Title: Monetary Policy
Course: Macro Quiz Test

Q: Which of the following is an inaccurate statement about the banking system?
- Banks borrow from households in order to lend to investors.
- Banks are the critical link in the flow of capital from households to investors.
- Competition between private banks and the central bank is what limits interest rates
A: Competition between private banks and the central bank is what limits interest rates

Q: When describing the banking system, which of these would be a false statement about it?
- Banks lend to investors by borrowing funds from households.
- When it comes to the flow of capital between households and investors, banks are the crucial link.
- Competition between the central bank and private banks causes interest rates to be limited.
A: Competition between the central bank and private banks causes interest rates to be limited.

Q: A critical function of the private banking system is ________?
- Minimizing risks for investors.
- Keeping transactions records to assist the government in collecting taxes.
- Establishing the links between savers and borrowers.
A: Establishing the links between savers and borrowers.

Q: What crucial role does the private banking system play in the market?
- It minimizes investors' risks.
- Maintains transactions records to enable the government to collect taxes.
- It establishes a channel between borrowers and savers.
A: It establishes a channel between borrowers and savers.

Q: Which of the following accurately describes the banking system?
- They put a majority of their deposits into safes and then loan out or invest the rest.
- They serve to hold the deposits of individuals and businesses, but can gradually accumulate interest on deposits by loaning a small portion.
- They put a fraction of their deposits in reserves and then loan out or invest the rest.
A: They put a fraction of their deposits in reserves and then loan out or invest the rest.

Q: Select the following statement that most accurately reflects the banking system?
- The banking system places the majority of deposits in safes, then invests the rest.
- The banking system holds deposits of firms and individuals, but accrues interest on deposits by a investment a small portion of deposits.
- The banking system leaves a fraction of its deposits in reserves and loans or invest the remainder.
A: The banking system leaves a fraction of its deposits in reserves and loans or invest the remainder.

Q: Which of the following scenarios would be MOST beneficial to a bank?
- Carly and Jude decide to withdraw more cash from the bank each month to pay for all of their purchases in cash.
- Jarrell and Chloe decide to deposit money in the bank and pay for everything using their debit card.
- Kim and Micah decide to move most of their money from a checking account into a savings account.
A: Kim and Micah decide to move most of their money from a checking account into a savings account.

Q: From a bank’s perspective, which of these scenarios would be the MOST advantageous for it?
- Jacob pulls out cash from his account every month to pay all of this bills in cash.
- Angela has most of her cash in her checking account and pays for everything with her debit card.
- Santo and Maria have the majority of their salaries directly deposited into their savings account with 20% deposited to their checking account.
A: Santo and Maria have the majority of their salaries directly deposited into their savings account with 20% deposited to their checking account.

Q: Banks USA consistently makes risky loans to small businesses. When a recession hits, Banks USA faces
- a decreased probability of facing a bank run by depositors.
- no more risk of a bank run than if it engaged in overly cautious behavior.
- an increased probability of facing a bank run by depositors.
A: an increased probability of facing a bank run by depositors.

Q: The Bank of Merica has been making risky mortgage loans to high risk individuals. A recession then takes place and the Bank of Merica has the potential to experience
- a lower probability of a bank run by depositors.
- equal risk with a bank run if it had exercised cautious loan behavior.
- a growing possibility of depositors creating a run on the bank.
A: a growing possibility of depositors creating a run on the bank.

Q: A bank is more likely to face bank runs by depositors if it
- keeps more of its money it reserves.
- is solvent.
- makes risky loans to investors.
A: makes risky loans to investors.

Q: What actions by a bank increase the probability it may face a bank run?
- It exercises cautions loans behavior with investors.
- It keeps more of its money it reserves.
- It is an insolvent bank.
A: It is an insolvent bank.

Q: Banks that engage in riskier lending activities may reduce their odds of facing a bank run if they
- reduce their holdings of US Treasuries.
- raise the interest rates they pay to savers.
- keep more of their assets in reserves.
A: keep more of their assets in reserves.

Q: How can banks reduce the chances of a bank run even if they institute riskier lending practices?
- They could hold fewer US Treasury Notes.
- They could increase saver’s interest rates.
- They could increase the amount of assets they keep in reserves.
A: They could increase the amount of assets they keep in reserves.

