Multiple Choice Questions:
1. What will happen to the demand for money if real GDP rises?
a. It will decrease.
b. It will be unchanged.
c. It will increase.
d. It depends on what happens to interest rates.
2. Contractionary monetary policy will tend to have what effect?
a. Increase the money supply and lower interest rates
b. Increase the money supply and increase interest rates
c. Decrease the money supply and lower interest rates
d. Decrease the money supply and increase interest rates
3. The combination of an increase in the discount rate and an open market sale of government bonds by the Fed will tend to result in?
a. A higher loan volume issued by the commercial banking system.
b. Higher bond prices.
c. A lower price level.
d. A decrease in unemployment rates.
4. When money demand increases, the Fed can choose between
a. Increasing interest rates or increasing the supply of money.
b. Increasing interest rates or decreasing the supply of money.
c. Decreasing interest rates or increasing the supply of money.
d. Decreasing interest rates or decreasing the supply of money.
5. When the economy is initially at full employment,
a. Expansionary monetary policy can potentially result in increased real output, but only in the short run.
b. Expansionary monetary policy can potentially result in increased real output in both the short run and long run.
c. Contractionary monetary policy can potentially result in increased real output, but only in the short run.
d. Contractionary monetary policy can potentially result in increased real output in both the short run and long run.
6. If a reduction in the money supply were desired in order to slow inflation, the Federal Reserve might
a. Decrease reserve requirements.
b. Buy U.S. bonds on the open market.
c. Raise the discount rate.
d. Do either b or c.
7. Suppose the Fed purchases $100 million of U.S. bonds from the public. If the reserve requirement is 20 percent and all banks keep zero excess reserves, the total impact of this action on the money supply will be a?
a. $100 million decrease in the money supply.
b. $100 million increase in the money supply.
c. $200 million increase in the money supply.
d. $500 million increase in the money supply.
8. Which of the following Federal Reserve actions would most likely help counteract an oncoming recession?
a. An increase in reserve requirements and an increase in the discount rate
b. The sale of government bonds and an increase in the discount rate
c. The sale of foreign currencies and an increase in reserve requirements
d. The purchase of government bonds and a reduction in the discount rate