Exam (elaborations) ECON529/ECON 529 Questions and answers (ECON529) ECON 529 Questions and Answers TESTBANK (All Chapters Covered)

Testbank 01 - Chapter 16 Interest Rates and Monetary Policy -------------------------------------------------------------------------------- 1. The transactions demand for money is most closely related to money functioning as a: A. unit of account. B. medium of exchange. C. store of value. D. measure of value. Points Earned: 0/1 Correct Answer: B Your Response: 2. The asset demand for money is most closely related to money functioning as a: A. unit of account. B. medium of exchange. C. store of value. D. measure of value. Points Earned: 0/1 Correct Answer: C Your Response: 3. The desire to hold money for transactions purposes arises because: A. receipts of income and expenditures are not perfectly synchronized. B. people fear that prices will rise. C. households want money on hand in case a good financial investment opportunity arises. D. low interest rates reduce the opportunity cost of holding money. Points Earned: 0/1 Correct Answer: A Your Response: 4. The asset demand for money: A. is unrelated to both the interest rate and the level of GDP. B. varies inversely with the rate of interest. C. varies inversely with the level of real GDP. D. varies directly with the level of nominal GDP. Points Earned: 0/1 Correct Answer: B Your Response: 5. On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively, the transactions demand for money can be represented by: A. a line parallel to the horizontal axis. B. a vertical line. C. a downsloping line or curve from left to right. D. an upsloping line or curve from left to right. Points Earned: 0/1 Correct Answer: B Your Response: 6. 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: A. a line parallel to the horizontal axis. B. a vertical line. C. a downsloping line or curve from left to right. D. an upsloping line or curve from left to right. Points Earned: 0/1 Correct Answer: C Your Response: 7. On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively, the total demand for money can be found by: A. horizontally adding the transactions and the asset demand for money. B. vertically subtracting the transactions demand from the asset demand for money. C. horizontally subtracting the asset demand from the transactions demand for money. D. vertically adding the transactions and the asset demand for money. Points Earned: 0/1 Correct Answer: A Your Response: 8. The total demand for money curve will shift to the right as a result of: A. an increase in nominal GDP. B. an increase in the interest rate. C. a decline in the interest rate. D. a decline in nominal GDP. Points Earned: 0/1 Correct Answer: A Your Response: 9. Which of the following statements is correct? Other things equal: A. a decline in real output will shift both the transactions demand curve for money and the total money demand curve to the right. B. a decline in the interest rate will shift the asset demand curve for money to the right, but leave the total money demand curve unchanged. C. deflation will shift both the transactions demand curve for money and the total money demand curve to the left. D. inflation will shift the transactions demand curve for money to the right, but leave the total money demand curve unchanged. Points Earned: 0/1 Correct Answer: C Your Response: 10. If nominal GDP is $600 billion and, on the average, each dollar is spent three times per year, then the amount of money demanded for transactions purposes will be: A. $1800 billion. B. $600 billion. C. $200 billion. D. $1200 billion. Points Earned: 0/1 Correct Answer: C Your Response: 11. In which of the following situations is it certain that the quantity of money demanded by the public will decrease? A. nominal GDP decreases and the interest rate decreases B. nominal GDP increases and the interest rate decreases C. nominal GDP decreases and the interest rate increases D. nominal GDP increases and the interest rate increases Points Earned: 0/1 Correct Answer: C Your Response: 12. It is costly to hold money because: A. deflation may reduce its purchasing power. B. in doing so one sacrifices interest income. C. bond prices are highly variable. D. the rate at which money is spent may decline. Points Earned: 0/1 Correct Answer: B Your Response: 13. An increase in nominal GDP increases the demand for money because: A. interest rates will rise. B. more money is needed to finance a larger volume of transactions. C. bond prices will fall. D. the opportunity cost of holding money will decline. Points Earned: 0/1 Correct Answer: B Your Response: 14. Which of the following is correct? A. The asset demand for money is downsloping because the opportunity cost of holding money declines as the interest rate rises. B. The asset demand for money is downsloping because the opportunity cost of holding money increases as the interest rate rises. C. The transactions demand for money is downsloping because the opportunity cost of holding money varies inversely with the interest rate. D. The asset demand for money is downsloping because bond prices and the interest rate are directly related. Points Earned: 0/1 Correct Answer: B Your Response: 15. The transactions demand for money will shift to the: A. right when the interest rate increases. B. left when the interest rate decreases. C. right when aggregate income increases. D. right when aggregate income decreases. Points Earned: 0/1 Correct Answer: C Your Response: 16. The opportunity cost of holding money: A. is zero because money is not an economic resource. B. varies inversely with the interest rate. C. varies directly with the interest rate. D. varies inversely with the level of economic activity. Points Earned: 0/1 Correct Answer: C Your Response: 17. The total demand for money will shift to the left as a result of: A. a decline in nominal GDP. B. an increase in the price level. C. a change in the interest rate. D. an increase in nominal GDP. Points Earned: 0/1 Correct Answer: A Your Response: 18. The asset demand for money is downsloping because: A. the opportunity cost of holding money increases as the interest rate rises. B. it is more attractive to hold money at high interest rates than at low interest rates. C. bond prices rise as interest rates rise. D. the opportunity cost of holding money declines as the interest rate rises. Points Earned: 0/1 Correct Answer: A Your Response: 19. (Advanced analysis) Assume the equation for the total demand for money is L = 0.4Y + 80 - 4 i, where L is the amount of money demanded, Y is gross domestic product, and i is the interest rate. If gross domestic product is $200 and the interest rate is 10 (percent), what amount of money will society want to hold? A. $200 B. $120 C. $320 D. $160 Points Earned: 0/1 Correct Answer: B Your Response: 20. If the quantity of money demanded exceeds the quantity supplied: A. the supply-of-money curve will shift to the left. B. the demand-for-money curve will shift to the right. C. the interest rate will rise. D. the interest rate will fall. Points Earned: 0/1 Correct Answer: C Your Response: 21. The equilibrium rate of interest in the market for money is determined by the intersection of the: A. supply of money curve and the asset demand for money curve. B. supply of money curve and the transactions demand for money curve. C. supply of money curve and the total demand for money curve. D. investment demand curve and total demand for money curve. Points Earned: 0/1 Correct Answer: C Your Response: 22. If the demand for money and the supply of money both decrease, the equilibrium: A. interest rate will decline, but