Q: Why are banks susceptible to potential bank runs?
- Banks have short business hours and customers have difficulty accessing their funds after hours.
- Banks make many conservative loans at high interest rates, but pay low interest rates to depositors.
- Banks keep only fractional funds available, a much higher customer demand to withdraw funds in a short period of time may generate customer panic.
A: Banks keep only fractional funds available, a much higher customer demand to withdraw funds in a short period of time may generate customer panic.

Q: What is one of the reasons banks are vulnerable to bank runs?
- Customers have difficulty accessing their funds after hours because banks have short business hours.
- Banks pay low interest rates to depositors but make many conservative loans at high interest rates.
- Banks daily fractional funds availability may not meet a fast onset of fund withdrawal demands and may induce customer panic.
A: Banks daily fractional funds availability may not meet a fast onset of fund withdrawal demands and may induce customer panic.

Q: The Fed's seven member ruling board of Governors are
- appointed by the president, confirmed by congress, and serve 4-year terms.
- elected, following congressional confirmation, and serve 14-year terms.
- appointed by the president, confirmed by congress, and serve 14-year terms.
A: appointed by the president, confirmed by congress, and serve 14-year terms.

Q: How does a person get to become a member of the Fed’s Board of Governors?
- They are selected as a representative from each regional bank and approved by the president.
- The Board of Directors for each regional bank get elected, then they choose a representative to send to the Board of Governors, who are confirmed by the Senate.
- They are appointed by the president and approved by the Senate.
A: They are appointed by the president and approved by the Senate.

Q: There are ________ regional Federal Reserve banks, who primarily support banks and the economy within their respective districts.
- 7
- 24
- 12
A: 12

Q: How many regional Federal Reserve banks are there in the U.S. who primarily support banks and the economy within their respective districts?
- 6
- 25
- 12
A: 12

Q: Who is responsible for monitoring the money supply and the general stability and safety of the U.S. banking system?
- The Federal Open Market Committee
- The Office of the Comptroller of the Currency
- The Federal Reserve
A: The Federal Reserve

Q: The ________ is responsible for monitoring the money supply and the general stability and safety of the U.S. banking system.
- The Federal Open Market Committee
- The Office of the Comptroller of the Currency
- The Federal Reserve
A: The Federal Reserve

Q: What is the reasoning behind having the seven Fed Board of Governors remain for 14 years on the Federal Reserve?
- Participating in the Fed for the 14 year time period allows the board members to build up seniority and on-the-job understanding.
- Longer terms for board members fosters longer relationships and builds strong networks to push through financial changes to the economy.
- The longer terms are to insulate the members from immediate political pressures and have them focus solely on economic solutions for the nation.
A: The longer terms are to insulate the members from immediate political pressures and have them focus solely on economic solutions for the nation.

Q: Why to the seven Federal Reserve remain for a long time with staggered terms on the Fed Board of Governors?
- The length of time allows the board members to build up on-the-job wisdom and seniority.
- It enables networked relationships to be built in order to make financial changes to the economy quickly.
- The staggered, longer terms insulate members from current political pressure so they can focus only on economic solutions for the U.S.
A: The staggered, longer terms insulate members from current political pressure so they can focus only on economic solutions for the U.S.

Q: Which of the following aptly describes the mission of the Federal Reserve Bank?
- The government’s private bank.
- A profit generating center.
- The banking industry’s private bank.
A: The banking industry’s private bank.

Q: The mission of the Federal Reserve Bank fits best with which of these statements?
- The Fed is to be the government’s private bank.
- The Fed is to be a profit generating center.
- The Fed is the banking industry’s private bank.
A: The Fed is the banking industry’s private bank.

Q: Which of the following is NOT an important role of the Federal Reserve Bank?
- monitoring discrimination in lending
- monitoring anti-competitive behavior in the banking sector
- generating profits
A: generating profits

Q: Which of the following is excluded from the Federal Reserve Bank’s crucial role?
- monitors lending discrimination
- monitors the banking sector for anticompetitive behavior
- producing profits
A: producing profits

Q: Which of the following is an important role of the Federal Reserve?
- monitor the health of banks
- make loans to consumers
- make policy decisions based on the President’s policies
- regulate the supply of money in the country
A: regulate the supply of money in the country

Q: Which of the following is NOT an important role of the Federal Reserve?
- attempt to keep the economy stable
- affect interest rates
- regulate the supply of money in the country
- oversee macroeconomic policies outside the U.S.
A: oversee macroeconomic policies outside the U.S.

