QUESTION 16

Imagine you live in a country with huge public debt and an uncertain future. Monetization of this public debt is most likely to lead to which of these outcomes?

a.Inflation

b.Stagflation

c.High interest rates

d.Reduced money supply

QUESTION 17

At its inception and during its early days, the power of the Federal Reserve bank lay mostly

a.with the board of governors housed in the Treasury Department.

b.in the New York Federal Reserve Bank.

c.in the commercial banks that became members of the Federal Reserve system.

d.with the 12 independent regional Federal Reserve banks.

QUESTION 18

In the figure below, the loanable funds market is in equilibrium at A with the interest rate IR 1 . In conducting monetary policy, the Federal Reserve engages in the buying of US Treasury securities on the open market, which causes

This graph plots I R on the vertical axis versus Q loanable funds on the horizontal axis. Two parallel decreasing demand curves, labeled D L F and D L F complement, intersect two parallel increasing supply curves, labeled S L F and S L F complement. Here, S L F lies above S L F complement, and D L F lies to the left of D L F complement. On the vertical axis, I R 1 falls halfway between I R 2 and I R 3. The loan-able funds market is in equilibrium at point A with the interest rate I R 1. The purchase of U S Treasury securities by the Federal Reserve increases the supply of loanable funds to S L F complement, causing the equilibrium interest rate to fall to I R 3. The sale of U S Treasury securities by the Federal Reserve decreases the supply of loanable funds to S L F, causing the equilibrium interest rate to rise to I R 2.

a.no change in the loanable funds market, so the equilibrium interest rate remains at IR1.

b.both the demand for loanable funds and the supply of loanable funds to increase to D' and S' respectively, keeping the equilibrium interest rate at IR1.

c.the supply of loanable funds to increase to S', causing the equilibrium interest rate to fall to IR3.

d.the demand for loanable funds to increase to D', causing the equilibrium interest rate to increase to IR2.

QUESTION 19

Alistair tells a friend that he likes to deposit his entire paycheck into his checking account just in case prices fall. This is an example of the __________ demand for money.

a.speculative

b.precautionary

c.inflationary

d.transactions

QUESTION 20

Currently, the power of the Federal Reserve rests with

a.the chair of the Fed and the board of the New York Federal Reserve Bank.

b.an elected board of governors of the Federal Reserve.

c.the chair of the Federal Reserve and a board of six governors.

d.24 member banks.