we cannot predict the change in the equilibrium quantity of money. B. quantity of money and the equilibrium interest rate will both increase. C. quantity of money will increase, but we cannot predict the change in the equilibrium interest rate. D. quantity of money will decline, but we cannot predict the change in the equilibrium interest rate. Points Earned: 0/1 Correct Answer: D Your Response: 23. If in the market for money the quantity of money demanded exceeds the money supply, the interest rate will: A. fall, causing households and businesses to hold less money. B. rise, causing households and businesses to hold less money. C. rise, causing households and businesses to hold more money. D. fall, causing households and businesses to hold more money. Points Earned: 0/1 Correct Answer: B Your Response: 24. If in the market for money the amount of money supplied exceeds the amount of money households and businesses want to hold, the interest rate will: A. fall, causing households and businesses to hold less money. B. rise, causing households and businesses to hold less money. C. rise, causing households and businesses to hold more money. D. fall, causing households and businesses to hold more money. Points Earned: 0/1 Correct Answer: D Your Response: 25. Refer to the above diagram of the market for money. The downward slope of the money demand curve Dm is best explained in terms of the: A. transactions demand for money. B. direct or positive relationship between bond prices and interest rates. C. asset demand for money. D. wealth or real-balances effect. Points Earned: 0/1 Correct Answer: C Your Response: 26. Refer to the above diagram of the market for money. The vertical money supply curve Sm reflects the fact that: A. bond prices and interest rates are inversely related. B. the stock of money is determined by the Federal Reserve System and does not change when the interest rate changes. C. the rate at which money is spent is zero. D. lower interest rates result in lower opportunity costs of supplying money. Points Earned: 0/1 Correct Answer: B Your Response: 27. Refer to the above diagram of the market for money. The equilibrium interest rate is: A. i1. B. i2. C. i3. D. not determinable without additional information. Points Earned: 0/1 Correct Answer: B Your Response: 28. Refer to the above diagram of the market for money. Given Dm and Sm, an interest rate of i3 is not sustainable because the: A. supply of bonds in the bond market will decline and the interest rate will rise. B. supply of bonds in the bond market will increase and the interest rate will decline. C. demand for bonds in the bond market will decline and the interest rate will rise. D. demand for bonds in the bond market will rise and the interest rate will fall. Points Earned: 0/1 Correct Answer: D Your Response: 29. Refer to the above diagram of the market for money. Other things equal, the money demand curve in the diagram would shift leftward if: A. the asset demand for money increased. B. the transactions demand for money increased. C. nominal GDP decreased. D. the overall price level rose. Points Earned: 0/1 Correct Answer: C Your Response: 30. Answer the next question(s) on the basis of the following information for a bond having no expiration date: bond price = $1000; bond fixed annual interest payment = $100; bond annual interest rate = 10 percent. Refer to the above information. If the price of this bond falls by $200, the interest rate will: A. rise by 2.5 percentage points. B. rise by 5 percentage points. C. fall by 2.5 percentage points. D. fall by 5 percentage points. Points Earned: 0/1 Correct Answer: A Your Response: 31. Answer the next question(s) on the basis of the following information for a bond having no expiration date: bond price = $1000; bond fixed annual interest payment = $100; bond annual interest rate = 10 percent. Refer to the above information. If the price of this bond increases to $1250, the interest rate will: A. fall to 9 percent. B. fall to 8 percent. C. rise to 11 percent. D. rise to 12 percent. Points Earned: 0/1 Correct Answer: B Your Response: 32. Which of the following statements is correct? A. Interest rates and bond prices vary directly. B. Interest rates and bond prices vary inversely. C. Interest rates and bond prices are unrelated. D. Interest rates and bond prices vary directly during inflations and inversely during recessions. Points Earned: 0/1 Correct Answer: B Your Response: 33. Refer to the above market for money diagrams. The asset demand for money is shown by: A. D1. B. D2. C. D3. D. S. Points Earned: 0/1 Correct Answer: B Your Response: 34. Refer to the above market for money diagrams. Curve D1 represents the: A. total demand for money. B. transactions demand for money. C. asset demand for money. D. stock of money. Points Earned: 0/1 Correct Answer: B Your Response: 35. Refer to the above market for money diagrams. The total demand for money is shown by: A. D1. B. D2. C. D3. D. S. Points Earned: 0/1 Correct Answer: C Your Response: 36. Refer to the above market for money diagrams. If each dollar held for transactions is spent four times per year on the average, we can infer that the: A. real GDP is $800. B. nominal GDP is $800. C. money supply must be $800. D. nominal GDP is $1200. Points Earned: 0/1 Correct Answer: B Your Response: 37. Refer to the above market for money diagrams. If the interest rate was at 3 percent, people would: A. sell bonds, which would cause bond prices to fall and the interest rate to rise. B. buy bonds, which would cause bond prices to fall and the interest rate to rise. C. sell bonds, which would cause bond prices to rise and the interest rate to rise. D. buy bonds, which would cause bond prices to rise but have an uncertain effect upon the interest rate. Points Earned: 0/1 Correct Answer: A Your Response: 38. Refer to the above market for money diagrams. If the interest rate was at 8 percent, people would: A. sell bonds, which would cause bond prices to fall and the interest rate to fall. B. buy bonds, which would cause bond prices to rise and the interest rate to fall. C. have insufficient liquidity, which would cause them to reduce their spending on consumer goods. D. buy bonds, which would cause bond prices to fall and the interest rate to rise. Points Earned: 0/1 Correct Answer: B Your Response: 39. Refer to the above market for money diagrams. If the Federal Reserve increased the stock of money, the: A. S curve would shift leftward and the equilibrium interest rate would rise. B. S curve would shift rightward and the equilibrium interest rate would fall. C. D3would shift leftward and the equilibrium interest rate would fall. D. D3curve would shift leftward and the equilibrium interest rate would rise. Points Earned: 0/1 Correct Answer: B Your Response: 40. Suppose the demand for money and the supply of money increase simultaneously. We can: A. expect the interest rate to rise and bond prices to fall. B. expect the interest rate to fall and bond prices to rise. C. the nominal GDP to expand. D. not predict what will happen to interest rates or bond prices. Points Earned: 0/1 Correct Answer: D Your Response: 41. When the market for money is in equilibrium: A. the quantity of money demanded equals the quantity of money supplied. B. the interest rate is increasing. C. bond prices are falling. D. the interest rate is declining. Points Earned: 0/1 Correct Answer: A Your Response: 42. Other things equal, if there is an increase in nominal GDP: A. the demand for money will decrease. B. the interest rate will rise. C. bond prices will rise. D. consumption spending will fall. Points Earned: 