Question 1

Which of these statements is the most accurate description of a liquidity trap?

Accepted Answer

A)  Borrowers are willing to borrow, and expansionary policy is used to stimulate the economy as needed.
B)  Lenders are willing to lend, but high interest rates keep borrowing slightly lower than needed.
C)  Borrowers are unwilling to borrow, and lenders are unwilling to lend due to pessimism about the future.
D)  Lenders are willing to lend, but borrowers borrow too much due to increased optimism about the future.

Question 2

When the economy is caught in a liquidity trap, expansionary monetary policy will

Accepted Answer

A)  result in inflation.
B)  result in a significant contraction in economic activity.
C)  result in a significant expansion of economic activity.
D)  have little impact on the economy.

Question 3

If the European Central Bank is pursuing a contractionary monetary policy, it will

Accepted Answer

A)  raise the minimum reserve requirement.
B)  lower the interest rate paid by its deposit facility.
C)  use quantitative easing.
D)  lower the minimum reserve requirement.

Question 4

Which of these open market operations in the European Central Bank is most central to overall monetary policy and carried out weekly?

Accepted Answer

A)  Longer-term refinancing
B)  Structural liquidity-reducing
C)  Main refinancing
D)  Structural liquidity-providing

Question 5

Federal government budget surpluses can lead to a "crowding out" effect, which pushes interest rates upward.

Accepted Answer

A) True 
 B)False

Question 6

John Maynard Keynes argued that people demand money for three reasons. What are these three reasons?

Accepted Answer

A)  Transactions motive, precautionary motive, and speculative motive
B)  Quantity motive, speculative motive, and philanthropic motive
C)  Transactions motive, precautionary motive, and familial motive
D)  Precautionary motive, speculative motive, and wealth motive

Question 7

Of the policy tools available to the European Central Bank, the most frequently used are the

Accepted Answer

A)  discount rates.
B)  standing lending facilities.
C)  minimum reserve requirements.
D)  open market operations (OMOs) .

Question 8

Irving Fisher's equation of exchange is expressed as

Accepted Answer

A)  MS  × PL = V ×  T.
B)  MS/V = PL  × T.
C)  MS × T = PL × V.
D)  V = (PL  × T) /MS.

Question 9

In the figure below, the loanable funds market is in equilibrium at A with the interest rate IR 1 . In conducting monetary policy, the Federal Reserve engages in the buying of US Treasury securities on the open market, which causes  
1 . In conducting monetary policy, the Federal Reserve engages in the buying of US Treasury securities on the open market, which causes     A) no change in the loanable funds market, so the equilibrium interest rate remains at IR1. B) the demand for loanable funds to increase to D', causing the equilibrium interest rate to increase to IR2. C) both the demand for loanable funds and the supply of loanable funds to increase to D' and S' respectively, keeping the equilibrium interest rate at IR1. D) the supply of loanable funds to increase to S', causing the equilibrium interest rate to fall to IR3." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)  no change in the loanable funds market, so the equilibrium interest rate remains at IR1.
B)  the demand for loanable funds to increase to D', causing the equilibrium interest rate to increase to IR2.
C)  both the demand for loanable funds and the supply of loanable funds to increase to D' and S' respectively, keeping the equilibrium interest rate at IR1.
D)  the supply of loanable funds to increase to S', causing the equilibrium interest rate to fall to IR3.

Question 10

What is the significance of Fisher's equation of exchange? How did the assumption of a constant velocity of money not match up with ongoing real-world observations?

Accepted Answer

Irving Fisher's equation of exchange is ...

Question 11

What was the significance and the immediate effect of the quantitative easing announced on November 25, 2008, in response to the 2007-2008 financial crisis unfolding in the United States?

Accepted Answer

Quantitative easing was introduced as a ...

Question 12

Imagine you live in a country with huge public debt and an uncertain future. Monetization of this public debt is most likely to lead to which of these outcomes?

Accepted Answer

A)  Inflation
B)  Stagflation
C)  Reduced money supply
D)  High interest rates

Question 13

The purchase of direct debt and mortgage-backed securities by the Federal Reserve in November 2008 is referred to as

Accepted Answer

A)  qualitative easing.
B)  quantitative easing.
C)  a repurchase agreement.
D)  liquidity easing.

Question 14

If GDP is $20 trillion and the money supply is $4 trillion, what is the velocity of money?

