Q&A Hero

Q: Monetary policy only works in the long term.

Q: Monetary policy only works in the short term.

Q: When the Fed increases the Fed Funds Rate, financial institutions "go to the Window".

Q: Transaction deposits, such as DDAs, expand when the Fed sells securities.

Q: Monetary policy first affects financial markets and institutions, then the real economy.

Q: Real investment is encouraged by rising interest rates.

Q: Interest rates and the money supply tend to vary inversely, at least in the short term.

Q: The Fed exclusively controls the money supply.

Q: Cash drains decrease the monetary base, but not the money supply.

Q: An increase in Federal Reserve float increases the monetary base.

Q: Unexpected high levels of inflation aid debtors at the expense of lenders.

Q: There is definitely a tradeoff between stable prices and full employment.

Q: Stable employment is one of the objectives of monetary policy.

Q: A prolonged "tight" monetary policy can be associated with falling bond prices.

Q: Easy monetary policy strengthens the dollar.

Q: Increasing interest rates increase wealth and encourage spending.

Q: Monetarists think changing the money supply impacts economic units directly rather than just through interest rates.

Q: Restrictive monetary policy in the United States may slow down net exports and GNP.

Q: An increase in the money supply should ultimately cause security prices to decrease.

Q: Decreasing interest rates increase financial wealth and encourage consumer spending.

Q: Housing investment is sensitive to changes in interest rates.

Q: A significant move by the Fed toward a "tight" money policy is likely to enhance exports.

Q: When a bank orders currency from the Fed, the monetary base does not change.

Q: When the Fed sells an asset to the private sector, the monetary base declines.

Q: The Fed substantially controls M1 by controlling total reserves of depository institutions.

Q: If cash drains increase, the Fed may offset their effects with open market sales.

Q: When reserve requirements are increased, interest rates should increase.

Q: The Federal Reserve decreases the monetary base whenever it sells government securities.

Q: The cash-holding behavior of the public affects the monetary base.

Q: The monetary base exceeds the money supply.

Q: In 2010 and 2011, Federal Reserve announced quantitative easing's, or QEs, which is to create money for buying long-term U.S. Treasury bonds in the market. What is the impact of the QE on security prices? How does the Fed expect the QEs to influence the economy?

Q: List and briefly describe the channels of transmission of monetary policy.

Q: What exactly is the Fed Funds Rate, and why isn"t it considered a "tool of monetary policy?

Q: What should happen to consumption if the monetary base increases? Explain.

Q: How does the Federal Reserve control the money supply by controlling the size of the monetary base? Note the tools of monetary policy and how each can affect the monetary base and money supply.

Q: Explain how the Fed adjusts its balance sheet to increase or decrease the monetary base.

Q: A decrease in reserve requirements could lead to a(n) a. Increase in bank lending b. Increase in the money supply c. An decrease in the discount rate d. All above

Q: The discount rate is the rate that a. Banks charge for loans to corporate customers b. Banks charge to lend foreign exchange to customers c. The Federal Reserve charges on loans to commercial banks d. Banks charge each other on loans of excess reserves

Q: What items are included in M1? I. Savings deposits II. Checking deposits III. Non-institutional money market mutual funds IV. Eurodollars V. Currency VI. Time deposits a. I, II, III, IV b. II, V c. I, V, VI d. III, IV, VI

Q: Influence of monetary policy on the financial sector is a. negligible b. inevitable c. limited d. insignificant

Q: Influence of monetary policy on the real sector is a. negligible b. decisive c. significant d. insignificant

Q: Velocity of moneya. varies inversely with the money supplyb. varies directly with GDPc. is not under the Fed's exclusive controld. all of the above

Q: Monetarists and Keynesians agree that a. monetary policy influences the real sector b. changes in the money supply drive changes in interest rates c. changes in interest rates drive changes in the money supply d. monetary policy does not influence the real sector

Q: Which of the following was not a responsibility of the early Federal Reserve System? a. replace the National Banking system b. improve the payments system c. establish more rigorous bank supervision d. act as "lender of last resort"

Q: Which of the following would most likely decrease the Federal Funds rate? a. decrease in the discount rate. b. sale of securities by the Fed. c. decrease in reserve requirements. d. none of the above

Q: The "tools" of monetary policy, whether "viable" or not, include all the following except a. changing the discount rate. b. open market operations. c. changes in reserve requirements. d. changes in the Federal Funds rate.

Q: Which of the following is not a channel of transmission of monetary policy? a. Reg Q interest rate ceilings b. consumer spending for durable goods and housing c. net exports d. business investment in real assets

Q: M2 includes a. currency in circulation b. demand deposits c. both d. neither

Q: Monetarists believe that an increase in the money supply, all else equal, will cause: a. consumption expenditures to rise. b. investment spending to fall. c. national income to fall. d. government expenditures to rise.