0/1 Correct Answer: B Your Response: 43. Other things equal, if the supply of money is reduced: A. the demand for money will increase. B. the interest rates will fall. C. bond prices will fall. D. investment spending will increase. Points Earned: 0/1 Correct Answer: C Your Response: 44. Answer the next question(s) on the basis of the following table in which columns (1) and (2) indicate the transactions demand (Dt) for money and columns (1) and (3) show the asset demand (Da) for money: The above data suggest that the amount of money demanded for transactions: A. varies directly with the interest rate. B. varies inversely with the interest rate. C. varies inversely with nominal GDP. D. is independent of the interest rate. Points Earned: 0/1 Correct Answer: D Your Response: 45. Answer the next question(s) on the basis of the following table in which columns (1) and (2) indicate the transactions demand (Dt) for money and columns (1) and (3) show the asset demand (Da) for money: The above data suggest that the amount of money that society wishes to hold as an asset: A. varies directly with the interest rate. B. varies inversely with the interest rate. C. varies inversely with nominal GDP. D. is independent of the interest rate. Points Earned: 0/1 Correct Answer: B Your Response: 46. Answer the next question(s) on the basis of the following table in which columns (1) and (2) indicate the transactions demand (Dt) for money and columns (1) and (3) show the asset demand (Da) for money: Refer to the above data. If the money supply is $160, the equilibrium interest rate will be: A. 10 percent. B. 8 percent. C. 6 percent. D. 4 percent. Points Earned: 0/1 Correct Answer: C Your Response: 47. Answer the next question(s) on the basis of the following information. For transactions, households and businesses want to hold an amount of money equal to one half of nominal GDP. The table shows the amounts of money they want to hold as an asset at various interest rates. Refer to the above information. If nominal GDP is $200 and the interest rate is 6 percent, the total amount of money that households and businesses will want to hold is: A. $120. B. $140. C. $160. D. $180. Points Earned: 0/1 Correct Answer: C Your Response: 48. Answer the next question(s) on the basis of the following information. For transactions, households and businesses want to hold an amount of money equal to one half of nominal GDP. The table shows the amounts of money they want to hold as an asset at various interest rates. Refer to the above information. If nominal GDP is $300 and the supply of money is $230, the equilibrium interest rate will be: A. 8 percent. B. 6 percent. C. 4 percent. D. 2 percent. Points Earned: 0/1 Correct Answer: C Your Response: 49. The price of a bond having no expiration date is originally $8,000 and has a fixed annual interest payment of $800. A fall in the price of the bond by $3,000 will provide a new buyer of the bond an interest rate of: A. 10 percent. B. 12 percent. C. 14 percent. D. 16 percent. Points Earned: 0/1 Correct Answer: D Your Response: 50. Answer the next question(s) on the basis of the following table: The transactions demand for money in the above market for money would graph as a: A. vertical line. B. horizontal line. C. line sloping downward and to the right. D. line sloping upward and to the right. Points Earned: 0/1 Correct Answer: A Your Response: 51. Answer the next question(s) on the basis of the following table: The total demand for money curve in the above market for money would graph as a: A. vertical line. B. horizontal line. C. line sloping upward to the right. D. line sloping downward to the right. Points Earned: 0/1 Correct Answer: D Your Response: 52. Answer the next question(s) on the basis of the following table: At equilibrium in the above market for money, the total amount of money demanded is: A. $500. B. $480. C. $460. D. $440. Points Earned: 0/1 Correct Answer: C Your Response: 53. Answer the next question(s) on the basis of the following table: Refer to the above table. The equilibrium interest rate is: A. 2 percent. B. 4 percent. C. 6 percent. D. 8 percent. Points Earned: 0/1 Correct Answer: D Your Response: 54. Answer the next question(s) on the basis of the following table: Refer to the above table. An increase in the money supply of $20 billion will cause the equilibrium interest rate to: A. fall by 4 percentage points. B. fall by 2 percentage points. C. rise by 4 percentage points. D. rise by 2 percentage points. Points Earned: 0/1 Correct Answer: B Your Response: 55. Answer the next question(s) on the basis of the following table: All else equal, the transaction demand for money in the above table would increase if: A. nominal GDP increased. B. the interest rate fell. C. the supply of money increased. D. the economy's MPC declined. Points Earned: 0/1 Correct Answer: A Your Response: 56. Which of the following is an asset on the consolidated balance sheet of the Federal Reserve Banks? A. loans to commercial banks B. Federal Reserve Notes in circulation C. Treasury deposits D. reserves of commercial banks Points Earned: 0/1 Correct Answer: A Your Response: 57. Reserves must be deposited in the Federal Reserve Banks by: A. only commercial banks which are members of the Federal Reserve System. B. all depository institutions, that is, all commercial banks and thrift institutions. C. state chartered commercial banks only. D. federally chartered commercial banks only. Points Earned: 0/1 Correct Answer: B Your Response: 58. The securities held as assets by the Federal Reserve Banks consist mainly of: A. corporate bonds. B. Treasury bills and Treasury bonds. C. common stock. D. certificates of deposit. Points Earned: 0/1 Correct Answer: B Your Response: 59. Federal Reserve Notes in circulation are: A. an asset as viewed by the Federal Reserve Banks. B. a liability as viewed by the Federal Reserve Banks. C. neither an asset nor a liability as viewed by the Federal Reserve Banks. D. part of M1, but not of M2. Points Earned: 0/1 Correct Answer: B Your Response: 60. Which of the following will increase commercial bank reserves? A. the purchase of government bonds in the open market by the Federal Reserve Banks B. a decrease in the reserve ratio C. an increase in the discount rate D. the sale of government bonds in the open market by the Federal Reserve Banks Points Earned: 0/1 Correct Answer: A Your Response: 61. When a commercial bank borrows from a Federal Reserve Bank: A. the supply of money automatically increases. B. it indicates that the commercial bank is unsound financially. C. the commercial bank's lending ability is increased. D. the commercial bank's reserves are reduced. Points Earned: 0/1 Correct Answer: C Your Response: 62. The Federal Reserve Banks sell government securities to the public. As a result, the checkable deposits: A. of commercial banks are unchanged, but their reserves increase. B. and reserves of commercial banks both decrease. C. of commercial banks are unchanged, but their reserves decrease. D. of commercial banks are both unchanged. Points Earned: 0/1 Correct Answer: B Your Response: 63. The Federal Reserve Banks buy government securities from commercial banks. As a result, the checkable deposits: A. of commercial banks are unchanged, but their reserves increase. B. and reserves of commercial banks both decrease. C. of commercial banks are unchanged, but their reserves decrease. D. and reserves of commercial banks are both unchanged. Points Earned: 0/1 Correct Answer: A Your Response: 64. The commercial banking system borrows from the Federal Reserve Banks. As a result, the checkable