Accepted Answer

A)   decrease; increase
B)   increase; decrease
C)   increase; increase
D)   decrease; decrease

Question 19

Which of the following statements is true?

Accepted Answer

A)   The Fed only controls the short- term interest rates, not the long- term interest rates.
B)   The Fed only controls the long- term interest rates, not the short- term interest rates.
C)   The Fed has no control of the long- term or the short- term interest rates.
D)   The Fed controls both the short- term and the long term interest rates.

Question 20

d  B)  keep Ms constant C)  sell government bonds D)  buy government bonds" class="answers-bank-image d-inline" rel="preload" > Figure 14.4
-Refer to Figure 14.4. If the Fed wants to raise the economy's market interest rate from 6 percent to 8 percent, it needs to _______.

Accepted Answer

A)   increase Md 
B)   keep Ms constant
C)   sell government bonds
D)   buy government bonds

Exam 14: The Federal Reserve and Monetary Policy

The price of one country's currency in terms of another country's currency is called the:

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

A depreciation of the U.S. dollar will likely cause U.S. net exports to _______ and U.S. real GDP to _______.

Correct AnswerverifiedShow Answer

If the quantity of money demanded equals the quantity of money supplied, then the interest rate will:

Correct AnswerverifiedShow Answer

Which choice is true?

Correct AnswerverifiedShow Answer

Explain the trade- off between holding bonds and holding money. Why don't people keep all their assets in the forms that are the easiest to use for making transactions?

Correct AnswerverifiedThe opportunity cost of holding money is...View AnswerShow Answer

Recall Application 3, "The Effectiveness of Committees," to answer the following questions: -According to the application, later research by Alan Blinder showed that:

Correct AnswerverifiedShow Answer

Figure 14.4 -Refer to Figure 14.4. If the Fed wants to raise the economy's market interest rate from 6 percent to 8 percent, it needs to _______.

Correct AnswerverifiedShow Answer

Which of the following sequence of events would follow a decrease in the reserve requirement?

Correct AnswerverifiedShow Answer

If the Federal Reserve wants interest rates to decrease, it will buy government bonds.

Correct AnswerverifiedShow Answer

An excess demand for money drives interest rates down.

Correct AnswerverifiedShow Answer

In a graph where the interest rate is on the y- axis and the quantity of money is on the x- axis, a money supply curve that is drawn as a vertical line implies that:

Correct AnswerverifiedShow Answer

An appreciation of a country's currency is likely to:

Correct AnswerverifiedShow Answer

When the economy is in a boom, the interest rates _______ and the bond prices _______.

Correct AnswerverifiedShow Answer

An increase in U.S. interest rates, holding Canadian interest rates unchanged, will cause the U.S. dollar to appreciate against the Canadian dollar.

Correct AnswerverifiedShow Answer

Figure 14.4 -Refer to Figure 14.4. If the Fed wants to reduce the economy's market interest rate from 6 percent to 4 percent, and the reserve ratio is 10 percent, then it needs to _______.

Correct AnswerverifiedShow Answer

When the Fed lowers the required reserve ratio, the money supply _______ and banks' reserves _______.

Correct AnswerverifiedShow Answer

Which of the following sequence of events would follow an open market purchase of bonds?

Correct AnswerverifiedShow Answer

Which of the following is a tool used by the Fed to control the money supply?

Correct AnswerverifiedShow Answer

A country's currency appreciates relative to a foreign currency if:

Correct AnswerverifiedShow Answer

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A depreciation of the U.S. dollar will likely cause U.S. net exports to _ and U.S. real GDP to _.

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The opportunity cost of holding money is...
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When the economy is in a boom, the interest rates _ and the bond prices _.

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When the Fed lowers the required reserve ratio, the money supply _ and banks' reserves _.

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