1. The most common definition that central bankers use for price stability is_______

A) low and stable deflation.

B) an inflation rate of zero percent.

C) high and stable inflation.

D) low and stable inflation

2. Policies that affect bank reserves and the availability of credit are called:

A) monetary policies. B) fiscal policies. C) trade policies. D) social policies

3. The interest rate that the Fed sets directly is called:

A) the prime rate. B) the Federal funds rate. C) the discount rat D) the Bank rate.

4. The mandate for the monetary policy goals that has been given to the Federal Reserve System is an example of a ________ mandate.

A) primary

B) dual

C) secondary

D) hierarchical.

5. The Federal Reserve can directly affect its monetary policy _________ which then affect the monetary policy __________

a. goals, targets b. targets, goals

c. tools, targets d. targets, tools

6. Which of the following is a monetary policy goal?

a. open market operations b. interest on reserves balances

c. low inflation d. money supply

7. Which of the following is a monetary policy target?

a. low inflation b. the federal funds rate

c. low unemployment c. open market operations

8. Which of the following is the primary monetary policy tool in the time of limited reserves, which one in the time of banks large reserve.

A) The reserve requirement; discount rate.

B) Open market operations; interest rate on banks' reserves balances

C) The discount rate, open market operations.

D) The exchange rate; interest rate on overnight reverse repurchase agreements.

9.The Fed engages in open market operations by:

A) closing insolvent banks. C) raising or lowering the discount rate.

B) raising or lowering the reserve requirement. D) buying or selling government bonds.

10. Federal Reserve purchases of government securities in the time of limited reserves _____ bank reserves and _____ the money supply, the short- term interest rates in the economy _________

A) increase, increase, fall B) decrease, decrease, increase

C) decrease, increase, increase D) increase, decrease, fall.

11. Suppose the time of limited reserves. The current money supply is $10,000. The required reserve ratio is 0.5. The Fed wishes to increase the money supply by $6,000. To achieve the stated change in the money supply, the Fed should use ________________ to ______________ banks' reserves and ____________ in government bonds; given the money multiplier ________________, the money supply _________ by

_____________.

a) OMS; decrease; buy; $,6000; 5; falls; $6,000

b) OMP; increase; buy; $3,000; 2; increases; $,6000

c) OMS; increase, sell; $5,000; 2; falls; $10,000

d) OMP; decrease; sell; $1,200; 5; increases; $6,000

12. Refer to the graph above. The bond market, the open market purchases in the time of limited

reserves are shown by:

A) A, which shows an open market purchase of government bonds.

B) A, which shows an open market sale of government bonds.

C) B, which shows an open market purchase of government bonds.

D) B, which shows an open market sale of government bonds.

13. Suppose the time of limited reserves. The current money supply is $8.000 The required reserve ratio is 0.2. The Fed wishes to decrease the money supply by $2,000. To achieve the stated change in the money supply, the Fed should use ________________ to ______________ banks' reserves and ____________ in government bonds; given the money multiplier ________________, the money supply _________ by

_____________. Refer to the graphs below. The Fed's open market operation is shown by graph _________

a) OMS; decrease; sell; $,400; 5; falls; $2,000; B

b) OMP; increase; buy; $2,000; 2; increases; $,4000; A

c) OMS; increase, sell; $1,000; 2; falls; $2,000; B

d) OMP; decrease; sell; $8,000; 5; falls; $4,000; A

14. Refer to the graph above. Bond market, the open market sale in the bond market that

contracts the money supply in the time of limited reserves is shown by:

A) A, which shows an open market purchase of government bonds.

B) A, which shows an open market sale of government bonds.

C) B, which shows an open market purchase of government bonds.

D) B, which shows an open market sale of government bonds.

15. Suppose the time of limited reserves. The currently money supply $4,000. The reserve requirement r is 0.5. The Fed wishes to increase the money supply by $1,000. Assume that banks hold no excess reserves and individuals hold n currency. The Fed should ______________ the reserve requirement r by __________ to achieve its objective of increasing the money supply by $1,000.

a) increase; 5% b) decrease; by 10% c) keep the same, 0% d) increase; 25%

16.The discount rate is the interest rate ___________, while the interest rate on banks' excess reserves_ is____________

A) commercial banks charge investors for loans; the Fed charges individuals for loans

B) the Federal Reserve banks charge individuals for loans; the Fed charges banks for loans

C) the Federal Reserve banks charge banks for loans, the Fed pays banks on excess reserves

deposits

D) the Federal Reserve banks charge the federal government for loans; banks earn in the

overnight market for reserves.

