Question 1

The Board of Governors is the body responsible for setting and implementing monetary policy targets for the Federal Reserve System.

Accepted Answer

A) True 
 B)False

Question 2

Assume that the yen price of one U.S.dollar rises to 80 yen and that the Bank of Japan has a target exchange rate of 75 yen per dollar.As a result, the Bank of Japan will intervene in the foreign exchange market by:

Accepted Answer

A)  selling U.S.dollars and buying yen.
B)  selling both U.S.dollars and yen.
C)  buying U.S.dollars and selling yen.
D)  buying both U.S.dollars and yen.
E)  buying U.S.Treasury securities.F) A) and B)
G) A) and E)

Question 3

The desire to keep assets in cash to take advantage of favorable changes in the value of non-cash assets is called the:

Accepted Answer

A)  speculative demand for money.
B)  wealth demand for money.
C)  risk interest in money.
D)  precautionary demand for money.
E)  transactions demand for money.F) None of the above
G) A) and E)

Question 4

When more than one central bank attempts to shift the equilibrium exchange rate, we refer to this as:

Accepted Answer

A)  sterilization.
B)  a currency crisis.
C)  coordinated intervention.
D)  an application of special drawing rights.
E)  a floating exchange rate system.F) A) and B)
G) All of the above

Question 5

To fix the foreign currency price of domestic currency below the free market equilibrium rate, a government must:

Accepted Answer

A)  sell both its own currency and foreign exchange.
B)  buy its own currency and sell foreign exchange.
C)  buy both its own currency and foreign exchange.
D)  sell its own currency and buy foreign exchange.
E)  revalue its own currency.F) A) and B)
G) B) and D)

Question 6

In order to use inflation targeting, a central bank must:

Accepted Answer

A)  be independent of fiscal policy.
B)  be dependent on fiscal policy.
C)  focus on money supply.
D)  focus on unemployment.
E)  focus on stable exchange rates.F) A) and E)
G) A) and D)

Question 7

Which of the following monetary policies will increase money supply?

Accepted Answer

A)  An increase in the discount rate
B)  An increase in the reserve requirement
C)  Open market purchases by the Fed
D)  The Fed selling government bonds
E)  An increase in the federal funds rateF) A) and D)
G) B) and E)

Question 8

An excess demand for money will result in all the following, except:

Accepted Answer

A)  an excess supply of bonds.
B)  a rise in investment spending.
C)  a fall in bond prices.
D)  a fall in consumption spending.
E)  a fall in equilibrium real GDP.F) A) and B)
G) B) and E)

Question 9

The Federal Reserve System was created in 1913, through the Federal Reserve Act, by the:

Accepted Answer

A)  U.S.President.
B)  Judiciary.
C)  Congress.
D)  International Monetary Fund.
E)  State governments.F) A) and D)
G) B) and E)

Question 10

Increased demand for U.S.products by foreign residents will lead to a depreciation of the U.S.dollar relative to foreign currencies.

Accepted Answer

A) True 
 B)False

Question 11

The Fed has set a uniform reserve requirement of 3 percent for all deposits in the U.S.banking system.

Accepted Answer

A) True 
 B)False

Question 12

If a bond pays 11.5 percent interest a year and a bank deposit pays 3.5 percent, the opportunity cost of holding the deposit is:

Accepted Answer

A)  11.5 percent.
B)  15 percent.
C)  8 percent.
D)  3.5 percent.
E)  13.5 percent.F) C) and E)
G) A) and E)

Question 13

After the year 2000, the FOMC changed some of its operating procedures.In particular, it stopped setting:

Accepted Answer

A)  explicit interest rates for commercial banks to charge.
B)  explicit ranges for money growth targets.
C)  explicit number of government bonds to be bought and sold.
D)  standardized real GDP targets.
E)  explicit numbers for the targeted natural rates of unemployment.F) B) and E)
G) A) and B)

Question 14

In the figure given below panel A represents money market equilibrium, panel B represents investment demand, and panel C represents equilibrium real GDP. Figure 13.3  Assume the economy is in equilibrium as illustrated by Figure 13.3.Based on the equation of exchange, what is the velocity of money?

Accepted Answer

A)  10
B)  6
C)  5
D)  20
E)  2F) C) and D)
G) A) and B)

Question 15

The table given below shows the assets and liabilities of the National Bank.Assume that this is the only bank in the economy. Table 13.2
 Refer to Table 13.2 and calculate the legal reserves of the bank.