Q: If the Federal Reserve did not regulate fiscal policy, monitor banks and provide services for banks, what would most likely be the economic conditions to transact business in the U.S.?
- The economy would primarily be based on a barter system rather than a fiat system.
- There would be no discrimination in lending by local banks.
- The economy would be less efficient and transactions most likely more costly.
A: The economy would be less efficient and transactions most likely more costly.

Q: What would economic conditions potentially be like in the U.S if the Federal Reserve did not regulate fiscal policy, monitor banks and provide services for banks?
- The economy would use a fiat system but most likely a barter system.
- Local, national and regional banks would be liberal in loaning out most of their depositors funds.
- In the economy, transactions would likely be more costly and less efficient.
A: In the economy, transactions would likely be more costly and less efficient.

Q: If a bank does not have enough assets to pay back its liabilities, then
- the bank is solvent.
- it has positive net worth.
- the bank is insolvent.
A: the bank is insolvent.

Q: A midwest bank with new managers and loan officers loaned out large amounts on very risky home loans. The bank sold off some of its real estate assets, but did not have enough to cover its liabilities when the majority of the loans defaulted. The bank is now considered
- solvent.
- having a positive net worth.
- insolvent.
A: insolvent.

Q: Bank regulation requires that banks
- invest in only low-risk stock market portfolios.
- hold at least half of their deposits on hand as reserves, to cover necessary withdraws.
- maintain a minimum net worth in order to protect depositors and creditors.
A: maintain a minimum net worth in order to protect depositors and creditors.

Q: What do bank regulations require of banks?
- That banks only have low-risk stock market portfolios in which they invest.
- That banks must opt out of regulations by paying regulation fees each year.
- That banks retain a minimum net worth to protect depositors and creditors.
A: That banks retain a minimum net worth to protect depositors and creditors.

Q: Bank supervision consists mostly of
- setting maximum reserve requirements, setting bank capital requirements, and setting restrictions on types of loans a bank can make.
- adjusting reserve requirements, setting bank liability requirements, and monitoring risky investments.
- setting minimum reserve requirements, ensuring bank net worth remains positive, and setting restrictions on investments.
A: setting minimum reserve requirements, ensuring bank net worth remains positive, and setting restrictions on investments.

Q: What is included in bank supervision?
- Setting bank capital requirements, setting restrictions on types of loans a bank can make and maximum reserve requirements.
- Monitoring risky investments, setting bank liability requirements, and adjusting reserve requirements.
- Ensuring bank net worth remains positive, setting restrictions on investments and minimum reserve requirements.
A: Ensuring bank net worth remains positive, setting restrictions on investments and minimum reserve requirements.

Q: A bank holding just over the minimum level of cash reserves with a high volume of loans made to developing countries and a large share of assets in the form of loans to more stable domestic industries and households should receive________.
- decreased scrutiny by bank regulators
- no different scrutiny by bank regulators
- increased scrutiny by bank regulators
A: increased scrutiny by bank regulators

Q: The Mid-Merica Bank has a precedent of saying ‘yes’ to almost any loan asked for by customers (households and firms). Because of the large volume of loans it keeps the minimum amount of cash reserves. In addition to these domestic loans, the Mid-Merica Bank has been supplying a large volume of loans to Nigeria’s prince and royal family who are in need of money and funds transferring. According to bank regulations the Mid-Merica Bank would receive ________ by bank regulators.
- decreased scrutiny
- no different scrutiny
- increased scrutiny
A: increased scrutiny

Q: Since the 1930s, bank runs are not problematic in the United States because
- the FDIC’s deposit insurance program punishes any banks that do not hold enough money in their reserves.
- private deposit insurance programs have stepped in to supplement the FDIC and guarantee that depositors will receive all of their investments.
- the FDIC provides deposit insurance and guarantees that depositors will receive a portion, if no all, of their money.
A: the FDIC provides deposit insurance and guarantees that depositors will receive a portion, if no all, of their money.

Q: Why are bank runs in the United States relatively scarce since the 1930s?
- Because banks not retaining enough money in their reserves are closed by the FDIC’s deposit insurance program.
- Because most banks use private deposit insurance programs which supplements the FDIC depositor guarantee.
- Because of the guarantees that depositors will receive a portion, if no all, of their money from the FDIC deposit insurance.
A: Because of the guarantees that depositors will receive a portion, if no all, of their money from the FDIC deposit insurance.