Q: Monetary policies directed toward increased economic growth may have what impact upon the value of the dollar in relation to other currencies? a. increase b. decrease c. no effect d. none of the preceding

Q: Monetary policy probably affects all of the following except a. housing investment. b. consumer durable investment. c. inventory investment. d. federal government budget outlays.

Q: Changes in spending caused by changing security values are called the a. liquidity effect b. wealth effect c. income effect d. reactionary effect

Q: Restrictive monetary policy first impacts the market, security prices and interest rates. a. money, increasing, decreasing b. capital, increasing, decreasing c. money, decreasing, increasing d. mortgage, increasing, decreasing

Q: Monetary policy impacts the economy a. by affecting real spending directly. b. by affecting real spending through the financial sector. c. by changing interest rates and the cost of housing. d. all of the above

Q: The intended longer run impact of monetary policy is a. to lower interest rates. b. to raise security prices. c. to influence change consumption and investment spending. d. to reduce government spending.

Q: An contraction in the U.S. money supply should a. increase domestic interest rates b. cause the exchange value of the dollar to increase. c. cause U.S. exports to decrease. d. all of the above.

Q: Unemployment should fall if a. wages increase and people expect prices to rise, too. b. wages increase and people expect prices to be stable. c. interest rates rise more than prices are expected to rise. d. the money supply decreases.

Q: If the money supply increases too rapidly a. inflationary expectations will rise. b. government spending will decrease. c. bank lending will decrease. d. investment spending will fall.

Q: An expansion in the U.S. money supply a. will increase domestic interest rates b. will cause the exchange value of the dollar to increase. c. will cause U.S. exports to increase. d. will cause U.S. imports to increase.

Q: Sustained open market buying by the Fed will cause a. the Fed Funds rate to rise. b. planned inventory investment to fall. c. depository institutions to lend more freely. d. foreign investors to buy more T-Bills.

Q: A decrease in reserve requirements will definitely cause a. expenditures to fall. b. inflation expectations to fall. c. an increase in the Fed Funds rate. d. excess reserves to increase.

Q: A decrease in the monetary base is related to a. decrease in credit availability. b. increasing interest rates. c. decreased investment. d. all of the above

Q: Generally, plant and equipment investment spending will decrease if a. interest rates rise while inflation remains unchanged. b. inflation decreases while interest rates remain unchanged. c. reserve requirements rise. d. any of the above

Q: Consumption spending should increase if a. financial wealth decreases. b. reserve requirements decrease. c. interest rates increase. d. credit availability decreases.

Q: An increase in the assets of Federal Reserve banks a. decreases the monetary base. b. increases the monetary base. c. has no effect on monetary base. d. always decreases another Federal Reserve Bank asset.

Q: What are the bodies of the Federal Reserve System?

Q: What are margin requirements, and why do they exist?

Q: Why is changing the discount rate not a viable tool for conducting monetary policy?

Q: Assume the Fed pays $1000 for a government bond on the open market. With a 5% reserve requirement, what is the theoretical ultimate addition to the money supply, and why?

Q: How has the power structure of the Fed changed since 1913?

Q: Compare and contrast the "tools of monetary policy" in terms of their relative usefulness.

Q: Explain why the Federal Reserve is less "independent" than it appears to be.

Q: The fed funds rate is the rate that a. Banks charge each other on loans of excess reserves b. Banks charge to lend foreign exchange to customers c. The Federal Reserve charges on emergency loans to commercial banks d. Banks charge for loans to corporate customers

Q: Nationally chartered banks receive chartering and merger approval from the a. Federal Deposit Insurance Corporation b. Office of Comptroller of the Currency c. Federal Reserve System d. Office of Thrift Supervision

Q: The Fed changes reserve requirements from 10% to 7%, thereby creating $900 million in excess reserves. The total change in deposits (with no drains) would be a. $3,000 million b. $12,857 million c. $13,652 million d. $15,795 million

Q: The major asset of the Federal Reserve is a. The U.S. Treasury securities b. Depository institution reserves c. Currency outside banks d. Vault cash of commercial banks e. Gold and foreign exchange

Q: The Fed's most important duty is to a. regulate national banks b. print currency c. establish the nation's monetary policy d. stimulate the economy

Q: The Discount Window a. is a common way for depository institutions to raise loanable funds b. relates to the Fed's "lender of last resort" function c. is a relatively recent innovation in the design of the Federal Reserve System d. is available only during emergencies

Q: An increase in Federal Reserve float a. decreases bank reserve deposits in the Fed. b. increases bank reserve deposits in the Fed. c. has no impact upon bank reserves deposits in the Fed. d. reduces the net loan granted by the Fed to member banks.

Q: All of the following are locations of Federal Reserve Banks except a. San Francisco b. Dallas c. Washington, DC d. Kansas City