question
One advantage of automatic stabilizers over discretionary fiscal policy is that automatic stabilizers
A) make the actual budget a better reflection of the condition of the economy than the standardized budget.
B) do not produce a cyclical deficit as discretionary fiscal policy does.
C) are not subject to the timing problems of discretionary fiscal policy.
D) have a greater multiplier effect than discretionary fiscal policy.
A) make the actual budget a better reflection of the condition of the economy than the standardized budget.
B) do not produce a cyclical deficit as discretionary fiscal policy does.
C) are not subject to the timing problems of discretionary fiscal policy.
D) have a greater multiplier effect than discretionary fiscal policy.
answer
C) are not subject to the timing problems of discretionary fiscal policy.
question
As the economy declines into recession, the collection of personal income tax revenues automatically falls. This phenomenon best illustrates how a progressive income-tax system
A) increases crowding out in the economy.
B) decreases real interest rates in the economy.
C) offsets the timing problem for fiscal policy.
D) serves as an automatic stabilizer for the economy.
A) increases crowding out in the economy.
B) decreases real interest rates in the economy.
C) offsets the timing problem for fiscal policy.
D) serves as an automatic stabilizer for the economy.
answer
D) serves as an automatic stabilizer for the economy.
question
Assume that the full-employment level of output is $2,000 and the price level associated with full-employment output is 100. Also assume that the economy's current level of output is $1,900 and, at the price level of 100, current aggregate demand is $1,850. If the government moves the economy back to the full-employment level of output by increasing government purchases by $30, then the MPC equals
A) 0.8.
B) 0.75.
C) 0.6.
D) 0.5.
A) 0.8.
B) 0.75.
C) 0.6.
D) 0.5.
answer
A) 0.8
question
Generally speaking, the government implements fiscal policy in a
A) fast and accurate manner.
B) fast but inaccurate manner.
C) slow and inaccurate manner.
D) slow but accurate manner.
A) fast and accurate manner.
B) fast but inaccurate manner.
C) slow and inaccurate manner.
D) slow but accurate manner.
answer
C) slow and inaccurate manner.
question
Which of the following fiscal policy changes would be the most expansionary?
A) a $40 billion increase in government purchases
B) a $20 billion tax cut and $20 billion increase in government purchases
C) a $10 billion tax cut and $30 billion increase in government purchases
D) a $40 billion tax cut
A) a $40 billion increase in government purchases
B) a $20 billion tax cut and $20 billion increase in government purchases
C) a $10 billion tax cut and $30 billion increase in government purchases
D) a $40 billion tax cut
answer
A) a $40 billion increase in government purchases
question
If a government wants to pursue an expansionary fiscal policy, then a tax cut of a certain size will be more expansionary when the
A) economy's MPC is large.
B) economy's MPS is large.
C) economy's MPC is small.
D) unemployment rate is low.
A) economy's MPC is large.
B) economy's MPS is large.
C) economy's MPC is small.
D) unemployment rate is low.
answer
A) economy's MPC is large.
question
The lag between the time that the need for fiscal action is recognized and the time action is actually taken is referred to as the
A) spending lag.
B) recognition lag.
C) implementation lag.
D) legislative lag.
A) spending lag.
B) recognition lag.
C) implementation lag.
D) legislative lag.
answer
D) legislative lag.
question
In an economy, the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment. If the MPC is 0.6, then it would increase government purchases by
A) $10 billion.
B) $20 billion.
C) $31.25 billion.
D) $40.50 billion.
A) $10 billion.
B) $20 billion.
C) $31.25 billion.
D) $40.50 billion.
answer
B) $20 billion
question
Assume that the full-employment level of output is $500 and the price level associated with full-employment output is 100. Also assume that the economy's current level of output is $450 and, at the price level of 100, current aggregate demand is $400. If the government wants to move the economy back to the full-employment level of output and the MPC is 0.75, then it should
A) reduce government purchases by $100.
B) increase government purchases by $100.
C) reduce government purchases by $25.
D) increase government purchases by $25.
A) reduce government purchases by $100.
B) increase government purchases by $100.
C) reduce government purchases by $25.
D) increase government purchases by $25.
answer
D) increase government purchases by $25.
question
The economy is at equilibrium at point C which is below potential output. What fiscal policy would increase real GDP?
A) Shift aggregate demand to the right by increasing taxes.
B) Shift aggregate demand to the left by decreasing taxes.
C) Shift aggregate demand to the left by decreasing government purchases.
D) Shift aggregate demand to the right by increasing government purchases.
