Monetary Policy

Which of the following is most likely to occur if the Fed engages in open market operations to reduce inflation?

• A decrease in interest rates

• A decrease in reserves in the banking system

• A decrease in the government deficit

• An increase in the money supply

• An increase in exports

Which Fed action can shift the aggregate demand curve to the left?

• Lowering the federal funds rate

• Lowering income taxes

• Lowering reserve requirements

• Raising the discount rate

• Raising government spending on national defense

When an economy is operating below the full-employment level of output, an appropriate monetary policy would be to increase which of the following?

• The discount rate

• The required reserve ratio

• The international value of the dollar

• Open market purchases of government bonds

• Government expenditures on goods and services

The Fed decreases the federal funds rate by

• increasing the reserve requirement

• decreasing the discount rate

• increasing the discount rate

• selling government bonds on the open market

• buying government bonds on the open market

Suppose that all banks keep only the minimum reserves required by law and that there are no currency drains. The legal reserve requirement is 10 percent. If Maggie deposits the $100 bill she received as a graduation gift from her grandmother into her checking account, the maximum increase in the total money supply will be

• $10

• $100

• $900

• $1,000

• $1,100

Which of the following will lead to a decrease in a nation's money supply?

• A decrease in income tax rates

• A decrease in the discount rate

• An open market purchase of government securities by the central bank

• An increase in reserve requirements

• An increase in government expenditures on goods and services

In the short run, an expansionary monetary policy would most likely result in which of the following changes in the price level and real GDP?

• Price level: Decrease

  Real GDP: Increase

• Price level: No change

  Real GDP: Decrease

• Price level: Increase

  Real GDP: No change

• Price level: Increase

  Real GDP: Decrease

• Price level: Increase

  Real GDP: Increase

In the short run, which of the following would occur to bond prices and interest rates if a central bank bought bonds through open-market operations?

• Bond Prices: No change

  Interest Rates: Increase

• Bond Prices: Increase

  Interest Rates: Increase

• Bond Prices: Increase

  Interest Rates: Decrease

• Bond Prices: Decrease

  Interest Rates: Increase

• Bond Prices: Decrease

  Interest Rates: Decrease

If the reserve requirement is 25 percent and banks hold no excess reserves, an open market sale of $400,000 of government securities by the Federal Reserve will

• increase the money supply by up to $1.6 million

• decrease the money supply by up to $1.6 million

• increase the money supply by up to $300,000

• increase the money supply by up to $100,000

• decrease the money supply by up to $100,000

With a constant money supply, if the demand for money decreases, the equilibrium interest rate and quantity of money will change in which of the following ways?

• Interest Rate: Increase

  Quantity of Money: Decrease

• Interest Rate: Increase

  Quantity of Money: Not change

• Interest Rate: Decrease

  Quantity of Money: Decrease

• Interest Rate: Decrease

  Quantity of Money: Increase

• Interest Rate: Decrease

  Quantity of Money: Not change