Exercise Chap 34 Student: 1. A decrease in the interest rate will cause a(n): A. Increase in the transactions demand for money B. Decrease in the transactions demand for money C. Decrease in the amount of money held as an asset D. Increase in the amount of money held as an asset 2. Which varies directly with the interest rate? A. The opportunity cost of holding money B. The transactions demand for money C. The asset demand for money D. The level of investment 3. If the interest rate increases, there will be a(n): A. Decrease in the amount of money held as assets B. Decrease in the transactions demand for money C. Increase in the transactions demand for money D. Increase in the amount of money held as assets 4. If nominal GDP decreases this will: A. Increase the transactions demand and total demand for money B. Decrease the transactions demand and total demand for money C. Increase the transactions demand for money but decrease the total demand for money D. Decrease the transactions demand for money but increase the total demand for money
5. The fundamental objective of monetary policy is to assist the economy in achieving: A. A rapid pace of economic growth B. A money supply which is based on the gold standard C. A full-employment, noninflationary level of total output D. A balanced-budget consistent with full-employment 6. The tools of monetary policy for altering the reserves of commercial banks are the: A. Tax rate and level of government spending B. Consumer price index and unemployment rate C. Public debt, budget surplus, and budget deficit D. Discount rate, reserve ratio, and open-market operations 7. The Federal Reserve alters the amount of the nation's money supply by: A. Reducing the liabilities of the banking system B. Controlling the assets of the nation's largest banks C. Minting coins and printing currency that is distributed to banks D. Manipulating the size of excess reserves held by commercial banks 8. If the Fed buys government securities from commercial banks in the open market: A. The Fed gives the securities to the commercial banks, and they pay for them by writing checks that increase their reserves at the Fed B. The Fed gives the securities to the commercial banks, and they pay for them by writing checks that decrease their reserves at the Fed C. Commercial banks give the securities to the Fed, and it pays for them by increasing the reserves of commercial banks at the Fed D. Commercial banks give the securities to the Fed, and it pays for them by decreasing the reserves of commercial banks at the Fed
9. If the Fed sells government securities to the public in the open market,: A. The Fed gives the securities to the public; the public pays for the securities by writing checks that when cleared will increase commercial bank reserves at the Fed B. The Fed gives the securities to the public; the public pays for the securities by writing checks that when cleared will decrease commercial bank reserves at the Fed C. The public gives the securities to the Fed; the Fed pays for the securities by check, which when deposited at commercial banks will increase their reserves at the Fed D. The public gives the securities to the Fed; the Fed pays for the securities by check, which when deposited at commercial banks will decrease their reserves at the Fed 10. Assume the required reserve ratio is 20 percent. If the Federal Reserve buys $80 million in government securities from the public, then the money supply will immediately: A. Increase by $80 million, and the maximum money-lending potential of the commercial banking system will increase by $80 million B. Increase by $80 million, but the maximum money-lending potential of the commercial banking system will decrease by $80 million C. Increase by $80 million, and the maximum money-lending potential of the commercial banking system will increase by $400 million D. Decrease, because the securities are an asset to the commercial banks and a liability to the Federal Reserve 11. Which increases the excess reserves of commercial banks? A. The central banks sell bonds to the public B. The central banks sell bonds to commercial banks C. The central banks buy bonds from commercial banks D. The Board of Governors increases the discount rate 12. Raising the reserve ratio: A. Decreases the discount rate B. Increases the discount rate C. Decreases the amount of excess reserves banks must keep D. Changes excess reserves to required reserves
13. Assume the commercial banking system has checkable deposits of $20 billion and excess reserves of $2 billion at a time when the reserve ratio is 25 percent. If the reserve ratio is lowered to 20 percent, we can conclude that the: A. Bank now has excess reserves of $3.2 billion B. Bank now has neither an excess nor a deficiency of reserves C. Maximum money-creating potential of the banking system has been increased by $7 billion D. Board of Governors has decided that the economy is experiencing a high rate of inflation 14. A headline reads: "Fed Cuts the Federal Funds Rate by Half a Point." This suggests that: A. The prime interest rate will rise B. Monetary policy has eased C. Tax rates have been reduced D. The discount rate will rise 15. When the Federal Reserve uses open-market operations to raise the Federal funds rate several times over a year, it is pursuing: A. An expansionary money policy B. A prime interest rate policy C. A restrictive money policy D. A Taylor rule policy 16. In the chain of cause and effect between changes in the excess reserves of commercial banks and the resulting changes in output and employment in the economy: A. A decrease in aggregate demand will increase output B. An increase in the money supply will decrease the rate of interest C. A decrease in excess reserves will increase the money supply D. A decrease in the rate of interest will decrease aggregate demand
17. Which would provide the most accurate description of events when monetary authorities increase the size of commercial banks' excess reserves? A. A fall in interest rates decreases the money supply, causing an increase in investment spending, output, and employment B. A rise in interest rates increases the money supply, causing a decrease in investment spending, output, and employment C. The money supply is decreased, which increases the interest rate, and causes investment spending, output, and employment to decrease D. The money supply is increased, which decreases the interest rate, and causes investment spending, output, and employment to increase 18. The purpose of an expansionary money policy is to: A. Increase aggregate demand B. Decrease aggregate demand C. Increase investment demand D. Decrease investment demand 19. Suppose the economy is at full employment with a high inflation rate. Which combination of government policies is least likely to reduce the inflation rate? A. Buy government securities in the open market and increase taxes B. Buy government securities in the open market and decrease taxes C. Sell government securities in the open market and increase government spending D. Sell government securities in the open market and decrease government spending 20. Assume that the MPC is.75. If the Federal Reserve increases the money supply and investment spending increases by $8 billion, then aggregate demand is likely to: A. Increase by $6 billion B. Increase by $8 billion C. Increase by $32 billion D. Decrease by $8 billion