A) Shift aggregate demand to the right by increasing taxes.
B) Shift aggregate demand to the left by decreasing taxes.
C) Shift aggregate demand to the left by decreasing government purchases.
D) Shift aggregate demand to the right by increasing government purchases.
answer
D) Shift aggregate demand to the right by increasing government purchases.
question
If the government knew the precise values of the multiplier and potential income, fine-tuning the economy would
A) still be very difficult.
B) be possible.
C) be much easier, but mistakes would still occur occasionally.
D) be more difficult.
A) still be very difficult.
B) be possible.
C) be much easier, but mistakes would still occur occasionally.
D) be more difficult.
answer
A) still be very difficult
question
Which combination of fiscal policy actions would most likely offset each other?
A) an increase in taxes and an increase in government purchases
B) a decrease in taxes and an increase in government purchases
C) an increase in taxes, but no change in government purchases
D) a decrease in government purchases, but no change in taxes
A) an increase in taxes and an increase in government purchases
B) a decrease in taxes and an increase in government purchases
C) an increase in taxes, but no change in government purchases
D) a decrease in government purchases, but no change in taxes
answer
A) an increase in taxes and an increase in government purchases
question
When government purchases are increased, the amount of the increase in aggregate demand primarily depends on
A) the average propensity to consume.
B) the size of the multiplier.
C) income taxes.
D) exchange rates.
A) the average propensity to consume.
B) the size of the multiplier.
C) income taxes.
D) exchange rates.
answer
B) the size of the multiplier.
question
When the federal government changes purchases and/or taxes to stimulate the economy or rein in inflation, such policy is
A) active monetary policy.
B) automatic fiscal policy.
C) discretionary fiscal policy.
D) active federal policy.
A) active monetary policy.
B) automatic fiscal policy.
C) discretionary fiscal policy.
D) active federal policy.
answer
C) discretionary fiscal policy.
question
Fiscal policy is often initiated on the advice of the
A) Congressional Budget Office.
B) Council of Economic Advisers.
C) Joint Economic Committee.
D) Federal Reserve Board.
A) Congressional Budget Office.
B) Council of Economic Advisers.
C) Joint Economic Committee.
D) Federal Reserve Board.
answer
B) Council of Economic Advisers.
question
An economy is experiencing a high rate of inflation. The government wants to reduce aggregate demand by $36 billion to reduce inflationary pressure. The MPC is 0.75. By how much should the government raise taxes to achieve its objective?
A) $6 billion
B) $9 billion
C) $12 billion
D) $16 billion
A) $6 billion
B) $9 billion
C) $12 billion
D) $16 billion
answer
B) $12 billion
question
If Congress passes legislation to increase government purchases to counter the effects of a recession, then this would be an example of a(n)
A) supply-side fiscal policy.
B) expansionary fiscal policy.
C) contractionary fiscal policy.
D) nondiscretionary fiscal policy.
A) supply-side fiscal policy.
B) expansionary fiscal policy.
C) contractionary fiscal policy.
D) nondiscretionary fiscal policy.
answer
B) expansionary fiscal policy.
question
The Federal Reserve System regulates the money supply primarily by
A) controlling the production of coins at the U.S. 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.
A) controlling the production of coins at the U.S. 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.
answer
C) altering the reserves of commercial banks, largely through sales and purchases of government bonds.
question
When the Fed acts as a "lender of last resort," like it did in the financial crisis of 2007-2008, it is performing its role of
A) controlling the money supply.
B) setting the reserve requirements.
C) being the bankers' bank.
D) providing for check clearing and collection.
A) controlling the money supply.
B) setting the reserve requirements.
C) being the bankers' bank.
D) providing for check clearing and collection.
answer
C) being the bankers' bank.
question
Which of the following functions does the Federal Reserve System not perform?
A) Issuing the paper currency in the economy.
B) Providing banking services to the general public.
C) Providing financial services to the Federal government.
D) Lending money to banks and thrifts.
A) Issuing the paper currency in the economy.
B) Providing banking services to the general public.
C) Providing financial services to the Federal government.
D) Lending money to banks and thrifts.
answer
B) Providing banking services to the general public.
question
A commercial bank has required reserves of $60 million and the reserve ratio is 20%. How much are the commercial bank's checkable-deposit liabilities?
A) $120 million
B) $900 million
C) $300 million
D) $1,200 million
A) $120 million
B) $900 million
C) $300 million
D) $1,200 million
answer
C) $300 million
question
Cash held by a bank in its vault is a part of the bank's
A) reserves.
B) liabilities.
C) money supply.