deposits: A. of commercial banks are unchanged, but their reserves increase. B. and reserves of commercial banks both decrease. C. of commercial banks are unchanged, but their reserves decrease. D. and reserves of commercial banks are both unchanged. Points Earned: 0/1 Correct Answer: A Your Response: 65. Commercial banks and thrifts usually hold only small amounts of excess reserves because: A. the presence of such reserves tends to boost interest rates and reduce investment. B. the Fed constantly uses open market operations to eliminate excess reserves. C. the Fed does not pay interest on reserves. D. the Fed does not want commercial banks and thrifts to be too liquid. Points Earned: 0/1 Correct Answer: C Your Response: 66. Which of the following is a tool of monetary policy? A. open market operations B. changes in banking laws C. changes in tax rates D. changes in government spending Points Earned: 0/1 Correct Answer: A Your Response: 67. In the United States monetary policy is the responsibility of the: A. U.S. Treasury. B. Department of Commerce. C. Board of Governors of the Federal Reserve System. D. U.S. Congress. Points Earned: 0/1 Correct Answer: C Your Response: 68. The four main tools of monetary policy are: A. tax rate changes, the discount rate, open-market operations, and the Federal funds rate. B. tax rate changes, changes in government expenditures, open-market operations, and the term auction facility. C. the discount rate, the reserve ratio, the term auction facility, and open-market operations. D. changes in government expenditures, the reserve ratio, the Federal funds rate, and the discount rate. Points Earned: 0/1 Correct Answer: C Your Response: 69. The Fed can change the money supply by: A. changing bank reserves through the sale or purchase of government securities. B. changing the quantities of required and excess reserves by altering the legal reserve ratio. C. changing the discount rate so as to encourage or discourage commercial banks in borrowing from the central banks. D. doing all of these. Points Earned: 0/1 Correct Answer: D Your Response: 70. Which of the following is not a tool of monetary policy? A. open market operations B. changes in banking laws C. changes in the amount of reserves available at the term auction facility D. changes in the reserve ratio Points Earned: 0/1 Correct Answer: B Your Response: 71. Assume the reserve ratio is 25 percent and Federal Reserve Banks buy $4 million of U.S. securities from the public, which deposits this amount into checking accounts. As a result of these transactions, the supply of money is: A. not directly affected, but the money-creating potential of the commercial banking system is increased by $12 million. B. directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $16 million. C. directly reduced by $4 million and the money-creating potential of the commercial banking system is decreased by an additional $12 million. D. directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $12 million. Points Earned: 0/1 Correct Answer: D Your Response: 72. Assume the legal reserve ratio is 25 percent and the Fourth National Bank borrows $10,000 from the Federal Reserve Bank in its district. As a result: A. commercial bank reserves are increased by $10,000. B. the supply of money automatically declines by $7,500. C. commercial bank reserves are increased by $7,500. D. the supply of money is automatically increased by $10,000. Points Earned: 0/1 Correct Answer: A Your Response: 73. Open-market operations refer to: A. purchases of stocks in the New York Stock Exchange. B. the purchase or sale of government securities by the Fed. C. central bank lending to commercial banks. D. the specifying of loan maximums on stock purchases. Points Earned: 0/1 Correct Answer: B Your Response: 74. 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. Points Earned: 0/1 Correct Answer: C Your Response: 75. The purchase of government securities from the public by the Fed will cause: A. commercial bank reserves to decrease. B. the money supply to increase. C. demand deposits to decrease. D. the interest rate to increase. Points Earned: 0/1 Correct Answer: B Your Response: 76. Assume that a single commercial bank has no excess reserves and that the reserve ratio is 20 percent. If this bank sells a bond for $1,000 to a Federal Reserve Bank, it can expand its loans by a maximum of: A. $1,000. B. $2,000. C. $800. D. $5,000. Points Earned: 0/1 Correct Answer: A Your Response: 77. Suppose the Federal Reserve Banks sell $2 billion of government bonds to the public which pays for them by drawing checks. As a result, commercial bank reserves will: A. increase by $10 billion. B. remain unchanged. C. decrease by $2 billion. D. increase by $2 billion. Points Earned: 0/1 Correct Answer: C Your Response: 78. Which of the following statements is correct? A. The supply of money decreases when the Federal Reserve Banks buy government securities from households or businesses. B. Excess reserves are the amount by which actual reserves exceed required reserves. C. Commercial banks decrease the supply of money when they purchase government bonds from households or businesses. D. Commercial bank reserves are a liability to commercial banks but an asset to the Federal Reserve Banks. Points Earned: 0/1 Correct Answer: B Your Response: 79. Refer to the above balance sheets. If the reserve ratio is 25%, commercial banks have excess reserves of: A. $12. B. $22. C. $16. D. $24. Points Earned: 0/1 Correct Answer: A Your Response: 80. Refer to the above balance sheets. If the reserve ratio is 25%, the maximum money-creating potential of the commercial banking system is: A. $36. B. $17. C. $48. D. $24. Points Earned: 0/1 Correct Answer: C Your Response: 81. Refer to the above balance sheets and assume the reserve ratio is 25%. Suppose the Federal Reserve Banks buy $2 in securities from the public, which deposits this amount into checking accounts. As a result of these transactions, the supply of money will: A. be unaffected but the money-creating potential of the commercial banking system will increase by $6. B. directly decrease by $2 and the money-creating potential of the commercial banking system will be unaffected. C. directly increase by $8 and the money-creating potential of the commercial banking system will increase by an additional $32. D. directly increase by $2 and the money-creating potential of the commercial banking system will increase by an additional $6. Points Earned: 0/1 Correct Answer: D Your Response: 82. Refer to the above balance sheets and assume the reserve ratio is 25%. Suppose the Federal Reserve Banks sell $2 in securities directly to the commercial banks. As a result of this transaction the supply of money: A. will decrease by $2, but the money-creating potential of the commercial banking system will not be affected. B. is not directly affected, but the money-creating potential of the commercial banking system will decrease by $8. C. will directly increase by $2 and the money-creating potential of the commercial banking system will decrease by an additional $8. D. will directly increase by $2 and the money-creating potential of the commercial banking system will increase by an additional $8. Points Earned: 0/1 Correct Answer: B Your Response: 83. The Federal Reserve System regulates the money supply primarily by: A. controlling the production of coins at the United States mint. B. altering the reserve requirements of commercial banks and thereby the ability of banks to make loans. C. altering the reserves of commercial banks, largely through sales and purchases of government