WorksheetsMoney Banking and Monetary Policy
Total questions: 22
Worksheet time: 12mins
What is the name of the interest rate this bank will be charged for an overnight loan from the Federal Reserve?
The IOER (interest rate on excess reserves)
The discount rate
The prime rate
The Federal Funds rate
Which of the following interest rates is a central bank MOST LIKELY to target directly when using monetary policy?
The home lending interest rate
The long-term interest rate
The overnight interbank lending rate
The real interest rate
What happens when a central bank buys bonds in a limited reserves system?
The demand for money decreases.
The money supply decreases.
The interest rate increases.
Excess reserves increase.
As a result of an output gap, the unemployment rate in Hamsterville is lower than the natural rate of unemployment.
Which of the following is an open market operation that could be used to close the gap?
Sell bonds
Purchase bonds
Increase the discount rate
Increase government spending
The central bank in Hamsterville has bought $100 in bonds from a bank. The reserve requirement is 25%.
What is the maximum possible change in the money supply?
The money supply increases by $200
The money supply decreases by $100
The money supply increases by $400
The money supply increases by $100
The Central Bank of Montoya took a monetary policy action that resulted in the shift in aggregate demand indicated in the graph shown here.
Which of the following is a monetary policy action that the central bank most likely took to cause the change shown?
Decrease government spending
Sell bonds
Increase taxes
Decreasing the reserve ratio
If the Federal Reserve lowers its administered interest rates, which of the following would most likely occur?
The rate of saving will increase.
Unemployment and inflation will both increase.
Businesses will purchase more factories and equipment.
The budget deficit will increase.
If a central bank increases its administered interest rates, it is most likely responding to which of the following?
An appreciating domestic currency
Rising unemployment
Rising price levels
Slow economic growth
If the central bank decreases administered interest rates, which of the following will occur?
Consumption will decrease.
The government will balance its budget.
The money supply will decrease.
The price of bonds will increase.
If the interest rate on short-term government bonds declined as a result of policy actions by a central bank, the central bank must have...
decreased the amount of currency in circulation
sold government bonds to commercial banks
increased the discount rate on loans to commercial banks
decreased its administered interest rates
When the central bank of Fantasia sells bonds, which of the following will occur?
Reserves do not change; the monetary base increases
Reserves decrease; the monetary base decreases
Reserves increase; the monetary base decreases
Reserves decrease; the monetary base increases
Which of the following best describes the federal funds rate?
The interest rate that the Federal Reserve charges banks for short-term loans
The interest rate that the Federal Reserve pays for required reserves
The interest rate banks charge other banks for short-term loans
The fraction of deposits that a bank must keep deposited at the Federal Reserve
As a result of an output gap, the unemployment rate in Hamsterville is lower than the natural rate of unemployment.
Which of the following is an open market operation that could be used to close the gap?
Increase the discount rate
Sell bonds
Decrease the reserve ratio
Increase government spending
What happens when a central bank buys bonds?
Excess reserves increase.
The money supply decreases.
The interest rate increases.
The demand for money decreases.
Which of the following is an example of expansionary monetary policy?
Raise reserve requirement
Buy bonds
Raise discount rate
Increase government spending
When the Central Bank of Montoya increases the money supply, what is the impact?
Price level decreases
Investment increases
Unemployment increases
Consumption decreases
The reserve requirement in Kikikistan is 20%.
If the central bank buys $1,000 in bonds, what is the maximum possible change in the money supply?
The money supply decreases by $1,000
The money supply increases by $1,000
The money supply increases by $4,000
The money supply increases by $5,000
Which of the following is a monetary policy tool that would be used by a central bank to close a recessionary gap?
Increase the discount rate
Buy bonds
Increase the reserve ratio
Increase government spending
Which of the following would be the FIRST change to occur when a central bank conducts open market purchases of bonds?
Bank reserves increase
The interest rate decreases
The money supply increases
Aggregate demand increases
Which of the following is the rate that banks in the United States charge each other for overnight loans?
The prime rate
The discount rate
The federal funds rate
Interest on reserves
Assume the banking system in Zenobia has ample reserves. Which of the following reserve market graphs demonstrates Zenobia's central bank adopting contractionary monetary policy?
Suppose that the banking system in an economy has ample reserves, and the economy has entered a recession. Which of the following is a monetary policy action the central bank can take to restore full-employment output in the short run?
Decreasing government spending
Decreasing administered interest rates
Selling government bonds
Increasing the policy rate