D) net worth.
A) reserves.
B) liabilities.
C) money supply.
D) net worth.
answer
A) reserves
question
The multiple by which the commercial banking system can expand the supply of money is equal to the
A) ratio of actual reserves to required reserves.
B) reciprocal of the federal funds rate.
C) reciprocal of the reserve ratio.
D) ratio of required reserves to actual reserves.
A) ratio of actual reserves to required reserves.
B) reciprocal of the federal funds rate.
C) reciprocal of the reserve ratio.
D) ratio of required reserves to actual reserves.
answer
C) reciprocal of the reserve ratio.
question
The Federal Reserve System performs many functions but its most important one is
A) issuing currency.
B) controlling the money supply.
C) providing for check clearing and collection.
D) acting as fiscal agent for the U.S. government.
A) issuing currency.
B) controlling the money supply.
C) providing for check clearing and collection.
D) acting as fiscal agent for the U.S. government.
answer
B) controlling the money supply.
question
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.
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.
answer
B) in doing so, one sacrifices interest income.
question
The main function of the Federal Reserve System is to
A) serve as the fiscal agent for the federal government.
B) set reserve requirements of banks.
C) clear checks from member banks.
D) control the money supply.
A) serve as the fiscal agent for the federal government.
B) set reserve requirements of banks.
C) clear checks from member banks.
D) control the money supply.
answer
D) control the money supply
question
Which of the following varies directly with the interest rate?
A) the opportunity cost of holding money
B) the transactions demand for money
C) the asset demand for money
D) the level of investment
A) the opportunity cost of holding money
B) the transactions demand for money
C) the asset demand for money
D) the level of investment
answer
A) the opportunity cost of holding money
question
To keep high inflation from eroding the value of money, monetary authorities in the United States
A) create token money that is less than its intrinsic value.
B) make paper money legal tender for the payment of debt.
C) establish insurance on checkable deposit accounts.
D) control the supply of money in the economy.
A) create token money that is less than its intrinsic value.
B) make paper money legal tender for the payment of debt.
C) establish insurance on checkable deposit accounts.
D) control the supply of money in the economy.
answer
D) control the supply of money in the economy.
question
The M1 measure of money consists of the sum of
A) currency and travelers' checks.
B) currency, checking deposits, and travelers' checks.
C) currency, checking deposits, and savings deposits.
D) checking deposits and travelers' checks.
A) currency and travelers' checks.
B) currency, checking deposits, and travelers' checks.
C) currency, checking deposits, and savings deposits.
D) checking deposits and travelers' checks.
answer
B) currency, checking deposits, and travelers' checks.
question
When a banker records how many dollars each of his borrowers owes the bank, money is serving as a
A) store of value.
B) unit of account.
C) medium of exchange.
D) legal tender.
A) store of value.
B) unit of account.
C) medium of exchange.
D) legal tender.
answer
B) unit of account.
question
How many members can serve on the Board of Governors of the Federal Reserve System?
A) 7
B) 9
C) 12
A) 7
B) 9
C) 12
answer
A) 7
question
Which of the following institutions does not provide checkable-deposit services to the general public?
A) commercial banks
B) savings and loan associations
C) U.S. Treasury
D) credit unions
A) commercial banks
B) savings and loan associations
C) U.S. Treasury
D) credit unions
answer
C) U.S. Treasury
question
If you use $1,000 to purchase silver coins, which you plan to keep in a safe, you are using money as
bank reserves.
A) bank reserves
B) a unit of account.
C) a medium of exchange.
D) a store of value.
bank reserves.
A) bank reserves
B) a unit of account.
C) a medium of exchange.
D) a store of value.
answer
C) a medium of exchange
question
The most important among the Federal Reserve district banks in conducting monetary policy is the
A) Boston bank.
B) Chicago bank.
C) New York bank.
D) San Francisco bank.
A) Boston bank.
B) Chicago bank.
C) New York bank.
D) San Francisco bank.
answer
C) New York Bank
question
If the Fed were to reduce the reserve requirement, we would expect
A) lower interest rates, an expanded GDP, and a higher rate of inflation.
B) lower interest rates, an expanded GDP, and a lower rate of inflation.
C) higher interest rates, a contracted GDP, and a higher rate of inflation.
D) higher interest rates, a contracted GDP, and a lower rate of inflation.
A) 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.
answer
A) lower interest rates, an expanded GDP, and a higher rate of inflation.
question
Which of the following best describes the cause-and-effect chain of a restrictive monetary policy?
A) A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.
B) A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP.
C) An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP.