Accepted Answer

A)  2
B)  5
C)  16
D)  80

Exam 9: Monetary Policy Tools

The purchase of direct debt and mortgage-backed securities by the Federal Reserve in November 2008 is referred to as

Correct Answer
verified

Imagine you live in a country with huge public debt and an uncertain future. Monetization of this public debt is most likely to lead to which of these outcomes?

Correct Answer
verified

Irving Fisher's equation of exchange is expressed as

Correct Answer
verified

If the European Central Bank is pursuing a contractionary monetary policy, it will

Correct Answer
verified

Which of these statements is the most accurate description of a liquidity trap?

Correct Answer
verified

Federal government budget surpluses can lead to a "crowding out" effect, which pushes interest rates upward.

Correct Answer
verified

Which of these open market operations in the European Central Bank is most central to overall monetary policy and carried out weekly?

Correct Answer
verified

If GDP is $20 trillion and the money supply is $4 trillion, what is the velocity of money?

Correct Answer
verified

What was the significance and the immediate effect of the quantitative easing announced on November 25, 2008, in response to the 2007-2008 financial crisis unfolding in the United States?

Correct Answer
verified
Quantitative easing was introduced as a ...
View Answer

In the figure below, the loanable funds market is in equilibrium at A with the interest rate IR ₁ . In conducting monetary policy, the Federal Reserve engages in the buying of US Treasury securities on the open market, which causes

Correct Answer
verified

John Maynard Keynes argued that people demand money for three reasons. What are these three reasons?

Correct Answer
verified

Of the policy tools available to the European Central Bank, the most frequently used are the

Correct Answer
verified

When the economy is caught in a liquidity trap, expansionary monetary policy will

Correct Answer
verified

What is the significance of Fisher's equation of exchange? How did the assumption of a constant velocity of money not match up with ongoing real-world observations?

Correct Answer
verified
Irving Fisher's equation of exchange is ...
View Answer

Exam 9: Monetary Policy Tools

The purchase of direct debt and mortgage-backed securities by the Federal Reserve in November 2008 is referred to as

Correct AnswerverifiedShow Answer

Imagine you live in a country with huge public debt and an uncertain future. Monetization of this public debt is most likely to lead to which of these outcomes?

Correct AnswerverifiedShow Answer

Irving Fisher's equation of exchange is expressed as

Correct AnswerverifiedShow Answer

If the European Central Bank is pursuing a contractionary monetary policy, it will

Correct AnswerverifiedShow Answer

Which of these statements is the most accurate description of a liquidity trap?

Correct AnswerverifiedShow Answer

Federal government budget surpluses can lead to a "crowding out" effect, which pushes interest rates upward.

Correct AnswerverifiedShow Answer

Which of these open market operations in the European Central Bank is most central to overall monetary policy and carried out weekly?

Correct AnswerverifiedShow Answer

If GDP is $20 trillion and the money supply is $4 trillion, what is the velocity of money?

Correct AnswerverifiedShow Answer

What was the significance and the immediate effect of the quantitative easing announced on November 25, 2008, in response to the 2007-2008 financial crisis unfolding in the United States?

Correct AnswerverifiedQuantitative easing was introduced as a ...View AnswerShow Answer

In the figure below, the loanable funds market is in equilibrium at A with the interest rate IR 1 . In conducting monetary policy, the Federal Reserve engages in the buying of US Treasury securities on the open market, which causes

Correct AnswerverifiedShow Answer

John Maynard Keynes argued that people demand money for three reasons. What are these three reasons?

Correct AnswerverifiedShow Answer

Of the policy tools available to the European Central Bank, the most frequently used are the

Correct AnswerverifiedShow Answer

When the economy is caught in a liquidity trap, expansionary monetary policy will

Correct AnswerverifiedShow Answer

What is the significance of Fisher's equation of exchange? How did the assumption of a constant velocity of money not match up with ongoing real-world observations?

Correct AnswerverifiedIrving Fisher's equation of exchange is ...View AnswerShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Quantitative easing was introduced as a ...
View Answer

In the figure below, the loanable funds market is in equilibrium at A with the interest rate IR ₁ . In conducting monetary policy, the Federal Reserve engages in the buying of US Treasury securities on the open market, which causes

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Irving Fisher's equation of exchange is ...
View Answer