Q: Financial contagion may results in lost integrity in the entire financial system. To prevent this from happening, the Fed may
- consult with private deposit insurance programs to cover the losses of insolvent banks.
- act as the lender of last resort to decrease the money supply.
- act as the lender of last resort to make short-term emergency loans, as needed.
A: act as the lender of last resort to make short-term emergency loans, as needed.

Q: If the public and community loses trust in banks it affects the entire U.S. financial system. In order to keep this type of financial contagion from happening, the Fed
- guides and regulates private deposit insurance programs to cover insolvent bank losses.
- decreases the money supply as acting lender of last resort.
- makes as needed short-term emergency loans, by acting as the lender of last resort.
A: makes as needed short-term emergency loans, by acting as the lender of last resort.

Q: Ultimately, FDIC ensures that ________.
- there will always be sufficient consumption to maintain a stable economy
- the government can minimize its obligations to savers
- there will always be sufficient loanable funds for investors to tap for economic growth generating activities
A: there will always be sufficient loanable funds for investors to tap for economic growth generating activities

Q: What does the FDIC ensure?
- There will always be sufficient demand and consumption to maintain a stable economy
- The government can minimize its obligations to savers.
- There are adequate loanable funding resources to grow the economy by ensuring they are available to investors to generate economic activity.
A: There are adequate loanable funding resources to grow the economy by ensuring they are available to investors to generate economic activity.

Q: Moral hazard is associated with which of the following Federal Reserve bank functions?
- FDIC
- Open market operations
- Lender of last resort
A: Lender of last resort

Q: Which of the following Federal Reserve bank functions is related to moral hazards?
- FDIC
- Compliance with consumer protection laws
- Lender of last resort
A: Lender of last resort

Q: A decision by the Federal Reserve to change reserve requirements for banks is an example of:
- fiscal policy.
- federal budget policy.
- monetary policy.
A: monetary policy.

Q: The Federal Reserve’s monetary policies include changes in
- government spending.
- tax rates.
- reserve requirements.
A: reserve requirements.

Q: The Federal Reserve’s monetary policy tools include all the following EXCEPT
- setting reserve requirements.
- varying the discount rate.
- printing money.
A: printing money.

Q: Which of the following is considered a Federal Reserve monetary policy tool?
- printing money
- setting household deposit requirements
- varying the discount rate
A: varying the discount rate

Q: The Fed’s efforts to manage interest rates and thus the availability of credit is known as
- fiscal policy.
- federal budget policy.
- monetary policy
A: monetary policy

Q: By changing interest rates and credit through ________, the Fed addresses economic concerns such as low GDP or high unemployment.
- fiscal policy
- federal budget policy.
- monetary policy
A: monetary policy

Q: During a recession, what is a traditional tool used by the Fed to boost the economy?
- higher interest rates
- coins and paper currency
- open market operations
A: open market operations

Q: What tool might the Fed use to boost the economy during a recession?
- raising interest rates
- paper currency and coins
- open market operations
A: open market operations

Q: The discount rate is:
- the interest on overnight inter-bank loans.
- interest rate that banks charge their very best corporate customers.
- interest rate charged by the Federal Reserve for discount loans.
A: interest rate charged by the Federal Reserve for discount loans.

Q: What term is used to describe the interest rate charged by the central bank when it makes loans to commercial banks?
- reserve requirement
- Fed rate
- discount rate
A: discount rate

Q: The interest rate charged by the central bank when it makes loans to commercial banks is called the
- reserve requirement
- open market rate
- discount rate
A: discount rate

Q: When the central bank decides to increase the discount rate, the
- money supply increases.
- interest rates decrease.
- interest rates increase.
A: interest rates increase.

Q: How do central bank policies affect interest rates?
- When the central bank decides to decrease the discount rate, then interest rates decrease.
- When the central bank decides to increase the discount rate, interest rates will initially increase, and then decrease in the long run.
- When the central bank decides to increase the discount rate, then interest rates increase.
A: When the central bank decides to increase the discount rate, then interest rates increase.

Q: If the Fed ultimately wants to lower interest rates in the economy, then it should
- raise the discount rate.
- raise the federal funds rate.
- lower the discount rate.
A: lower the discount rate.

Q: If the Fed ultimately wants to raise interest rates in the economy, then it should
- lower the discount rate.
- raise the federal funds rate.
- raise the discount rate.
A: raise the discount rate.