Accepted Answer

A)  $425
B)  $5, 450
C)  $1, 725
D)  $2, 150
E)  $1, 500F) A) and E)
G) C) and E)

Question 16

Suppose that the nominal money supply equals $2 billion and nominal GDP is $16 billion.Then, according to the equation of exchange, the velocity of money equals 8.

Accepted Answer

A) True 
 B)False

Question 17

What is the current market price of a bond that pays $200 per year indefinitely and has a current yield of 16 percent?

Accepted Answer

A)  $800
B)  $1250
C)  $3, 200
D)  $8, 000
E)  $12, 500F) B) and D)
G) B) and C)

Question 18

Which of the following people is most likely to demand U.S.dollars in the foreign exchange market?

Accepted Answer

A)  A United States resident who is traveling to the Greek Islands
B)  An American investor who intends to buy Japanese government bonds
C)  A resident of Australia who is traveling to Belgium
D)  A British importer of U.S.beef
E)  A U.S.company that is importing avocados from MexicoF) B) and E)
G) C) and E)

Question 19

The Federal Reserve (Fed)was created by the Congress as an independent agency.

Accepted Answer

A) True 
 B)False

Question 20

The table given below shows the assets and liabilities of the National Bank.Assume that this is the only bank in the economy. Table 13.2
 Refer to Table 13.2.Calculate the change in the bank's excess reserves if the reserve requirement is decreased from 10% to 5%.

Accepted Answer

A)  +$272.5
B)  +$236
C)  -$2, 360
D)  -$1877.5
E)  -$3, 210F) A) and D)
G) D) and E)

Exam 22: Monetary Policy

The Federal Reserve System was created in 1913, through the Federal Reserve Act, by the:

Correct AnswerverifiedShow Answer

Which of the following monetary policies will increase money supply?

Correct AnswerverifiedShow Answer

Which of the following people is most likely to demand U.S.dollars in the foreign exchange market?

Correct AnswerverifiedShow Answer

Assume that the yen price of one U.S.dollar rises to 80 yen and that the Bank of Japan has a target exchange rate of 75 yen per dollar.As a result, the Bank of Japan will intervene in the foreign exchange market by:

Correct AnswerverifiedShow Answer

The Board of Governors is the body responsible for setting and implementing monetary policy targets for the Federal Reserve System.

Correct AnswerverifiedShow Answer

The Fed has set a uniform reserve requirement of 3 percent for all deposits in the U.S.banking system.

Correct AnswerverifiedShow Answer

If a bond pays 11.5 percent interest a year and a bank deposit pays 3.5 percent, the opportunity cost of holding the deposit is:

Correct AnswerverifiedShow Answer

What is the current market price of a bond that pays $200 per year indefinitely and has a current yield of 16 percent?

Correct AnswerverifiedShow Answer

Suppose that the nominal money supply equals $2 billion and nominal GDP is $16 billion.Then, according to the equation of exchange, the velocity of money equals 8.

Correct AnswerverifiedShow Answer

When more than one central bank attempts to shift the equilibrium exchange rate, we refer to this as:

Correct AnswerverifiedShow Answer

An excess demand for money will result in all the following, except:

Correct AnswerverifiedShow Answer

Increased demand for U.S.products by foreign residents will lead to a depreciation of the U.S.dollar relative to foreign currencies.

Correct AnswerverifiedShow Answer

In the figure given below panel A represents money market equilibrium, panel B represents investment demand, and panel C represents equilibrium real GDP. Figure 13.3 Assume the economy is in equilibrium as illustrated by Figure 13.3.Based on the equation of exchange, what is the velocity of money?

Correct AnswerverifiedShow Answer

To fix the foreign currency price of domestic currency below the free market equilibrium rate, a government must:

Correct AnswerverifiedShow Answer

The table given below shows the assets and liabilities of the National Bank.Assume that this is the only bank in the economy. Table 13.2 Refer to Table 13.2 and calculate the legal reserves of the bank.

Correct AnswerverifiedShow Answer

The table given below shows the assets and liabilities of the National Bank.Assume that this is the only bank in the economy. Table 13.2 Refer to Table 13.2.Calculate the change in the bank's excess reserves if the reserve requirement is decreased from 10% to 5%.

Correct AnswerverifiedShow Answer

The Federal Reserve (Fed)was created by the Congress as an independent agency.

Correct AnswerverifiedShow Answer

After the year 2000, the FOMC changed some of its operating procedures.In particular, it stopped setting:

Correct AnswerverifiedShow Answer

In order to use inflation targeting, a central bank must:

Correct AnswerverifiedShow Answer

The desire to keep assets in cash to take advantage of favorable changes in the value of non-cash assets is called the:

Correct AnswerverifiedShow Answer

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