bonds. D. restricting the issuance of Federal Reserve Notes because paper money is the largest portion of the money supply. Points Earned: 0/1 Correct Answer: C Your Response: 84. Assuming no currency drains, when the Federal Reserve Banks purchase government securities the reserves of commercial banks are: A. decreased by a multiple of the amount of the purchase. B. decreased by the amount of the purchase. C. increased by a multiple of the amount of the purchase. D. increased by the amount of the purchase. Points Earned: 0/1 Correct Answer: D Your Response: 85. Which of the following is correct? When the Federal Reserve buys government securities from the public, the money supply: A. contracts and commercial bank reserves increase. B. expands and commercial bank reserves decrease. C. contracts and commercial bank reserves decrease. D. expands and commercial bank reserves increase. Points Earned: 0/1 Correct Answer: D Your Response: 86. Which of the following will happen when the Federal Reserve buys bonds from the public in the open market and the amount of cash held by the public does not change? A. the required reserve ratio will increase B. the money supply will decrease C. the deposits of commercial banks will decline D. commercial bank reserves will increase Points Earned: 0/1 Correct Answer: D Your Response: 87. Answer the next question(s) 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 above transactions, reserves in the banking system will: A. remain unchanged. B. rise by $100. C. fall by $100. D. rise by $1,000. Points Earned: 0/1 Correct Answer: A Your Response: 88. Answer the next question(s) 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 above transactions, excess reserves in the banking system will: A. remain unchanged. B. rise by $100. C. fall by $100. D. rise by $1,000. Points Earned: 0/1 Correct Answer: C Your Response: 89. Answer the next question(s) 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 above transactions, the supply of money in the economy will: A. remain unchanged. B. rise by $500. C. fall by $100. D. fall by $500. Points Earned: 0/1 Correct Answer: B Your Response: 90. Open-market operations change: A. the size of the monetary multiplier, but not commercial bank reserves. B. commercial bank reserves, but not the size of the monetary multiplier. C. neither commercial bank reserves nor the size of the monetary multiplier. D. both commercial bank reserves and the size of the monetary multiplier. Points Earned: 0/1 Correct Answer: B Your Response: 91. Answer the next question(s) on the basis of the following consolidated balance sheet of the commercial banking system. Assume that the reserve requirement is 10 percent. All figures are in billions and each question should be answered independently of changes specified in any preceding ones. Refer to the above data. The commercial banking system has excess reserves of: A. $10 billion. B. $5 billion. C. $2 billion. D. zero. Points Earned: 0/1 Correct Answer: D Your Response: 92. Answer the next question(s) on the basis of the following consolidated balance sheet of the commercial banking system. Assume that the reserve requirement is 10 percent. All figures are in billions and each question should be answered independently of changes specified in any preceding ones. Refer to the above data. The monetary multiplier for the commercial banking system is: A. 5. B. 10. C. 12.5. D. 20. Points Earned: 0/1 Correct Answer: B Your Response: 93. Answer the next question(s) on the basis of the following consolidated balance sheet of the commercial banking system. Assume that the reserve requirement is 10 percent. All figures are in billions and each question should be answered independently of changes specified in any preceding ones. Refer to the above data. Suppose the Fed sold $10 billion of U.S. securities to the banks. This would: A. increase bank reserves to $70 billion, reduce bank-held securities to $130 billion, and ultimately increase the money supply (checkable deposits) by $100 billion. B. increase bank reserves to $70 billion, reduce bank-held securities to $130 billion, and ultimately decrease the money supply (checkable deposits) by $100 billion. C. reduce bank reserves to $50 billion, increase bank-held securities to $150 billion, and ultimately increase the money supply (checkable deposits) by $100 billion. D. reduce bank reserves to $50 billion, increase bank-held securities to $150 billion, and ultimately decrease the money supply (checkable deposits) by $100 billion. Points Earned: 0/1 Correct Answer: D Your Response: 94. Answer the next question(s) on the basis of the following consolidated balance sheet of the commercial banking system. Assume that the reserve requirement is 10 percent. All figures are in billions and each question should be answered independently of changes specified in any preceding ones. Refer to the above data. Suppose the Fed bought $20 billion of U.S. securities from the banks. This would: A. increase bank reserves to $80 billion, reduce bank-held securities to $120 billion, and assuming a full money multiplier effect, increase the money supply (checkable deposits) by $200 billion. B. increase bank reserves to $80 billion, reduce bank-held securities to $120 billion, and assuming a full money multiplier effect, decrease the money supply (checkable deposits) by $200 billion. C. reduce bank reserves to $40 billion, increase bank-held securities to $160 billion, and assuming a full money multiplier effect, increase the money supply (checkable deposits) by $200 billion. D. reduce bank reserves to $40 billion, increase bank-held securities to $160 billion, and assuming a full money multiplier effect, decrease the money supply (checkable deposits) by $200 billion. Points Earned: 0/1 Correct Answer: A Your Response: 95. Answer the next question(s) on the basis of the following consolidated balance sheet of the commercial banking system. Assume that the reserve requirement is 10 percent. All figures are in billions and each question should be answered independently of changes specified in any preceding ones. Refer to the above data. Suppose the Fed wants to increase the money supply by $400 billion to drive down interest rates and stimulate the economy. Assuming that the money multiplier is operating to full effect, to accomplish the desired increase the Fed could: A. sell $20 billion of U.S. securities to the banks. B. buy $20 billion of U.S. securities from the banks. C. sell $40 billion of U.S. securities to the banks. D. buy $40 billion of U.S. securities from the banks. Points Earned: 0/1 Correct Answer: D Your Response: 96. Answer the next question(s) on the basis of the following consolidated balance sheet of the commercial banking system. Assume that the reserve requirement is 10 percent. All figures are in billions and each question should be answered independently of changes specified in any preceding ones. Refer to the above data. Suppose the Fed wants to reduce the money supply by $400 billion to drive up interest rates and dampen inflation. Assuming that the money multiplier is operating to full effect, to accomplish the desired reduction the Fed could: A. sell $20 billion of U.S. securities to the banks. B. buy $20 billion of U.S. securities from the banks. C. sell $40 billion of U.S. securities to the banks. D. buy $40 billion of U.S. securities from the banks. Points Earned: 0/1 Correct Answer: C Your Response: 97. If the Fed were to increase the legal reserve ratio, we would expect: A. lower interest rates, an expanded GDP, and depreciation of the dollar. B. lower interest rates, an expanded GDP, and