Monetary Policy (Interest Rates)

Monetary Policy

by Kendrick Broadus

Open Ended

The monetary base increased once during this exercise.  What caused it to increase?

Open Ended

The monetary base decreased once during this exercise.  What caused it to decrease?

Multiple Choice

The money supply increased twice during this exercise.  What caused it to increase each time?

• Bank bought loans

• Banks issued loans (Round 2 and Round 4).

• bank bought T-Bills

Multiple Choice

The money supply decreased once during this exercise.  What caused it to decrease?

• Banks called in loans (Round 7).

• Banks gave out more loans

Multiple Choice

Strictly speaking, does the Federal Reserve control the monetary base?  Or does it control the money supply?

• Monetary Base

• Money Supply

Multiple Select

Which of the following are the functions of money? Multi-select options.

• As a medium of exchange

• As a store of wealth

• As a means of valuating different types of goods and services

• As a mean of establishing future claims and payments

Multiple Choice

The process by which banks increase the money supply is known as money creation. The amount by which the money supply can increase depends on their liquidity ratio. If the bank decides to hold a lower liquidity ratiom the bank multiplier will ____________________.

• increase

• reduce

• stay the same

Multiple Choice

The money supply curve is

• Upward sloping
• Downward sloping
• Horizontal
• Vertical

Multiple Choice

Too much inflation in the economy is fixed by

• budget deficits
• loose monetary policy 
• FED purchase of government bonds and securities 
• Tight Money Policy

Multiple Select

Demand deposits are:

• An asset to the bank

• An asset to the depositor

• A liability to the bank

• A liability to the depositor

Multiple Select

How do banks work?

• They pay interest to depositors

• They charge interest to depositors

• They charge interest to borrowers

• They pay interest to borrowers

Multiple Select

Loans are:

• An asset to the bank making the loan

• A liability to the bank borrowing the money

• An asset the the bank borrowing the money

• A liability to the bank making the loan

Multiple Choice

If the current interest rate is 5%, income taxes are 10%, and the economy is contracting the opportunity cost of holding money in my wallet is:

• None since the economy is contracting and financial assets are losing value

• The current interest rate of 5% that I could have earned by investing in financial assets

• A savings of 10% since I do not have to pay taxes on cash holdings

• A loss of 10% since I could be using the cash to receive large tax returns from the government

Multiple Choice

What happens to the quantity demanded of money when interest rates decrease?

• Quantity Demanded increases

• Quantity Demanded decreases

• Quantity Demanded does not change

Multiple Select

Which of the following will cause Money Demand to increase?

• Increase in Real GDP

• Increase in Price Level

• Increase in Money Technology

• Decrease in Price Level

Multiple Select

Which of the following will cause Money Demand to decrease?

• Increase in Real GDP

• Increase in Price Level

• Increase in Money Technology

• Decrease in Real GDP

Multiple Choice

Who can change the Supply of Money in the United States?

• The American Population through Free-Market Actions

• The Federal Reserve System

• The United States Government

• The Actions of other Nations

Multiple Choice

What will happen to the interest rate if there is a surplus of money?

• The interest rate will decrease until it reaches equilibrium

• The interest rate will increase until it reaches equilibrium

• The interest rate will be changed by the Federal Reserve System

• The interest rate will be changed by the US Government

Multiple Choice

What will happen to the interest rate if there is a shortage of money?

• The interest rate will decrease until it reaches equilibrium

• The interest rate will increase until it reaches equilibrium

• The interest rate will be changed by the Federal Reserve System

• The interest rate will be changed by the US Government

Multiple Select

A decrease in the money supply will cause:

• Interest Rate Increase

• Investment Decrease

• Aggregate Demand Decrease

• Aggregate Supply Decrease

Multiple Select

An increase in the money supply will cause:

• Interest Rate Increase

• Investment Decrease

• Aggregate Demand Increase

• Interest Rate Decrease

Multiple Choice

Selling bonds

• increases money supply
• decreases money supply

Multiple Choice

If the Federal Reserve wanted to stimulate the economy (make it grow), they might

• Sell Treasury bonds
• Buy Treasury bonds
• Spend more money
• Spend less money

Multiple Choice

Which of the following scenarios would cause the nation’s money supply to increase?

• Decreasing government spending
• Lowering interest rates
• Raising interest rates
• Selling bonds to investors

Multiple Choice

What action would the Federal Reserve take to control inflation?

• Buy government securities
• Decrease the required reserve ratio
• Increase taxes
• Increase the discount rate