52) The discount rate is the rate that banks charge their best customers.

a) False

b) True

53) If Zachary deposits $500 cash into his checking account, his bank's assets then:

a) rise by $500 and liabilities rise by $500.

b) do not change but liabilities rise by $500.

c) rise by $500 and liabilities fall by $500.

d) rise by $500 but liabilities do not change.

54) What would be the leakage-adjusted money multiplier if the reserve requirement is 20%; banks hold 15% in excess reserves; and individuals, businesses, and foreigners hold another 15% in cash?

a) 2

b) 6.67

c) 3.33

d) 5

55) The target federal funds rate is the Fed's primary approach to monetary policy.

a) False

b) True

56) Which statement does NOT explain why the actual money multiplier and the potential money multiplier are different?

a) Foreign consumers, businesses, and governments hold U.S. dollars.

b) Foreign deposits in American banks are not counted in the actual money multiplier.

c) The interest rate that banks pay on deposits is very low.

d) Banks hold excess reserves during tough economic times.

57) In times of economic downturn, the Federal Reserve will engage in _____ monetary policy by _____ bonds.

a) contractionary; buying

b) expansionary; selling

c) expansionary; buying

d) contractionary; selling

58) If the Federal Reserve followed Milton Friedman's monetary rule, it would increase the money supply to fight recessions and decrease the money supply to fight inflation.

a) True

b) False

59) When interest rates rise, exports _____ and imports _____.

a) fall; rise

b) rise; rise

c) rise; fall

d) fall; fall

60) Friedman believed that monetary policy was important but had less power to influence the economy than fiscal policy did.

a) False

b) True

61) Which behavior is NOT a problem caused by a lack of transparency regarding monetary policy?

a) speculation in financial markets

b) counterproductive decisions made by individuals incorrectly guessing what path the policy would take

c) lack of understanding among the public regarding monetary policy actions

d) the possibility of lack of coordination leading to fiscal and monetary policies that offset or overshoot each other

62) Which approach to monetary policy would be MOST likely to increase unemployment problems caused by a negative supply shock to an economy?

a) inflation targeting

b) monetary rule

c) Taylor rule

d) discretionary countercyclical policy

63) To say that the Federal Reserve is transparent means that the Fed:

a) executes decisions in secrecy.

b) is open regarding its monetary policy.

c) has a "just trust us" approach to conducting monetary policy.

d) uses a monetary growth rule.

64) Most economists think the Federal Reserve should target:

a) price stability in the short run.

b) income and output in the long run.

c) the federal funds rate.

d) price stability in the long run.

65) When current real output exceeds potential real output, the Federal Reserve will _____ interest rates in an effort to fight _____.

a) increase; inflation

b) decrease; a recession

c) decrease; inflation

d) increase; a recession