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mult-choice-fedpolicy

VIEWS: 3 PAGES: 6

									                              MULTIPLE CHOICE QUESTIONS


1.      The organization responsible for conducting monetary policy in the United States is the
_____   a.     Comptroller of the Currency.
_____   b.     Federal Reserve System.
_____   c.     U.S. Treasury.
_____   d.     Bureau of Monetary Affairs.

2.      Federal funds are
_____   a.     funds raised by the federal government in the bond market.
_____   b.     loans made by the Federal Reserve System to banks.
_____   c.     loans made by banks to the Federal Reserve System.
_____   d.     loans made by banks to each other.


3.      Securities are ________ for the person who buys them, but are _________ for the
        individual or firm that issues them.
_____   a.      assets; liabilities
_____   b.      negotiable; nonnegotiable
_____   c.      liabilities; assets
_____   d.      nonnegotiable; negotiable

4.      A borrower who takes out a loan usually has better information about the potential
        returns and risk of the investment projects he plans to undertake than does the lender.
        This inequality of information is called
_____   a.      moral hazard.
_____   b.      reverse causation.
_____   c.      asymmetric information.
_____   d.      adverse selection.

5.      During periods of rapidly rising prices
_____   a.     money fails to serve as a good store of value.
_____   b.     money fails to serve as a unit of account.
_____   c.     money fails to serve as a medium of exchange.
_____   d.     money fails to serve as a standard of value.


6.      Banks’ holdings of securities consist primarily of
_____   a.     Treasury and government agency securities.
_____   b.     tax-exempt municipal securities.
_____   c.     state and local government securities.
_____   d.     corporate securities.




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7.      The effect of an open market purchase on reserves differs depending on how the seller of
        the bonds keeps the proceeds. If the proceeds are kept in ________, the open market
        purchase has no effect on reserves; if the proceeds are kept as _________, reserves
        increase by the amount of the open market purchase.
_____   a.     deposits; deposits
_____   b.     deposits; currency
_____   c.     currency; currency
_____   d.     currency; deposits


8.      The Fed uses three policy tools to manipulate the money supply: __________, which
        affect the monetary base; changes in ____________, which affect the monetary base by
        influencing the quantity of discount loans; and changes in ____________, which affect
        the money multiplier.
_____   a.      open market operations; the discount rate; margin requirements.
_____   b.      open market operations; the discount rate; reserve requirements.
_____   c.      the discount rate; open market operations; reserve requirements.
_____   d.      the discount rate; open market operations; margin requirements.


9.      The Fed uses three policy tools to manipulate the money supply: open market operations,
        which affect the _________; changes in the discount rate, which affect the
        ____________ by influencing the quantity of discount loans; and changes in reserve
        requirements, which affect the __________.
_____   a.     money multiplier; monetary base; monetary base
_____   b.     monetary base; money multiplier; monetary base
_____   c.     monetary base; monetary base; money multiplier
_____   d.     money multiplier; money multiplier; monetary base


10.     Open market purchases raise the ___________ thereby raising the ___________.
_____   a.    money multiplier; money supply
_____   b.    money multiplier; monetary base
_____   c.    monetary base; money supply
_____   d.    monetary base; money multiplier


11.     If the Federal Reserve wants to drain reserves from the banking system, it will
_____   a.      purchase government securities.
_____   b.      lower the discount rate.
_____   c.      sell government securities.
_____   d.      raise reserve requirements.




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12.     The discount rate is
_____   a.     the interest rate the Fed charges on loans to banks.
_____   b.     the price the Fed pays for government securities.
_____   c.     the interest rate that banks charge their most preferred customers.
_____   d.     the price banks pay the Fed for government securities.

13.   Discount policy
_____ a.    can be used to signal the Fed’s intentions about future monetary policy.
_____ b.    is no longer important in preventing financial panics since the creation of the
            FDIC.
_____ c.    is the Fed’s preferred method for changing the level of reserves in the banking
            system.
_____ d.    only (b) and (c) of the above.

14.     The goal for high employment should seek a level of unemployment at which the demand
        for labor equals the supply of labor. Economists call this level of unemployment the
_____   a.      frictional level of unemployment.
_____   b.      structural level of unemployment.
_____   c.      natural rate level of unemployment.
_____   d.      Keynesian rate level of unemployment.


15.     Which of the following is not an operating target?
_____   a.    Nonborrowed reserves
_____   b.    Monetary base
_____   c.    Federal funds interest rate
_____   d.    Discount rate

16.     Which of the following help explain inflationary money growth?
_____   a.    The federal government’s commitment to high employment since 1946
_____   b.    One-shot supply shocks
_____   c.    One-shot tax cuts
_____   d.    All of the above

17.     The combination of a successful wage push by workers and the government’s
        commitment to high employment leads to
_____   a.    demand-pull inflation.
_____   b.    supply-side inflation.
_____   c.    supply-shock inflation.
_____   d.    cost-push inflation.




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18.     If the Fed responds by increasing the money supply in response to a successful wage
        push by workers, monetary policy is said to be
_____   a.      accomplishing.
_____   b.      nonaccommodating.
_____   c.      nonaccomplishing.
_____   d.      accommodating.

19.     If workers continually demand higher wages, which are accommodated by expansionary
        monetary policy, the resulting inflation is known as
_____   a.     demand-pull inflation.
_____   b.     supply-side inflation.
_____   c.     supply-shock inflation.
_____   d.     cost-push inflation.

20.   The Keynesian analysis of aggregate demand indicates that changes in the money supply
_____ a.    have no effect on aggregate demand.
_____ b.    shift the aggregate demand curve in the opposite direction of the change in the
            money supply.
_____ c.    shift the aggregate demand curve in the same direction of the change in the money
            supply.
_____ d.    move the economy along the aggregate demand curve rather than shifting it.

21.   The Keynesian analysis of aggregate demand indicates that a change in taxes
_____ a.    shifts the aggregate demand curve in the same direction as the change in taxes.
_____ b.    shifts the aggregate demand curve in the direction opposite to that of the change
            in taxes.
_____ c.    moves the economy along the aggregate demand curve rather than shifting it.
_____ d.    has no effect on aggregate demand.

22.     Along a given aggregate supply curve an increase in the price level leads to an increase in
        aggregate output because
_____   a.     firms increase production in response to higher profits.
_____   b.     workers work more hours, due to the increase in the real wage.
_____   c.     workers work more hours, due to the decrease in the real wage.
_____   d.     none of the above are true.

23.     An adverse or negative supply shock causes the aggregate __________ curve to shift to
              the ______________.
_____   a.    demand; right
_____   b.    demand; left
_____   c.    supply; right
_____   d.    supply; left




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24.     The Phillips curve indicates that when the labor market is _______, production costs will
        ___________ and the aggregate supply curve will shift in.
_____   a.     easy; rise
_____   b.     easy; fall
_____   c.     tight; fall
_____   d.     tight; rise


25.     The expectations-augmented Phillips curve implies that as expected inflation rises,
        nominal wages ________ to prevent real wages from ________.
_____   a.     fall; rising
_____   b.     fall; falling
_____   c.     rise; falling
_____   d.     rise; rising




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Multiple-Choice Answers

1.    B
2.    D
3.    A
4.    C
5.    A
6.    A
7.    D
8.    B
9.    C
10.   C
11.   C
12.   A
13.   A
14.   C
15.   D
16.   A
17.   D
18.   D
19.   D
20.   C
21.   B
22.   A
23.   D
24.   D
25.   C




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