monetary policy example #44964

what happens to interest rates and investment when the Federal Reserve increases the money supply? a. Interest rates increase and investment increases. b. Interest rates increase and investment decreases. c. Interest rates decrease and investment increases. d. Interest rates decrease and investment decreases.

what happens when the money supply is decreased? a. AS increases and real GDP increases. b. AD increases and real GDP increases. c. AS decreases and real GDP decreases. d. AD decreases and real GDP decreases.

An increase in the money supply, all else held constant, usually a. increases the interest rate and increases aggregate demand. b. increases the interest rate and decreases aggregate demand. c. decreases the interest rate and increases aggregate demand. d. decreases the interest rate and decreases aggregate demand.

The purpose of expansionary monetary policy is to increase a. the GDP gap. b. the inflation rate. c. real GDP. d. interest rates.

If the Fed buys government securities from commercial banks in the open market a. the Fed gives the securities to the commercial banks and increases the banks' reserves. b. the Fed gives the securities to the commercial banks and decreases the banks' reserves. c. commercial banks give the securities to the Fed, and the Fed increases the banks' reserves. d. commercial banks give the securities to the Fed, and the Fed decreases the banks' reserves.

The purchase and sale of government securities by the Fed is called a. federal funds market. b. open market operations. c. money market transactions. d. term auction facility.

If the Board of Governors of the Federal Reserve System increases the reserve requirement, this change will a. increase the excess reserves of member banks and thus increase the money supply. b. increase the excess reserves of member banks and thus decrease the money supply. c. decrease the excess reserves of member banks and thus decrease the money supply. d. decrease the excess reserves of member banks and thus increase the money supply.

Which of the monetary policy tools can alter both the level of excess reserves and the money multiplier? a. open-market operations b. the reserve requirement c. the discount rate d. the federal funds rate

Lowering the discount rate has the effect of a. turning required reserves into excess reserves. b. turning excess reserves into required reserves. c. making it less expensive for commercial banks to borrow from central banks. d. forcing commercial banks to call in outstanding loans from their best customers.

The interest rate that the Fed charges on loans made directly to banks is called a. the discount rate. b. interest on reserves. c. the federal funds rate. d. the prime rate.

Which of the following statements is true? a. The Federal Reserve sets the federal funds rate. b. The Federal Reserve sets the target for the federal funds rate, and then uses the reserve requirement to push banks toward that target. c. The Federal Reserve does not set the federal funds rate, but it influences it through the use of its open-market operations. d. The Federal Reserve will set a higher target for the federal funds rate if pursuing an expansionary monetary policy.

The demand curve for federal funds is a. horizontal. b. downward-sloping. c. upward-sloping. d. vertical.

what does the supply of federal funds look like? a. It is a vertical line. b. It is a horizontal line. c. It is an upward-sloping line. d. It is a downward-sloping line.

When the Fed wants to lower the federal funds rate, it a. increases the discount rate. b. increases the reserve requirement. c. buys bonds from banks and the public. d. sells bonds to banks and the public.

In an effort to stabilize the banking sector and keep banks lending, from October 2008 to September 2009, the Fed a. raised reserve requirements. b. raised the amount of interest paid on reserves held at Fed banks. c. declared a series of bank holidays to give banks a chance to recover from excessive withdrawals from customer accounts. d. lowered the federal funds target rate.

To reduce the federal funds rate, the Fed can a. buy government bonds from the public. b. increase the discount rate. c. increase the prime rate. d. sell government bonds to commercial banks.

When the Federal Reserve acts to tighten money and credit in the economy, it is trying to reduce the a. unemployment rate. b. inflation rate. c. target federal funds rate. d. discount rate.

If the Fed were to reduce the reserve requirement, we would expect a. lower interest rates, an expanded GDP, and a higher rate of inflation. b. lower interest rates, an expanded GDP, and a lower rate of inflation. c. higher interest rates, a contracted GDP, and a higher rate of inflation. d. higher interest rates, a contracted GDP, and a lower rate of inflation.

A newspaper headline reads: "Fed Raises Discount Rate for Third Time This Year." This headline indicates that the Federal Reserve is most likely trying to a. stimulate the economy. b. increase the money supply. c. reduce the cost of credit. d. reduce inflationary pressures in the economy.

If the Federal Reserve System buys government securities from commercial banks and the public a. commercial bank reserves will decline. b. commercial bank reserves will be unaffected. c. it will be easier to obtain loans at commercial banks. d. the money supply will contract.

The federal funds rate is the interest rate that _______ charge(s) _______. a. banks; other banks b. the Fed; commercial banks c. banks; their best corporate customers d. banks; on federal student loans

Which of the following statements best describes what occurs when monetary authorities sell government securities? a. The size of commercial banks' excess reserves decreases, the money supply increases, and interest rates fall, thereby causing a decrease in investment spending and real GDP. b. The size of commercial banks' excess reserves decreases, the money supply decreases, and the interest rates rise, thereby causing a decrease in investment spending and real GDP. c. The size of commercial banks' excess reserves decreases, the money supply decreases, and interest rates rise, thereby causing an increase in investment spending and real GDP. d. The size of commercial bank reserves increases, the money supply increases, and interest rates fall, thereby causing an increase in investment spending and real GDP.

The interest rate that banks charge one another for the loan of excess reserves is the a. prime rate. b. federal funds rate. c. discount rate. d. interest on reserves.

Which of the following statements is correct? a. The federal funds rate is derived based on the prime rate. b. The federal funds rate is the rate banks charge their most creditworthy customers. c. The discount rate is the rate banks charge one another on overnight loans. d. The prime rate involves longer, more risky loans than the federal funds rate.

What policy tool of the Federal Reserve relies on bank borrowing to be effective? a. open-market operations b. check collection c. the reserve requirement d. the discount rate

An expansionary monetary policy may be less effective than a restrictive monetary policy because a. the Federal Reserve Banks are always willing to make loans to commercial banks that are short of reserves. b. fiscal policy always works at cross purposes with an expansionary monetary policy. c. changes in exchange rates complicate an expansionary monetary policy more than they do a restrictive monetary policy. d. commercial banks may not be able to find good loan customers.

The interest rate at which the Federal Reserve Banks lend to commercial banks is called the a. prime rate. b. short-term rate. c. discount rate. d. federal funds rate.