appreciation of the dollar. C. higher interest rates, a contracted GDP, and appreciation of the dollar. D. higher interest rates, a contracted GDP, and depreciation of the dollar. Points Earned: 0/1 Correct Answer: C Your Response: 98. If the Fed were to reduce the legal reserve ratio, 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. Points Earned: 0/1 Correct Answer: A Your Response: 99. An increase in the legal reserve ratio: A. increases the money supply by increasing excess reserves and increasing the monetary multiplier. B. decreases the money supply by decreasing excess reserves and decreasing the monetary multiplier. C. increases the money supply by decreasing excess reserves and decreasing the monetary multiplier. D. decreases the money supply by increasing excess reserves and decreasing the monetary multiplier. Points Earned: 0/1 Correct Answer: B Your Response: 100. When the reserve requirement is increased: A. required reserves are changed into excess reserves. B. the excess reserves of member banks are increased. C. a single commercial bank can no longer lend dollar-for-dollar with its excess reserves. D. the excess reserves of member banks are reduced. Points Earned: 0/1 Correct Answer: D Your Response: 101. Assume that the commercial banking system has checkable deposits of $10 billion and excess reserves of $1 billion at a time when the reserve requirement is 20 percent. If the reserve requirement is now raised to 30 percent, the banking system then has: A. excess reserves of $2 billion. B. neither an excess nor a deficiency of reserves. C. a deficiency of reserves of $.5 billion. D. excess reserves of only $.5 billion. Points Earned: 0/1 Correct Answer: B Your Response: 102. When the required reserve ratio is increased, the excess reserves of member banks are: A. reduced, but the multiple by which the commercial banking system can lend is unaffected. B. reduced and the multiple by which the commercial banking system can lend is increased. C. increased and the multiple by which the commercial banking system can lend is increased. D. reduced and the multiple by which the commercial banking system can lend is reduced. Points Earned: 0/1 Correct Answer: D Your Response: 103. When the required reserve ratio is decreased, the excess reserves of member banks are: A. reduced, but the multiple by which the commercial banking system can lend is unaffected. B. reduced and the multiple by which the commercial banking system can lend is increased. C. increased and the multiple by which the commercial banking system can lend is increased. D. increased and the multiple by which the commercial banking system can lend is reduced. Points Earned: 0/1 Correct Answer: C Your Response: 104. A decrease in the reserve ratio increases the: A. amount of actual reserves in the banking system. B. amount of excess reserves in the banking system. C. number of government securities held by the Federal Reserve Banks. D. ratio of coins to paper currency in the economy. Points Earned: 0/1 Correct Answer: B Your Response: 105. An increase in the reserve ratio: A. increases the size of the spending income multiplier. B. decreases the size of the spending income multiplier. C. increases the size of the monetary multiplier. D. decreases the size of the monetary multiplier. Points Earned: 0/1 Correct Answer: D Your Response: 106. 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 ratio C. the discount rate D. the federal funds rate Points Earned: 0/1 Correct Answer: B Your Response: 107. Answer the next question(s) on the basis of the following consolidated balance sheet of the commercial banking system. Assume that the reserve requirement is 20 percent. All figures are in billions and each question should be answered independently of changes specified in all preceding ones. Refer to the above data. The commercial banking system has excess reserves of: A. zero. B. $2 billion. C. $5 billion. D. $10 billion. Points Earned: 0/1 Correct Answer: A Your Response: 108. Answer the next question(s) on the basis of the following consolidated balance sheet of the commercial banking system. Assume that the reserve requirement is 20 percent. All figures are in billions and each question should be answered independently of changes specified in all preceding ones. Refer to the above data. The monetary multiplier for the commercial banking system is: A. 5. B. 10. C. 15. D. 20. Points Earned: 0/1 Correct Answer: A Your Response: 109. Answer the next question(s) on the basis of the following consolidated balance sheet of the commercial banking system. Assume that the reserve requirement is 20 percent. All figures are in billions and each question should be answered independently of changes specified in all preceding ones. Refer to the above data. If the Fed increased the reserve requirement from 20 percent to 25 percent, a deficiency of reserves in the commercial banking system of _____ would occur and the monetary multiplier would fall to ____. A. $50 billion; 5 B. $10 billion; 4 C. $50 billion; 4 D. $10 billion; 8 Points Earned: 0/1 Correct Answer: C Your Response: 110. Answer the next question(s) on the basis of the following consolidated balance sheet of the commercial banking system. Assume that the reserve requirement is 20 percent. All figures are in billions and each question should be answered independently of changes specified in all preceding ones. Refer to the above data. If the Fed reduced the reserve requirement from 20 percent to 16 percent, excess reserves in the commercial banking system would increase by _____ and the monetary multiplier would rise to ____. A. $10 billion; 5 B. $40 billion; 6.25 C. $10 billion; 10 D. $40 billion; 12.5 Points Earned: 0/1 Correct Answer: B Your Response: 111. Answer the next question(s) on the basis of the following consolidated balance sheet of the commercial banking system. Assume that the reserve requirement is 20 percent. All figures are in billions and each question should be answered independently of changes specified in all preceding ones. Refer to the above data. Suppose the Fed wants to increase the money supply by $1000 billion to drive down interest rates and stimulate the economy. To accomplish this it could lower the reserve requirement from 20 percent to: A. 10 percent. B. 12 percent. C. 14 percent. D. 16 percent. Points Earned: 0/1 Correct Answer: A Your Response: 112. Answer the next question(s) on the basis of the following consolidated balance sheet of the commercial banking system. Assume that the reserve requirement is 20 percent. All figures are in billions and each question should be answered independently of changes specified in all preceding ones. Refer to the above data. Suppose the Fed wants to reduce the money supply by $200 billion to drive up interest rates and dampen inflation. To accomplish this it could increase the reserve requirement from 20 percent to: A. 22 percent. B. 25 percent. C. 30 percent. D. 33 percent. Points Earned: 0/1 Correct Answer: B Your Response: 113. The discount rate is the interest: A. rate at which the central banks lend to the U.S. Treasury. B. rate at which the Federal Reserve Banks lend to commercial banks. C. yield on long-term government bonds. D. rate at which commercial banks lend to the public. Points Earned: 0/1 Correct Answer: B Your Response: 114. A commercial bank can add to its actual reserves by: A. lending money to bank customers. B. buying government securities from the public. C. buying government securities from a Federal Reserve Bank. D. borrowing from a Federal Reserve Bank. Points Earned: 0/1 Correct Answer: D Your Response: 115. 