D) An increase in the money supply will lower the interest rate, decrease investment spending, and increase aggregate demand and GDP.
A) A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.
B) A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP.
C) An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP.
D) An increase in the money supply will lower the interest rate, decrease investment spending, and increase aggregate demand and GDP.
answer
B) A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP.
question
Traditionally, the Fed often communicated its intentions to restrict or expand monetary policy by announcing a change in its target for the
A) prime rate.
B) federal funds rate.
C) discount rate.
D) consumer price index.
A) prime rate.
B) federal funds rate.
C) discount rate.
D) consumer price index.
answer
B) federal funds rate.
question
When the reserve requirement 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.
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.
answer
C) increased and the multiple by which the commercial banking system can lend is increased.
question
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.
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.
answer
B) rate at which the Federal Reserve Banks lend to commercial banks.
question
A newspaper headline reads: "Fed Cuts Federal Funds Rate for Fifth Time This Year." This headline indicates that the Federal Reserve is most likely trying to
A) reduce inflation in the economy.
B) raise interest rates.
C) ease monetary policy.
D) tighten monetary policy.
A) reduce inflation in the economy.
B) raise interest rates.
C) ease monetary policy.
D) tighten monetary policy.
answer
C) ease monetary policy
question
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 the reserve requirement is 20%. If the Fed increases the discount rate from 4.0% to 4.25%, 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.
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.
answer
B) decline by $0.5 billion and the money supply will decline by $2.5 billion.
question
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) and reserves of commercial banks are both unchanged.
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.
answer
B) and reserves of commercial banks both decrease.
question
Which of the following statements best describes what occurs when monetary authorities sell government securities?
A) The size of commercial banks' excess reserves decreases, the money supply increases, and interest rates fall, thereby causing a decrease in investment spending and real GDP.
B) The size of commercial banks' excess reserves decreases, the money supply decreases, and the interest rates rise, thereby causing a decrease in investment spending and real GDP.
C) The size of commercial banks' excess reserves decreases, the money supply decreases, and interest rates rise, thereby causing an increase in investment spending and real GDP.
D) The size of commercial bank reserves increases, the money supply increases, and interest rates fall, thereby causing an increase in investment spending and real GDP.
A) The size of commercial banks' excess reserves decreases, the money supply increases, and interest rates fall, thereby causing a decrease in investment spending and real GDP.
B) The size of commercial banks' excess reserves decreases, the money supply decreases, and the interest rates rise, thereby causing a decrease in investment spending and real GDP.
C) The size of commercial banks' excess reserves decreases, the money supply decreases, and interest rates rise, thereby causing an increase in investment spending and real GDP.
D) The size of commercial bank reserves increases, the money supply increases, and interest rates fall, thereby causing an increase in investment spending and real GDP.
answer
B) The size of commercial banks' excess reserves decreases, the money supply decreases, and the interest rates rise, thereby causing a decrease in investment spending and real GDP.
question
What policy tool of the Federal Reserve relies on bank borrowing to be effective?
A) open-market operations
B) check collection
C) the reserve requirement
D) the discount rate
A) open-market operations
B) check collection
C) the reserve requirement
D) the discount rate
answer
D) the discount rate
question
Financial markets pay close attention to changes in the federal funds rate because these changes
A) directly affect a large volume of loans.
B) indicate commercial bank lending policies.
C) directly affect the interest payments on the national debt.
D) affect other interest rates in the economy.
A) directly affect a large volume of loans.
B) indicate commercial bank lending policies.
C) directly affect the interest payments on the national debt.
D) affect other interest rates in the economy.
answer
D) affect other interest rates in the economy.
question
The lending ability of commercial banks increases when the
A) reserve requirement is raised.
B) Treasury collects tax revenues.
C) Fed sells securities in the open market.
D) Fed buys securities in the open market.
A) reserve requirement is raised.
B) Treasury collects tax revenues.
C) Fed sells securities in the open market.
D) Fed buys securities in the open market.
answer
D) Fed buys securities in the open market.
question
Which of the following is a monetary policy intended to rein in inflation?
A) Increasing the money supply to shift the aggregate demand curve rightward.
B) Reducing interest rates to increase investment spending.
C) Reducing the interest paid on banks' reserves.
D) Decreasing the money supply to shift the aggregate demand curve leftward.
A) Increasing the money supply to shift the aggregate demand curve rightward.
B) Reducing interest rates to increase investment spending.
C) Reducing the interest paid on banks' reserves.
D) Decreasing the money supply to shift the aggregate demand curve leftward.
answer
D) Decreasing the money supply to shift the aggregate demand curve leftward.
question
When the reserve requirement 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.