Q: If the Fed increases the discount rate, then Key Bank will
- increase its reserves.
- make more loans.
- decrease its reserves.
A: decrease its reserves.

Q: Atlantic Bank is required to hold 10% of deposits as reserves. If the central bank increases the discount rate, how would Atlantic Bank respond?
- By noting a decrease in net worth.
- It can make more loans with increased loan assets.
- By increasing its reserves.
A: By increasing its reserves.

Q: Read through the following scenarios and select the one that would most likely compel the Fed to lower the discount rate.
- There has an increased demand in the federal funds market which triggered interest rates increasing far above the discount rate.
- There has been a surge in loan demand from customers, but banks have be unable to secure enough money on the federal funds market to meet the new demand level.
- For the last three months there is a decline in the federal funds market which triggered interest rates dipping below the discount rate.
A: For the last three months there is a decline in the federal funds market which triggered interest rates dipping below the discount rate.

Q: Which of the following settings would induce the Fed into raising the discount rate?
- There has been a surge in loan demand from customers, but banks have be unable to secure enough money on the federal funds market to meet the new demand level.
- For the last three months there is a decline in the federal funds market which triggered interest rates dipping below the discount rate.
- There has an increased demand in the federal funds market which triggered interest rates increasing far above the discount rate.
A: There has an increased demand in the federal funds market which triggered interest rates increasing far above the discount rate.

Q: A central bank that desires to reduce the quantity of money in the economy can:
- lower the discount rate.
- lower the reserve requirement.
- raise the reserve requirement.
A: raise the reserve requirement.

Q: If the Fed wants to increase the quantity of money in the economy, it can
- raise the reserve requirement.
- lower the discount rate.
- lower the reserve requirement.
A: lower the reserve requirement.

Q: Which of the following terms is used to describe the proportion of deposits that banks are legally required to deposit with the central bank?
- discount requirement
- deposit requirement
- reserve requirement
A: reserve requirement

Q: The proportion of deposits that banks are legally required to deposit with the central bank are called
- discount requirements.
- deposit requirements.
- reserve requirements.
A: reserve requirements.

Q: If the Fed raises the reserve requirement, then banks will
- make more loans.
- increase the availability of credit.
- make fewer loans.
A: make fewer loans.

Q: If the Fed lowers the reserve requirement, then the results will be
- a decrease in the amount of loans a bank can make.
- a decrease in the availability of credit.
- an increase the availability of credit.
A: an increase the availability of credit.

Q: If the Fed raises reserves requirements, then interest rates will ________ and the money supply will ________.
- fall; increase
- be unaffected; decrease
- rise; decrease
A: rise; decrease

Q: Lower reserves requirements, lead to a ________ in interest rates and a/an ________ in the money supply.
- rise; decrease
- fall; decrease
- fall; increase
A: fall; increase

Q: Say that Fed policy requires all banks to hold 8% of deposits in reserves. If Ventura Bank does not hold any excess reserves and the Fed increases the reserve requirement to 10%, what will be the result?
- An increase in Ventura Bank’s net worth.
- An increase Ventura Bank’s ability to make loans.
- The money supply in the economy decreases.
A: The money supply in the economy decreases.

Q: Central bank policy requires all banks to hold 10% of deposits as reserves. Pacific Bank policy prevents it from holding excess reserves. Suppose banks cannot trade any of the bonds they already have. If the central bank decides to lower the reserve requirement to 9%, which of the following will result?
- The money supply in the economy decreases.
- A decrease in Pacific's net worth.
- An increase Pacific's ability to make loans.
A: An increase Pacific's ability to make loans.

Q: When the central bank lowers the reserve requirement on deposits
- the money supply and interest rates decrease.
- the money supply decreases and interest rates increase.
- the money supply increases and interest rates decrease.
A: the money supply increases and interest rates decrease.

Q: If the central bank raises the reserve requirement on deposits
- the money supply increases and interest rates decrease.
- the money supply and interest rates decrease.
- the money supply decreases and interest rates increase.
A: the money supply decreases and interest rates increase.

Q: An open market operation increases the money supply when the Federal Reserve
- sells bonds to banks, which increases bank reserves.
- buys bonds from banks, which decreases bank reserves.
- buys bonds from banks, which increases bank reserves.
A: buys bonds from banks, which increases bank reserves.