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. Points Earned: 0/1 Correct Answer: C Your Response: 116. The discount rate is the rate of interest at which: A. Federal Reserve Banks lend to commercial banks. B. savings and loan associations lend to some builders. C. Federal Reserve Banks lend to large corporations. D. commercial banks lend to large corporations. Points Earned: 0/1 Correct Answer: A Your Response: 117. Projecting that it might temporarily fall short of legally required reserves in the coming days, the Bank of Beano decides to borrow money from its regional Federal Reserve Bank. The interest rate on the loan is called the: A. prime rate. B. Federal funds rate. C. Treasury bill rate. D. discount rate. Points Earned: 0/1 Correct Answer: D Your Response: 118. When the Fed lends money to a commercial bank, the bank: A. increases its reserves and enhances its ability to extend credit to bank customers. B. decreases its reserves and reduces its ability to extend credit to bank customers. C. pays the Federal funds interest rate on the loan. D. pays the prime rate interest rate on the loan. Points Earned: 0/1 Correct Answer: A Your Response: 119. Suppose that, for every 1-percentage point decline in the discount rate, commercial banks collectively borrow an additional $2 billion from Federal Reserve banks. Also assume that reserve ratio is 10 percent. If the Fed lowers the discount rate from 4.0 percent to 3.5 percent, bank reserves will: A. increase by $1 billion and the money supply will increase by $5 billion. B. decline by $1 billion and the money supply will decline by $10 billion. C. increase by $1 billion and the money supply will increase by $10 billion. D. increase by $10 billion and the money supply will increase by $100 billion. Points Earned: 0/1 Correct Answer: C Your Response: 120. Suppose that, for every 1-percentage point decline of the discount rate, commercial banks collectively borrow an additional $2 billion from Federal Reserve banks. Also assume that reserve ratio is 20 percent. If the Fed increases the discount rate from 4.0 percent to 4.25 percent, bank reserves will: A. increase by $0.5 billion and the money supply will increase by $2.5 billion. B. decline by $0.5 billion and the money supply will decline by $2.5 billion. C. increase by $0.75 billion and the money supply will increase by $3.75 billion. D. increase by $1 billion and the money supply will increase by $5 billion. Points Earned: 0/1 Correct Answer: B Your Response: 121. Changes in the discount rate are: A. the most powerful and useful tool of monetary policy. B. less frequent than changes in the reserve requirement. C. more important than open-market operations. D. less important than open-market operations in implementing monetary policy. Points Earned: 0/1 Correct Answer: D Your Response: 122. Which of the following tools of monetary policy is considered the most important? A. the discount rate B. the reserve ratio C. open market operations D. the term auction facility Points Earned: 0/1 Correct Answer: C Your Response: 123. Which of the following tools of monetary policy is flexible, and able to affect bank reserves quickly and by relatively specific amounts? A. the discount rate B. the reserve ratio C. open market operations D. the Federal funds rate Points Earned: 0/1 Correct Answer: C Your Response: 124. Which of the following tools of monetary policy has not been used since 1992? A. the term auction facility B. the reserve ratio C. open market operations D. the Federal funds rate Points Earned: 0/1 Correct Answer: B Your Response: 125. Which of the following monetary policy tools was introduced in December 2007? A. the discount rate B. the Federal funds rate C. open-market operations D. the term auction facility Points Earned: 0/1 Correct Answer: D Your Response: 126. When the Fed auctions and loans reserves using the term auction facility, what determines the interest rate that will be charged for those reserves? A. The interest rate of the highest bidder. B. The interest rate of the lowest bidder whose bid is accepted. C. The interest rate of the lowest bidder. D. Each bank with an accepted bid is charged whatever interest rate it bid. Points Earned: 0/1 Correct Answer: B Your Response: 127. Answer the next question(s) on the basis of the following information: The Fed is going to auction $30 billion in reserves using the term auction facility. It receives the following bids: Refer to the above information. What interest rate will the Fed charge for these reserves? A. 4 percent. B. 4.5 percent. C. 5.5 percent. D. The interest rate will vary depending on what each bank bid. Points Earned: 0/1 Correct Answer: A Your Response: 128. Answer the next question(s) on the basis of the following information: The Fed is going to auction $30 billion in reserves using the term auction facility. It receives the following bids: Refer to the above information. As a result of the auction, how much and at what interest rate will Alpha bank borrow? A. $10 billion; 4 percent B. $5 billion; 4 percent C. $10 billion; 3.5 percent D. $10 billion; 5.5 percent Points Earned: 0/1 Correct Answer: B Your Response: 129. Answer the next question(s) on the basis of the following information: The Fed is going to auction $30 billion in reserves using the term auction facility. It receives the following bids: Refer to the above information. As a result of the auction, how much and at what interest rate will Beta bank borrow? A. $0; 3.5 percent (rate charged winning bidders) B. $0; 4.5 percent (rate charged winning bidders) C. $5 billion; 4 percent D. $5 billion; 5 percent Points Earned: 0/1 Correct Answer: C Your Response: 130. Answer the next question(s) on the basis of the following information: The Fed is going to auction $30 billion in reserves using the term auction facility. It receives the following bids: Refer to the above information. As a result of the auction, how much and at what interest rate will Gamma bank borrow? A. $7 billion; 4.5 percent B. $5 billion; 4.5 percent C. $12 billion; 4.5 percent D. $12 billion; 4 percent Points Earned: 0/1 Correct Answer: D Your Response: 131. Answer the next question(s) on the basis of the following information: The Fed is going to auction $30 billion in reserves using the term auction facility. It receives the following bids: Refer to the above information. As a result of the auction, how much and at what interest rate will Delta bank borrow? A. $8 billion; 5.5 percent B. $8 billion; 4 percent C. $0; 4.5 percent (rate charged winning bidders) D. $3 billion; 4 percent Points Earned: 0/1 Correct Answer: B Your Response: 132. Answer the next question(s) on the basis of the following information: The Fed is going to auction $30 billion in reserves using the term auction facility. It receives the following bids: Refer to the above information. As a result of the auction, how much and at what interest rate will Epsilon bank borrow? A. $15 billion; 3.5 percent B. $15 billion; 4 percent C. $15 billion; 4.5 percent D. $0; 4 percent (rate charged winning bidders) Points Earned: 0/1 Correct Answer: D Your Response: 133. Answer the next question(s) on the basis of the following information: The Fed is going to auction $30 billion in reserves using the term auction facility. It receives the following bids: Refer to the above information. Which of the following banks will not borrow reserves as a result of this auction? A. Epsilon only. B. Beta and Delta. C. Gamma and Epsilon. D. All of the banks will be allowed to borrow at least a portion of their desired reserves. Points Earned: 0/1 Correct Answer: A Your Response: 134. Answer the