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36-194
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
C.
negative interest rates.
D. qualitative easing.
418.
Which of the following would not be a consequence of negative interest rates?
419.
One reason why Europeans continued to leave money in their bank deposits, despite
negative interest rates was
420.
What are two conflicting issues that the European central banks that experimented with
negative interest rates found that they eventually had to
balance?
36-195
True / False Questions
421.
The transactions demand for money will decrease when income decreases, but it is not
much affected by interest rates.
422.
Holding money as an asset presents a risk of capital loss.
423.
There is an asset demand for money because households and business firms use money
as a store of value.
424.
A decrease in the nominal GDP, other things remaining the same, will decrease both the
total demand for money and the equilibrium rate of
interest in the economy.
425.
If nominal GDP is $2,000 billion and the amount of money demanded for transactions
purposes is $500 billion, then on average each dollar will
be spent about four times a year.
426.
A bond with no expiration date is priced at $10,000 when the interest rate in the
economy is 6 percent. If the interest rate falls to 5.5 percent, then
this bond's price would
36-197
427.
The price of a bond with no expiration date is $1,000, and the fixed annual interest
payment is $100. If the price of the bond falls to $800, the
interest rate to a new buyer of
428.
The reserves of commercial banks are assets to commercial banks and liabilities of the
Federal Reserve System.
429.
One new element of the Fed’s open market operations is the use of government
securities as collateral for loans to banks and other financial
institutions.
36-198
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
TRUE
430.
In a repo (or repurchase agreement), if the Fed buys securities from Firm A with an
agreement that Firm A will buy back the securities from the
Fed on the following day, then
the Fed is acting as the lender and Firm A the borrower.
431.
If the Fed does a reverse repo of bonds with banks, then the banks’ reserves will
increase.
432.
The discount rate is the interest rate at which commercial banks lend to their best
corporate customers.
36-199
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Blooms: Remember
Dif f i c u lty: 01 Easy
Learning Objective: 36-03 List and explain the goals and tools of monetary policy.
Test Bank: II
Topic: Tools of Monetary Policy
433.
The most frequently used instrument of the Federal Reserve System to control the
money supply is the required reserve ratio.
434.
If the Fed sells $10 million in government securities to commercial banks, the size of
the effect on the banks' excess reserves is not the same as if
the Fed sold the securities to
the public instead.
435.
When commercial banks borrow from the Federal Reserve Banks, they decrease their
excess reserves and their money-creating potential.
36-200
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Topic: Tools of Monetary Policy
436.
The federal funds rate is the rate that banks charge other banks for overnight loans of
excess reserves.
437.
Before the financial crisis of 2008, expansionary monetary policy would have entailed
the Fed targeting a lower federal funds rate and using
open-market purchases to increase
bank reserves and cause the federal funds rate to hit its target.
438.
In traditional monetary policy, if the Fed targeted a lower federal funds rate, then it was
pursuing a restrictive monetary policy.
36-201
439.
Expansionary monetary policy after 2008 consists mainly of quantitative easing (QE)
and massive bond purchases by the Fed to expand bank
reserves.
440.
The main goal of quantitative easing (QE) is to reduce the federal funds rate.
441.
When the Fed sells government securities in the open market, its intent is to try to
increase aggregate demand.
442.
An expansionary monetary policy increases the money supply, lowers interest rates,
and increases aggregate demand.
443.
If the monetary authority wished to rein in inflation, it would buy government securities
in the open market.
444.
In order to stimulate the economy and reduce unemployment, the Fed would
traditionally set a lower target for the federal funds rate.
445.
If the Fed seeks to maintain a fixed targeted interest rate, then it will have to increase
the money supply when the demand for money increases as
income increases.
446.
In traditional (before 2008) analysis, an autonomous increase in investment spending
when the economy is at full employment will cause the Fed
to seek a lower target for the
federal funds rate by buying securities in the open market.
447.
An expansionary monetary policy is less effective in influencing aggregate demand
compared to a restrictive monetary policy.
448.
Monetary policy, unlike fiscal policy, does not have any time lags.
36-204
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Blooms: Understand
D i f f i c u l t y : 02 Medium
Learning Objective: 36-06 Explain the effectiveness of monetary policy and its shortcomings.
Test Bank: II
Topic: Monetary Policy: Evaluation and Issues
449.
The major advantages of monetary policy include its flexibility, speed, and political
palatability.
450.
The effects of expansionary monetary policy are strengthened by a liquidity trap.
451.
The zero interest rate policy (ZIRP) presented a policy problem when the economy
remained weak, and that problem is known as the zero bound
problem.
452.
Quantitative easing (QE) differs from open-market purchases in that QE shrinks the
assets of the Fed, whereas open market purchases expand the
Fed's assets.
453.
The effects on aggregate demand of an open market purchase and a tax cut are similar.
454.
It is inconceivable and impossible for a central bank to pursue a negative-interest rate
policy because interest rates simply cannot turn negative.