17.The federal funds rate is the interest rate__________

A) commercial banks charge investors for loans.

B) the Federal Reserve banks charge individuals for loans.

C) commercial banks charge each other for overnight loans.

D) the Federal Reserve banks charge the federal government for loans.

18. The interest rate that the Fed sets directly is called:

A) the prime rate. B) the Federal funds rate. C) the discount rate. D) the Bank rate.

19. The Fed changes interest rates in the economy by changing:

a) banks' prime interest rate.

b) discount rate.

c) interest rate on banks reserves balances.

d) the federal funds rate.

20. Which of the following would the Fed do in the time of ample reserves to decrease the federal funds rate?

a) undertake open market purchases of government bonds.

b) lower the interest rate on banks' reserves balances.

c) increase the reserve requirement.

d) undertake open market sale of government bonds.

21. Which of the following actions by the Fed would likely cause short-term interest rates in the economy to fall?

A) Open market sales of government securities.

B) A decrease in the federal funds rate

C) An increase in the discount rate.

D) An increase in reserve requirements.

22. Under Quantitative Easing, which of the following shown the largest percentage increase:

A) the price level PL

B) The level of spending in the economy.

C) The level of banks' reserves.

D) The money supply in the economy.

23. If the Federal Reserve were to buy a large quantities of long-term government bonds:

A) Short-term interest would likely to fall.

B) Interest rates on mortgage would likely to fall.

C) Interest rates on long-term corporate bonds would likely to increase.

D) Long-term interest rate would be unaffected.

24. In the time of limited reserves the Fed can contract the money supply by__________ _____ and expand the money supply by______

A) reducing the discount rate; increasing the reserve requirement

B) decreasing interest rate on banks' reserves; increasing interest rate on excess reserves.

C) selling government securities in the open market; buying government bonds

D) reducing the reserve requirement; increasing discount rate.

25. While conducting the monetary policy, the Fed's currently focuses on changing _________, and

the interest rate that the Fed changes to change other interest rates in the economy using monetary policy tools is called:

A) monetary aggregates; prime interest rate.

B) interest rates; federal funds rate.

C) the budget deficit; interest on banks reserves balances.

D) inflation; discount rate.

26. Which of the following Fed policies would help reduce inflation? Which of the following Fed policies would help reduce unemployment?

A) Open market purchases of government securities; in increase in discount rate.

B) A decrease in discount rate; in increase in the federal funds rate.

C) An increase in the federal funds rate; a decrease in the federal funds rate.

D) A decrease in reserve requirements; open market sale of government bonds.

27. Expansionary monetary policy in the time of ample reserves refers to the __________, to ____spending, and _________ unemployment

a. The federal government increasing spending and lowering taxes, decrease, reduce cyclical.

b. The federal government decreasing spending and raising taxes, reduce, eliminate frictional and structural

c. Federal Reserve decreasing interest rates, increase, reduce.

d. Federal Reserve increasing interest rates, increase, increase healthy.

28. When would a decrease in the FFR more likely to cause an increase in output in the economy?

a. When inflation is high.

b. When unemployment is high.

c. When the velocity of money is low.

d. When inflation and unemployment are high.

29.Suppose that you are currently a member of the Board of Governors of the Federal Reserve System. Suppose that economy is experiencing a sharp rise in inflation rate. As a member of the Board of Governors you would recommend _______________ target for federal funds rate (FFR) to increase the ________ and other _____________in the economy to _________________ and achieve ___________

a) lower; interest rate on banks'reserves; spendings; increase AD; lower unemployment.

b) higher; federl funds rate; interest rates; decrease AD; lower inflation.

c) higher; FFR; spending in the economy; increase SRAS; higher price level.

d) lower; federal funds rate; interest rates; decrease SRAS; lower price level.