next question(s) on the basis of the following information: The Fed is going to auction $30 billion in reserves using the term auction facility. It receives the following bids: Refer to the above information. Which of the following banks will only be allowed to borrow a fraction of the reserves it bid for at this auction? A. Epsilon. B. Alpha. C. Gamma. D. All of the banks will only be allowed to borrow a fraction, as reserves are allocated proportionally to the amount of reserves desired. Points Earned: 0/1 Correct Answer: B Your Response: 135. Which of the following actions by the Fed will increase commercial bank lending potential? A. Raising the reserve ratio. B. Increasing the Federal funds rate target. C. Expanding the amount of reserves available through the term auction facility. D. Selling bonds to commercial banks and the public. Points Earned: 0/1 Correct Answer: C Your Response: 136. How often does the Fed offer reserves through the term auction facility? A. Every two months. B. Twice a year. C. Once a week. D. Twice a month. Points Earned: 0/1 Correct Answer: D Your Response: 137. If the Fed wants commercial banks to borrow and expand their reserves by a specific amount, what monetary policy tool best guarantees that it will happen? A. term auction facility B. open-market operations C. Federal funds rate D. reserve ratio Points Earned: 0/1 Correct Answer: A Your Response: 138. Economists believe that use of the term auction facility: A. has intensified business cycle fluctuations. B. has replaced open-market operations as the most important tool of monetary policy. C. will be limited to times of economic crisis when a quick injection of reserves will be helpful. D. will give the Fed the ability to prevent recessions. Points Earned: 0/1 Correct Answer: C Your Response: 139. The interest rate that banks charge one another on overnight loans is called the: A. discount rate. B. prime lending rate. C. overnight lending rate. D. Federal funds rate. Points Earned: 0/1 Correct Answer: D Your Response: 140. 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. Points Earned: 0/1 Correct Answer: A Your Response: 141. 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 ratio 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 open market operations. D. The Federal Reserve will set a higher target for the Federal funds rate if pursuing an expansionary monetary policy. Points Earned: 0/1 Correct Answer: C Your Response: 142. The Fed directly sets: A. the prime interest rate but not the Federal funds rate. B. both the Federal funds rate and the prime interest rate. C. neither the Federal funds rate nor the prime interest rate. D. the discount rate and the prime interest rate. Points Earned: 0/1 Correct Answer: C Your Response: 143. Which of the following will likely accompany an expansionary money policy? A. a higher prime interest rate B. a lower Federal funds rate C. a higher discount rate D. higher income tax rates Points Earned: 0/1 Correct Answer: B Your Response: 144. A Federal funds rate reduction that is caused by monetary policy will: A. increase the prime interest rate. B. decrease the size of the monetary multiplier. C. increase the Fed's discount rate. D. decrease the prime interest rate. Points Earned: 0/1 Correct Answer: D Your Response: 145. 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 interest rate. D. sell government bonds to commercial banks. Points Earned: 0/1 Correct Answer: A Your Response: 146. Generally, the prime interest rate: A. moves in the opposite direction as the Federal funds rate. B. remains constant over long periods of time. C. is highly inflexible downward. D. moves in the same direction as the Federal funds rate. Points Earned: 0/1 Correct Answer: D Your Response: 147. Refer to the above diagram for the Federal funds market. If the Fed wants the Federal funds rate to be i1, what quantity of reserves do they need to make available to banks? A. Qf1. B. Qf2. C. Qf3. D. It cannot be determined with the information given. Points Earned: 0/1 Correct Answer: A Your Response: 148. Refer to the above diagram for the Federal funds market. If the Fed wants the Federal funds rate to fall from i1 to i2, it can use open market operations to: A. increase the demand for Federal funds. B. increase the supply of Federal funds. C. decrease the supply of Federal funds. D. decrease commercial bank reserves. Points Earned: 0/1 Correct Answer: B Your Response: 149. Refer to the above diagram for the Federal funds market. If the Fed wants to raise the Federal funds rate from i1 to i3, it should: A. lower the reserve ratio. B. loan more funds at the discount rate. C. buy bonds from the banks and the public. D. sell bonds to banks and the public. Points Earned: 0/1 Correct Answer: D Your Response: 150. Refer to the above diagram for the Federal funds market. An expansionary monetary policy would be shown by: A. a shift from Sf3 to Sf2. B. a shift from Sf1 to Sf3. C. a rightward shift of Df. D. a leftward shift of Df. Points Earned: 0/1 Correct Answer: A Your Response: 151. The demand for Federal funds is A. horizontal. B. downward sloping. C. upward sloping. D. vertical. Points Earned: 0/1 Correct Answer: B Your Response: 152. The demand for Federal funds is A. downward sloping because higher interest rates discourage commercial banks from borrowing Federal funds. B. downward sloping because higher interest rate encourage commercial banks to borrow Federal funds. C. upward sloping because higher interest rate encourage commercial banks to lend Federal funds. D. upward sloping because higher interest rates discourage commercial banks from lending Federal funds. Points Earned: 0/1 Correct Answer: A Your Response: 153. Refer to the above diagram for the Federal funds market. If the Fed supplies $300 billion in reserves, the equilibrium Federal funds rate is: A. 6.0 percent. B. 5.5 percent. C. 5.0 percent. D. undeterminable with the information given. Points Earned: 0/1 Correct Answer: C Your Response: 154. Refer to the above diagram for the Federal funds market. If the Fed supplies $200 billion in reserves, the equilibrium prime interest rate is: A. 6.0 percent. B. 5.5 percent. C. 5.0 percent. D. undeterminable with the information given. Points Earned: 0/1 Correct Answer: D Your Response: 155. Refer to the above diagram for the Federal funds market. If the Fed wants to increase reserves from $200 billion to $300 billion it should: A. buy bonds from banks and the public. B. sell bonds to banks and the public. C. buy bonds from banks and sell them to the public. D. buy bonds from the public and sell them to banks. Points Earned: 0/1 Correct Answer: A Your Response: 156. Refer to the above diagram for the Federal funds market. If the Fed wants to raise the Federal funds rate by one-half of a percentage point, it should: A. act to increase reserves by $50 billion. B. act to reduce reserves by $50 billion. C. pursue an expansionary monetary policy. D. buy bonds from banks and the public. Points Earned: 0/1 Correct Answer: B Your Response: 157. Reserves borrowed at the Federal funds rate are usually repaid: A. in one year. B. in five years. C. at the end of the month. D. the next day. Points Earned: 0/1 Correct Answer: D Your Response: 158. The Fed's initial step in pursuing restrictive monetary policy using the Federal funds rate is to: A. announce a higher target. B. sell bonds to banks and the public. C. raise the discount rate. D. raise the prime interest rate. Points Earned: 0/1 Correct Answer: A Your Response: 159. Refer to the above diagram for the Federal funds market. A $25 billion increase in reserves will ch