Q: An open market operation decreases the money supply when the Federal Reserve
- sells bonds to banks, which increases bank reserves.
- buys bonds from banks, which increases bank reserves.
- buys bonds from banks, which decreases bank reserves.
A: buys bonds from banks, which decreases bank reserves.

Q: A central bank that wants to increase the quantity of money in the economy will
- raise the discount rate.
- sell bonds in open market operations.
- buy bonds in open market operations.
A: buy bonds in open market operations.

Q: If the Fed wants to decrease the quantity of money in the economy, it can
- buy bunds.
- lower the reserve requirement.
- sell bonds.
A: sell bonds.

Q: When the central bank decides it will sell bonds using open market operations:
- interest rates decrease.
- the money supply increases.
- the money supply decreases.
A: the money supply decreases.

Q: When the central bank decides it will buy bonds using open market operations
- interest rates decrease.
- the money supply decreases.
- the money supply increases.
A: the money supply increases.

Q: An open market purchase of US Treasury bonds by the central bank will ________ credit conditions for private firms.
- restrict
- not change
- ease
A: ease

Q: An open market sale of US Treasury bonds by the central bank will ________ credit conditions for private firms.
- ease
- not change
- restrict
A: restrict

Q: A goal of monetary policy is
- keeping taxes low.
- reducing government deficits.
- promoting economic growth.
A: promoting economic growth.

Q: One of the goals of monetary policy is
- creating deflation.
- keeping taxes low.
- maintaining price stability.
A: maintaining price stability.

Q: An expansionary or loose monetary policy
- raises interest rates.
- reduces borrowing.
- lowers interest rates.
A: lowers interest rates.

Q: A contractionary or tight monetary policy
- lowers interest rates.
- stimulates borrowing.
- reduces borrowing.
A: reduces borrowing.

Q: When the Central Bank acts in a way that causes the money supply to increase while aggregate demand remains unchanged, it is
- following a contractionary monetary policy.
- following a tight monetary policy.
- following an expansionary monetary policy.
A: following an expansionary monetary policy.

Q: In the scenario where the Central Bank creates policies which increase the money supply but the aggregate demand is unchanged, is created by following what type of monetary policy?
- A balanced policy.
- A contractionary policy.
- An expansionary policy.
A: An expansionary policy.

Q: When a Central Bank takes action to decrease the money supply and increase the interest rate, it is following
- a loose monetary policy.
- a expansionary monetary policy.
- a contractionary monetary policy.
A: a contractionary monetary policy.

Q: In the 1980s the U.S. Central Bank had the goal of increasing the interest rate and decreasing the money supply. To implement its goal the Central Bank uses a ________ monetary policy.
- relaxed
- expansionary
- contractionary
A: contractionary

Q: Ceteris paribus, a reduction in the federal funds rate affects car loan rates in the following manner
- Car loan rates will increase.
- Car loan rates will stay the same.
- Car loan rates will decrease.
A: Car loan rates will decrease.

Q: All else being equal, how does an increase in the federal funds rate affect home loan rates?
- home loan rates fall
- home loan rates remain the same
- home loan rates rise
A: home loan rates rise

Q: When the interest rate in an economy decreases, it is likely the result of either a/an ________ or a/an ________.
- increase in the federal budget deficit; open market sale of securities by the Fed.
- decrease in the federal budget deficit; open market purchase of securities by the Fed.
- expansionary practice; open market purchase of securities by the Fed.
A: expansionary practice; open market purchase of securities by the Fed.

Q: When the interest rate in an economy increases, it is likely the result of either a/an ________ or a/an ________.
- increase in the federal budget deficit; open market sale of securities by the Fed.
- decrease in the federal budget deficit; open market purchase of securities by the Fed.
- contractionary practice; open market sale of securities by the Fed.
A: contractionary practice; open market sale of securities by the Fed.

Q: An expansionary monetary policy affects aggregate demand
- directly, by increasing government expenditure.
- indirectly, by increasing interest rates and decreasing the available quantity of loans, which reduces spending.
- indirectly, by lowering interest rates and increasing the available quantity of loans, which stimulates spending.
A: indirectly, by lowering interest rates and increasing the available quantity of loans, which stimulates spending.

Q: An expansionary monetary policy increases investment and consumption spending, which
- shifts the AD curve to the left and decreases equilibrium GDP.
- shifts the AS curve to the right and increases equilibrium GDP.
- shifts the AS curve to the right and decreases equilibrium GDP.
- shifts the AD curve to the right and increases equilibrium GDP.
A: shifts the AD curve to the right and increases equilibrium GDP.