30. Which of the following is more likely casue inflation to decline?

a) an increase in total spending.

b) an increase in the federal funds rate.

c) an increase in unemployment.

d) all of the above will cause inflation ot decrease.

31. Suppose the following table illustrates the hypothetical values of actual Real GDP (Y), the potential Real GDP (Y*), and the price level in year 2020. Assume the NRU = 5%

Year Potential Real GDP Actual Real GDP Price level Inflation U

Y* Y P

2020 $20.0 trillion $19.8 trillion 104 1% 9.6%

Refer to the table above. To address the economy problem, the Fed should set ________________ target for the FFR to _____________ the FFR and other _______________ in the economy, then to _____________total spending and move the ________ curve to _______________, which will allow to achieve ____________ and ________________

a) higher; increase FRR; spending; decrease; SRAS; to the right; low unemployment and inflation

b) lower; decrease; interest rates; increase; AD; the right; economic growth and full employment.

c) higher; decrease; interest rates; increase; SRAS; the left; low inflation and high employment

d) lower, increase; variables; decrease; AD; the left; full employment, higher inflation.

32. Contractionary monetary policy refers to the __________ to_______ Real GDP, and ______

a. The federal government increasing spending and lowering taxes, increase, reduce unemployment.

b. The federal government decreasing spending and raising taxes, increase, keep full employment.

c. Federal Reserve decreasing interest rates, increase, keep price stability.

d. Federal Reserve increasing interest rates, contract, reduce inflation.

33. Refer to the graph below.

The economy given in the graph above started out in long-run equilibrium (Yf) and the price level P1, then the AD1 curve shifted to AD2. After the shift in AD1 to AD2, the economy above is experiencing_____________. To address the economy problem, the Fed should set _________________target for the FFR to increase _____________ and other _______________ in the economy, then to _____________total spending, and move the AD curve to _______________ which will allow to restore ___________

a) unemployment; higher; increase the other interest rates; FRR; increase; the right; low unemployment.

b) inflation; lower; the FFR; interest rates; increase; the right; price stability.

c) inflation; higher; the FFR; interest rates; decrease; the left; low inflation.

d) unemployment; lower, interest on banks' reserves; decrease; the left; full employment.

34. Monetary policy affects in the short-run____________, but in the long run only________

A) only the price level; potential Real GDP

B) the price level, expenditure and output; price level

C) only expenditure; unemployment

D) neither the price level nor expenditure; potential Real GDP.

35. Assuming an economy is initially at potential output, an expansionary monetary policy will:

A) affect output in the short -run but not in the long-run.

B) not affect output in either the short run or the long run.

C) affect output, but only in the long run.

D) affect output in the short-run and in the long-run.

36. Which of the following would reduce effectiveness of conventional monetary policy:

a) demand shock recession with falling price level.

b) rate sensitive investment.

c) zero percent interest rate lower bound.

d) interest rate on banks reserves.

37. Conventional monetary policy focus on ________________ while non-conventional monetary policy

as quantitative easing on __________________________.

a) real interest rates; nominal interest rates

b) unemployment; inflation.

c) contractionary monetary policy; expansionary monetary policy.

d) short-term interest rates; long-term interest rates.

38. Refer to the graph above. Monetary policy that shifts the AD curve from AD0 to AD1 is

A) expansionary monetary policy.

B) contractionary monetary policy

C) neither expansionary nor contractionary because it affects both the price level and output.

D) both expansionary and contractionary because it affects both the price level and output

39. The economy output, jobs creation and income in the short run depends on ____________, but the economy output in the long run depends on ________________.

a) investment; savings and investment in financial assets.

b) spending; investment in capital goods.

c) well working financial system, availability of capital goods.

d) stabilization polices; quantity and quality of capital goods.

40. The economy is ________ in the _____________ run which refers to ______________________________ ______________________, but in the long run the economy output is___________________ at the ___.

a) growing; in the short run; increase in output; unpredictable; given time period.

b) overheating; in the long run; economic expansion; unstable; deflationary gap.

c) underperforming, in the long run; fluctuation in unemployment; real GDP.

d) instable; short run; recessions and expansions; stabilized; potential output.