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.
answer
D) reduced and the multiple by which the commercial banking system can lend is reduced.
question
A key feature of all automatic stabilizers is that they:
answer
involve existing legislation
question
In the United States today, the separation of power between the legislative and executive branches of government combined with strong partisanship attitude among our elected politicians demonstrates the:
_________________ lag
_________________ lag
answer
legislative
question
. The fact that it takes economists, such as those working for the National Bureau of Economic Research (NBER), months to declare the dates of peaks and troughs demonstrates the:
_______________ lag
_______________ lag
answer
recognition
question
The time it takes to design and build new infrastructure, such as roads and railroads, passed by the legislature demonstrates the:
_______________ lag
_______________ lag
answer
implementation
question
Money is a medium of exchange when:
a) money is used to facilitate trade between buyers and sellers correct.
b) money is used to transfer wealth from the present to the future correct.
c) money is used to communicate the market value of goods and services correct.
a) money is used to facilitate trade between buyers and sellers correct.
b) money is used to transfer wealth from the present to the future correct.
c) money is used to communicate the market value of goods and services correct.
answer
a) money is used to facilitate trade between buyers and sellers correct.
b) money is used to
b) money is used to
question
Money is a unit of account when:
a) money is used to facilitate trade between buyers and sellers correct.
b) money is used to transfer wealth from the present to the future correct.
c) money is used to communicate the market value of goods and services correct.
a) money is used to facilitate trade between buyers and sellers correct.
b) money is used to transfer wealth from the present to the future correct.
c) money is used to communicate the market value of goods and services correct.
answer
c) money is used to communicate the market value of goods and services correct.
question
Money is a store of value when:
a) money is used to facilitate trade between buyers and sellers correct.
b) money is used to transfer wealth from the present to the future correct.
c) money is used to communicate the market value of goods and services correct.
a) money is used to facilitate trade between buyers and sellers correct.
b) money is used to transfer wealth from the present to the future correct.
c) money is used to communicate the market value of goods and services correct.
answer
b) money is used to transfer wealth from the present to the future correct.
question
Explain the changes in M1 and M2 for each of the following scenarios.
a. When Lily transfers $100 from her savings account into her checking account, M1___________ by $100 and M2 __________________.
a. When Lily transfers $100 from her savings account into her checking account, M1___________ by $100 and M2 __________________.
answer
increase, remains the same
question
b. If Miguel deposits $200 cash into his money market mutual fund, M1 _________ by $200 and M2 ______________.
answer
decreases, remains the same
question
c. If Sam takes $1,000 from his savings account to purchase Microsoft stock, M1 _________ and M2 __________ by $1,000.
answer
remains the same, decreases
question
The part of the Federal Reserve that determines and implements the nation's monetary policy and controls the money supply to promote stable prices and economic growth is the:
answer
Federal Open Market Comittee
question
the reserve requirement is determined by ___________
answer
board of governors
question
Open market operations are determined by the_____________
answer
federal open market committee
question
When the Federal Reserve increases the reserve requirement, the money multiplier will ________ and an increase in reserves will have a ________ effect on the money supply.
answer
decrease, smaller
question
When the Federal Reserve wants to increase the money supply it uses ___________ policy, which ________ interest rates and causes the amount of investment to ______________.
answer
expansionary, lowers, increase
question
When the Federal Reserve wants to decrease the money supply it uses _________ policy, which _________ interest rates and causes prices to _____________while in the short run real GDP __________
answer
contractionary, raises, decrease, falls
question
When the Federal Reserve wants to increase the money supply it uses ______________ policy, which_________ interest rates and causes prices to _________ while in the short run real GDP ________.
answer
expansionary, lowers, increase, rises
question
To increase the money supply you use
a) open market purchase
b) open market sale
a) open market purchase
b) open market sale
answer
open market purchase
question
To decrease the money supply you use
a) open market purchase
b) open market sale
a) open market purchase
b) open market sale
answer
open market sale
question
If the Federal Reserve decreases the reserve requirement, banks can lend out:
_________ reserves, thus ____________ the money multiplier and ____________ the money supply.
_________ reserves, thus ____________ the money multiplier and ____________ the money supply.
answer
more, increasing, increasing
question
T/F The Federal Reserve rarely changes the reserve requirement and does not use the reserve requirement as a major monetary policy tool.
answer
true
question
If the Fed were to decrease the discount rate, banks will borrow _________ reserves, causing an __________ in lending and the money __________
answer
more, increase, supply
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