Q: A contractionary monetary policy reduces GDP by
- lowering interest rates and encouraging investment and consumption spending.
- raising interest rates and encouraging investment and consumption spending.
- lowering interest rates and discouraging investment and consumption spending.
- raising interest rates and discouraging investment and consumption spending.
A: raising interest rates and discouraging investment and consumption spending.

Q: A expansionary monetary policy increases GDP by
- raising interest rates and discouraging investment and consumption spending.
- raising interest rates and encouraging investment and consumption spending.
- lowering interest rates and discouraging investment and consumption spending.
- lowering interest rates and encouraging investment and consumption spending.
A: lowering interest rates and encouraging investment and consumption spending.

Q: When the supply of loanable funds shifts its position to the left, interest rates will ________ because loanable funds will be ________.
- fall; less scarce
- rise; less scarce
- rise; more scare
A: rise; more scare

Q: When the supply of loanable funds shifts its position to the right, interest rates will ________ because loanable funds will be ________.
- rise; scarcer
- rise; less scarce
- fall; less scarce
A: fall; less scarce

Q: What will happen to the money supply if the Fed increases the reserve requirement?
- The money supply will decrease.
- The money supply is unaffected by the reserve requirement.
- The money supply will increase.
A: The money supply will increase.

Q: What will happen to the money supply if the Fed decreases the reserve requirement?
- The money supply will increase.
- The money supply is unaffected by the reserve requirement.
- The money supply will decrease.
A: The money supply will decrease.

Q: What happens to the money supply if the Fed lowers the discount rate?
- it decreases
- it decreases, and then increases
- it increases
A: it increases

Q: What happens to the money supply if the Fed raises the discount rate?
- it increases
- it increases, and then decreases
- it decreases
A: it decreases

Q: In order to ________ the money supply, government should ________ bonds in open market operations.
- increase; sell
- decrease; buy
- increase; buy
A: increase; buy

Q: In order to ________ the money supply, government should sell bonds in open market operations.
- increase
- keep up with inflation in
- decrease
A: decrease

Q: Which of the following actions by the Fed will increase the money supply?
- lowering the reserve requirement and selling bonds.
- raising the discount rate and the reserve requirement.
- increasing the reserve requirement and buying bonds.
A: increasing the reserve requirement and buying bonds.

Q: Which of the following actions by the Fed will increase the money supply?
- increasing the reserve requirement and buying bonds.
- lowering the reserve requirement and selling bonds.
- lowering the discount rate and the selling bonds.
A: lowering the discount rate and the selling bonds.

Q: If the Central Bank observes aggregate demand weakening it will undertake
- contractionary monetary policy.
- no action.
- expansionary monetary policy.
A: expansionary monetary policy.

Q: When the Central Bank acts in a way that causes the money supply to increase while aggregate demand remains unchanged, it is
- following a contractionary monetary policy.
- following quantitative easing policy.
- following an expansionary monetary policy.
A: following an expansionary monetary policy.

Q: If a Central Bank decides it needs to decrease both the aggregate demand and the money supply, then it will:
- follow expansionary monetary policy.
- follow loose monetary policy.
- follow contractionary monetary policy.
A: follow contractionary monetary policy.

Q: In an economy where the money supply and aggregate demand have been decreased by the Central Bank, you know that the Central Bank is using
- an expansionary monetary policy.
- a loose monetary policy.
- a contractionary monetary policy.
A: a contractionary monetary policy.

Q: When a Central Bank makes a decision that will cause an increase in both the money supply and aggregate demand, it is
- following a tight monetary policy.
- following a contractionary monetary policy.
- following a expansionary monetary policy.
A: following a expansionary monetary policy.

Q: If a macroeconomy has the money supply and aggregate demand increased by the Central Bank, what monetary policy is the Central Bank following?
- A tight monetary policy.
- A contractionary monetary policy.
- An expansionary monetary policy.
A: An expansionary monetary policy.

Q: Considering how monetary policy affects the market, which of the following statements is most accurate?
- There is a direct impact on aggregate demand by monetary policies.
- There is more of an impact on consumption than investments by monetary policies.
- There is an indirect impact on aggregate demand by monetary policies.
A: There is an indirect impact on aggregate demand by monetary policies.

