PART 2. 21. TRUE or FALSE Monetary Policy refers to the use of the government budget, specifically, spending (G) and taxes (T) to stabilize domestic output, employment, and the price level. IF THE STATEMENT IS FALSE, REWRITE IT SO IT IS TRUE. 22. If you use currency to pay for your books at Central Maine Community College, you are using money primarily as a(n): A. unit of account (measure of value). B. store of value. C. medium of exchange. D. economic investment, Ig. 23. The money supply in the US economy is backed: A. by government bonds, to encourage borrowing and lending. B. dollar for dollar with gold and silver. C. dollar for dollar with the Euro, as one of the country's major trading partners. D. by the government's ability to control the supply of money (via the Fed) to keep its value relatively stable. 24. TRUE or FALSE The basic policy making body for federal fiscal policy is the Board of Governors of the Federal Reserve system. 25. The twelve Federal Reserve Banks: A. are owned and operated by the U.S. Treasury. B. were created in 1776 and ratified again in 1913. C. hold the reserve deposits of commercial banks and other lending institutions. D. are also known as national banks. 26. TRUE or FALSE An important routine function of the Federal Reserve Bank is to provide facilities by which individual householders or businesses may make deposits and cash cheques.27. TRUE or FALSE The basic goal of the twelve Federal Reserve Banks is to control the money supply and interest rates to promote the profit level of the Federal Reserve System. 28. TRUE or FALSE The basic policy making body for monetary policy is the Federal Open Market Committee, which includes the Board of the Governors, the president of the FRB of New York, and on a one-year rotation, the presidents of four other FRB. 29. TRUE or FALSE An important routine function of the Federal Reserve Bank is to provide facilities by which individual householders or businesses may make deposits and cash cheques. 30. An appropriate fiscal policy to slow down the rate of growth of severe demand-pull inflation: A. is a tax increase and/or decrease in Government purchases. B. Is to invoke command authority, and limit consumer and business purchases. C. a reduction in interest rates by the Federal Reserve. D. a tax decrease and/or increase in Government purchases.31. Which graph best illustrates the previous question? A B C D Price AS Price AS Price Level Level 5 ADI C AD DID 450 Real GDP Real GDP Q GDP= DY 32. Expansionary or loose fiscal policy: A. involves a decrease in the "interest on reserve balances" by the FED as incentive to banking institutions to encourage banks to make loans available (as that interest rate will be higher than the targeted Federal Funds rate) and encourage spending in the economy. B. automatically decreases the size of government via changes in Government purchases and changes in taxes. C. is aimed at increasing aggregate demand via changes in Government spending and/ or taxes to achieve price stability and full employment. D. reduces the number of senators and representatives currently serving.33. TRUE or FALSE A $20 bill (or any paper currency) is a note of the United States Treasury. From Ms. Barth's notes: THE FEDERAL FUNDS RATE: is the interest rate at which private depository institutions lend balances (federal funds) at the Federal Reserve to other depository institutions, usually overnight (Slavin, Ch 14). The interest rate that the first bank will pay to the second bank in return for borrowing the funds is negotiated between the two banks. The weighted average of this rate across all banks is the effective federal funds rate. "The federal funds rate is actually set by the forces of supply and demand, but the Federal Open Market Committee sets a federal funds rate target and then makes sure that target is set" (Slavin, p 363). The nominal rate is a target set by the FED board of governors. 3 34. TRUE or FALSE The federal funds rate is the interest rate referred to when we read about monetary policy.35. If the Federal Reserve authorities are attempting to slow down the rate of growth of inflation, current policy would include the following: A. T the target range for the federal funds rate; and + the "interest on reserve balances" (which would discourage banks from lending reserves, decreasing the supply of money) B. raise taxes, _ the availability of transfer payments, and J Government purchases C. J the target range for the federal funds rate; and | the "interest on reserve balances" (which would encourage banks to lend their reserves, increasing the supply of money) D. J taxes, T the availability of transfer payments, and + Government purchases. Look at the following two graphs to help you with the previous question. 15m 15m interest 15m 15mi interest DM IDA Qty of Out of 36. During the Great Recession of 2007-2009 and for a few years following the statistical end of the recession, the Federal Open Market Committee (FOMC) maintained a consistently low target for the federal funds rate at 0 to % percent. The goal of this policy was to: A. decrease aggregate demand. B. increase aggregate demand. C. increase spending on transfer payments. D. None of the above.37. After the Great Recession, the Federal Reserve changed its policy tool from limited reserves in the banking system and a reliance on open market operations, to: A. a reliance on increasing marginal tax rates on the wealthy. B. ample reserves and a reliance on administered rates such as the "interest on reserve balances." C. the required reserve ratio. D. the discount rate. 38-39. YOU may use "Google" for this answer. Include the URL in your answer pages. A. Who was the Chair of the Federal Reserve (FED) during the Great Inflation of the 1980s? B. Who was the chair of the FED during the Great Recession, 2007-2009? C. Who was the first female chair of the FED, 2014-2018? D. Who is the current chair of the FED? 40. How are Fiscal Policy and Monetary Policy similar? A. They use the same tools to fix economic problems. B. They engage in actions to promote economic stability. C. They must always have Congressional approval before passing. D. They are both relatively independent of political pressures