E202 MyEconLab Quiz 11

Which of the following is an example of the precautionary demand for​ money?
(A) Joan believes that gold is an excellent store of value.
(B) Since the stock market has been volatile lately comma Jean holds most of her savings in a bank account.Since the stock market has been volatile lately, Jean holds most of her savings in a bank account.
(C) Carla keeps $2,000 in a bank account in case of emergencies.
(D) Marianne uses money in her checking account to buy groceries every week.

Suppose that the Fed pursues an expansionary monetary policy. Which of the following statements best explains the transmission mechanism in an open​ economy?
(A) The increase in interest rates will cause capital inflow, increasing the value of the dollar and decreasing net exports.
(B) The decrease in interest rates will cause capital inflow, lowering the value of the dollar and decreasing net exports.
(C) The decrease in interest rates will cause capital outflow, lowering the value of the dollar and increasing net exports.
(D) The increase in interest rates will cause capital outflow comma increasing the value of the dollar and increasing net exports.

Which of the following actions would cause an increase in the level of reserves in the banking​ system?
(A) A customer withdraws funds from Reliable Bank and deposits them in National Bank.
(B) The FOMC instructs the NY trading desk to sell government bonds on the open market.
(C) The FOMC instructs the NY trading desk to purchase government bonds on the open market.
(D) The federal government issues new bonds to finance the budget deficit.The federal government issues new bonds to finance the budget deficit.
(E) The federal government pays off bonds that were originally issued to finance the budget deficit.

Decreases in the money supply affect the economy indirectly because
(A) people spend excess money balances and​ thus, aggregate demand increases.
(B) people have insufficient money balances and thus aggregate demand decreases.
(C) interest rates increase, causing planned investment to decrease​, which causes a decrease in aggregate demand.
(D) interest rates decrease causing planned investment to increase, which causes an increase in aggregate demand.
(E) There is no indirect effect of the money supply on the economy.

Suppose that the Fed judges inflation to be the most significant problem in the economy and that it wishes to employ all three of its policy​ instruments, then the Fed will engage in
(A) open market​ purchase, increasing the reserve​ requirement, and increasing the discount rate.
(B) open market​ sales, increasing the reserve​ requirement, and increasing the discount rate.
(C) open market​ purchase, increasing the reserve​ requirement, and decreasing the discount rate.
(D) open market​ sales, decreasing the reserve​ requirement, and increasing the discount rate.

Suppose that​ currently, the economy is underutilizing its resources.is underutilizing its resources. Which of the following correctly describes what type of monetary policy the Fed might choose and how the policy would change the​ economy?
(A) The Fed could use a contractionary monetary policy to reduce aggregate demand and GDP.
(B) The Fed could use an expansionary monetary policy to increase aggregate demand and GDP.
(C) The Fed could use a contractionary monetary policy to reduce short minus run aggregate supply and GDP.
(D) The Fed could use an expansionary monetary policy to increase short minus run aggregate supply and GDP.

Which of the following events would be likely to increase the supply of​ money?
(A) Banks perceive loans to be more risky and wish to hold more excess reserves.
(B) The Fed increases reserve requirements for banks.
(C) The Fed decreases the discount rate relative to the federal funds rate.
(D) The Fed conducts an open market sale of bonds.

Which of the following is not a viable monetary policy target for the​ Fed?
(A) The interest rate.
(B) The money demand.
(C) The inflation rate.
(D) The money supply.