econ ch 16

Federal Reserve Notes in circulation are

The level of GDP, ceteris paribus, will tend to increase when

Answer the question on the assumption that the legal reserve ratio is 20 percent. Suppose that the Fed sells $500 of government securities to commercial banks (paid for out of commercial bank reserves) and buys $500 of securities from individuals, who deposit the cash in checking accounts. As a result of the given transactions, the supply of money in the economy will

The interest rate that banks charge one another on overnight loans is called the

Which of the following best describes the cause-effect chain of an expansionary monetary policy?

Beginning in 2008, the Fed was allowed to

Which of the following actions by the Fed most likely increase commercial bank lending?

The major purpose of the Federal Reserve buying government securities in open-market operations is to

If the economy were encountering a severe recession, proper monetary and fiscal policies would call for

When the Fed sells bonds to the bank and the public, the expected result is that

Assume that there is a 25 percent reserve ratio and that the Federal Reserve buys $200 million worth of government securities. If the securities are purchased from the public, then this action has the potential to increase bank lending by a maximum of

In the recent financial and economic crises, the economy fell into a so-called liquidity trap, which means that

The prime interest rate

In an effort to stabilize the banking sector and keep banks lending, from October 2008 to September 2009, the Fed

The discount rate is the interest

If the Fed sells government securities to the general public in the open market,

When the Fed raises the interest rate paid on reserves, it discourages bank lending.

A decrease in the nominal GDP, other things remaining the same, will decrease both the total demand for money and the equilibrium rate of interest in the economy.

Big Bucks Bank currently holds $20 million in excess reserves. If the Fed increases the rate of interest it pays on excess reserves held at the Fed, we would expect Big Bucks Bank to

An increase in the legal reserve ratio

What is one of the advantages of monetary policy over fiscal policy?

On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively, the asset demand for money can be represented by

Before the financial crisis of 2008, when the Federal Reserve Banks decided to buy government bonds from commercial banks and the general public, the supply of reserves in the federal funds market

Since the financial crisis of 2008, the main tool of expansionary monetary policy used by the Fed has been

The reserves of commercial banks are assets to commercial banks and liabilities of the Federal Reserve System.

An increase in nominal GDP will

In economics, the expression "You can lead a horse to water, but you can't make it drink" illustrates the

The effects on aggregate demand of an open market purchase and a tax cut are similar.

Which of the following tools of monetary policy has not been used since 1992?

In the cause-effect chain linking changes in the banks' excess reserves and the resulting changes in output and employment in the economy,

If the Fed wants to maintain current interest rates, it would be buying government bonds in the open market when

The federal funds rate is the rate that banks charge other banks for overnight loans of excess reserves.

Before the financial crisis of 2008, if the Fed wanted to lower the Federal funds rate, it

The interest rate that banks use as a reference point for interest rates on a wide range of loans to businesses and individuals is the

The Fed's normalization plan for monetary policy included

A restrictive monetary policy reduces investment spending and shifts the economy's aggregate demand curve to the right.

After the financial crisis of 2007-2009, why did the Federal Reserve effectively lose its ability to increase the money supply by manipulating the federal funds rate target?

If the Fed buys $1 million in government securities from Bank A, then the immediate effect of this transaction is an increase in