Q: How does monetary policy affect the market?
- Monetary policy has a direct impact on aggregate demand.
- Monetary policy has a more of an impact on consumption than investment.
- Monetary policy has an indirect impact on aggregate demand.
A: Monetary policy has an indirect impact on aggregate demand.

Q: When a Central Bank decides to make a policy intervention it must be mindful of the trade off between
- inflation and interest rates.
- money supply and inflation.
- inflation and unemployment.
A: inflation and unemployment.

Q: When considering which monetary policy to implement, the Central Bank needs to also be conscious of the tradeoff between
- consumption and investment.
- private investments and government expenditures.
- unemployment and inflation.
A: unemployment and inflation.

Q: Which of the following statements is correct?
- Central Bank intervention is undertaken to moderate private investment behavior.
- Central Bank intervention depends on the political goals of its Directors.
- Central Bank intervention reflects its goals for inflation, unemployment and economic growth.
A: Central Bank intervention reflects its goals for inflation, unemployment and economic growth.

Q: Identify which is true of the following statements?
- One of the purposes of the Central Bank’s intervention is to moderate private investment behavior.
- The Central Bank’s Directors political goals guide its intervention.
- The Central Bank’s goals for inflation, unemployment and economic growth is reflected in how it intervenes.
A: The Central Bank’s goals for inflation, unemployment and economic growth is reflected in how it intervenes.

Q: Central bank intervention is most effective when it ________.
- waits to get a clearer understanding of the movements of the economy
- reflects the wishes of the government
- takes preemptive action
A: takes preemptive action

Q: The Central Bank is most effective in its intervention if
- it holds back to assess the movements of the economy and until it has a clearer understanding of it.
- it reflects the President’s wishes.
- its actions are taken in preemptive moves.
A: its actions are taken in preemptive moves.

Q: The Central bank views unemployment ________ important than inflation.
- as more
- as less
- just as
A: just as

Q: The Central bank views unemployment just as important as ________.
- the reserve requirement
- the money supply
- inflation
A: inflation

Q: Quantitative easing can be described as a means of
- improving credit conditions for government agencies to encourage them to maintain income maintenance programs.
- encouraging consumption among private households.
- improving credit conditions for private firms and encouraging them to commit to capital expansion projects.
A: improving credit conditions for private firms and encouraging them to commit to capital expansion projects.

Q: Which of the following statements about quantitative easing describes it best?
- Quantitative easing means encouraging government agencies to maintain income maintenance programs through improving credit conditions.
- Quantitative easing means fostering private household consumption.
- Quantitative easing means encouraging private firms to increase capital expansion projects through improving credit conditions.
A: Quantitative easing means encouraging private firms to increase capital expansion projects through improving credit conditions.

Q: Quantitative easing undertaken after 2008 is different from traditional central bank intervention in that it focused on
- raising private bank’s revenues and therefore encouraging investment.
- purchasing “toxic assets” and restoring credit to the private sector.
- purchasing long-term government securities to encourage long-term capital projects and ease mortgage conditions.
A: purchasing long-term government securities to encourage long-term capital projects and ease mortgage conditions.

Q: After 2008, quantitative easing was distinctively different from traditional central bank intervention because it focused on
- encouraging investment by raising private bank’s revenues.
- restoring the private sectors credit by purchasing “toxic assets”.
- encourage long-term capital projects and ease mortgage conditions by purchasing long-term government securities.
A: encourage long-term capital projects and ease mortgage conditions by purchasing long-term government securities.

Q: Quantitative easing undertaken after 2008 was deemed to be necessary because ________.
- the threat of inflation was outweighed by staggering unemployment
- the demand for loanable funds increased as the federal funds rate was at historic lows
- short-term interest rates had already been driven down to zero and could not go lower
A: short-term interest rates had already been driven down to zero and could not go lower

Q: After 2008, the reasoning for the Fed to undertake quantitative easing was because ________.
- the short-term interest rates were above zero and could be lowered.
- the staggering unemployment was a greater threat than the threat of inflation.
- the demand for loanable funds remained stagnant even as the federal funds rate was at historic lows.
A: the demand for loanable funds remained stagnant even as the federal funds rate was at historic lows.

Q: The main risk of quantitative easing is ________.
- unemployment
- reduced exports
- inflation
A: inflation

Q: What is the economic risk of using quantitative easing?
- unemployment
- reduced imports
- inflation
A: inflation