36-101
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A.
the Fed implemented the zero interest rate policy (ZIRP).
B.
Congress approved additional fiscal stimulus in 2010.
C.
the Fed pursued quantitative easing.
D. the Fed ended its forward commitment in order to encourage further lending.
213.
Which of the following statements is most accurate about the Fed’s zero interest rate
policy (ZIRP)?
214.
One of the strengths of monetary policy relative to fiscal policy is that monetary policy
36-102
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written consent of McGraw-Hill Education.
To pi c: Monetary Policy: Evaluation and Issues
215.
Which of the following is least likely to be a problem for monetary policy?
216.
The problem of cyclical asymmetry refers to the idea that
217.
In economics, the expression “You can lead a horse to water, but you can‘t make it
drink” illustrates the
36-103
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written consent of McGraw-Hill Education.
A c c e s s i b i l i t y : Keyboard Navigation
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: I
To pi c: Monetary Policy: Evaluation and Issues
218.
An expansionary monetary policy may be less effective than a restrictive monetary
policy because
219.
An expansionary monetary policy may be frustrated if the
220.
Monetary policy is thought to be
36-104
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written consent of McGraw-Hill Education.
B.
more effective in moving the economy out of a depression than in controlling demand-pull
inflation.
C.
more effective in controlling demand-pull inflation than in moving the economy out of a
recession.
D. only effective in moving the economy out of a depression.
221.
The impact of monetary policy on investment spending may be weakened
222.
In the 1990s and early 2000s, Japan’s central bank reduced real interest rates to zero
percent, but investment spending did not respond enough to
bring the economy out of
recession. Japan‘s experience is an illustration of
36-105
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written consent of McGraw-Hill Education.
Test Bank: I
To pi c: Monetary Policy: Evaluation and Issues
223.
The possible asymmetry of monetary policy is the central idea of the
224.
The pushing-on-a-string analogy makes the point that monetary policy may be better at
225.
The liquidity trap refers to the situation where
36-106
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written consent of McGraw-Hill Education.
A c c e s s i b i l i t y : Keyboard Navigation
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: I
To pi c: Monetary Policy: Evaluation and Issues
226.
Interest Rate (1)
Investment (2)
Investment(3)
4%
$100
$80
5
90
70
6
80
60
7
70
50
8
60
40
Refer to the table, in which investment is in billions. Which of the following scenarios
would be consistent with the occurrence of cyclical
asymmetry?
227.
Interest Rate (1)
Investment (2)
Investment (3)
4%
$100
$80
5
90
70
6
80
60
7
70
50
8
60
40
Refer to the table, in which investment is in billions. Suppose the Fed reduces the interest
rate from 6 to 5 percent at a time when the investment
demand declines from that shown by
columns (1) and (2) to that shown by columns (1) and (3). As a result of these two
occurrences, investment
will
228.
Other things equal, an increase in productivity will
229.
Other things equal, an increase in input prices will
36-108
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written consent of McGraw-Hill Education.
D.
increase net exports, increase investment, and reduce aggregate demand.
230.
Other things equal, a restrictive monetary policy during a period of demand-pull
inflation will
231.
Other things equal, a reduction in income taxes would
232.
(Consider This) When the Fed engages in a repo transaction,
233.
(Consider This) Repo transactions involve , while reverse repo transactions
234.
(Consider This) In reverse repurchase agreements (reverse repos),
36-110
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written consent of McGraw-Hill Education.
Learning Objective: 36-03 List and explain the goals and tools of monetary policy.
Test Bank: I
To pi c: Tools of Monetary Policy
235.
(Last Word) Which of the following is a concern about a central bank going below the
zero lower bound and setting negative interest rates to
stimulate the economy?
236.
(Last Word) In 2014, the European Central Bank (EC)
237.
(Last Word) Which of the following best explains why there may exist a negative lower
bound for interest rates, beyond which lowering interest
rates is counterproductive?
36-111
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written consent of McGraw-Hill Education.
point they are always guaranteed to earn a positive rate of
interest.
D.
Negative lower bounds refer only to real rates of interest, not nominal rates.
AACSB: Knowledge Application
A c c e s s i b i l i t y : Keyboard Navigation
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: I
To pi c: Monetary Policy: Evaluation and Issues
True / False Questions
238.
The higher the interest rate, the larger will be the amount of money demanded for
transaction purposes.
239.
The asset demand for money varies inversely with the nominal GDP.
240.
Bond prices and interest rates are directly or positively related.
FA LSE
36-112
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written consent of McGraw-Hill Education.
AACSB: Knowledge Application
A c c e s s i b i l i t y : Keyboard Navigation
Blooms: Understand
D i f f i c u l t y : 02 Medium
Learning Objective: 36-01 Discuss how the equilibrium interest rate is determined in the
market for money.
Test Bank: I
To pi c: Interest Rates
241.
The Fed reduces interest rates mainly by selling government securities.
242.
The Fed increases interest rates mainly by selling government securities.
243.
Ben Bernanke is the current (2016) chair of the Board of Governors.
36-113
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written consent of McGraw-Hill Education.
Learning Objective: 36-05 Identify the mechanisms by which monetary policy affects GDP and
the price level.
Learning Objective: 36-06 Explain the effectiveness of monetary policy and its shortcomings.
Test Bank: I
To pi c: Monetary Policy, Real GDP, and the Price Level
T o p i c : Monetary Policy: Evaluation and Issues
244.
A change in the reserve ratio will affect both the amount of the banking system‘s excess
reserves and the multiple by which the system can lend on
the basis of excess reserves.
245.
The federal funds rate target is the most frequently used monetary policy tool.
246.
When the Fed raises the interest rate paid on reserves, it discourages bank lending.
247.
When the Fed pays interest on excess reserves held at Fed banks, the interest rate used
is the discount rate.
248.
Repos are a tool used by the Fed to increase bank reserves and encourage lending.
249.
The prime interest rate and the federal funds rate normally change in opposite
directions.
250.
The largest single liability of the Federal Reserve Banks is their outstanding loans to
commercial banks.
36-115
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written consent of McGraw-Hill Education.
AACSB: Knowledge Application
A c c e s s i b i l i t y : Keyboard Navigation
Blooms: Understand
D i f f i c u l t y : 02 Medium
Learning Objective: 36-02 Describe the balance sheet of the Federal Reserve and the meaning
of its major items.
Test Bank: I
To pi c: The Consolidated Balance Sheet of the Federal Reserve Banks
251.
An expansionary monetary policy is one that reduces the supply of money.
252.
Changes in the interest rate are more likely to affect investment spending than consumer
spending.
253.
The job of the Fed in limiting the supply of money may be made more complex if
commercial banks initially have substantial excess reserves.
36-116
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written consent of McGraw-Hill Education.
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: I
To pi c: Monetary Policy: Evaluation and Issues
254.
When the Fed raises interest rates on excess reserves, they are attempting to encourage
bank lending.
255.
Reverse repos are used to offset the Fed’s inability to stop nonbanks from lending to
banks.
256.
Other things equal, an expansionary monetary policy will shift the economy’s aggregate
demand curve to the right.
257.
A restrictive monetary policy may be frustrated if the investment-demand curve shifts
to the left.
258.
A restrictive monetary policy reduces investment spending and shifts the economy’s
aggregate demand curve to the right.
259.
The Federal Reserve adheres strictly to the Taylor rule when formulating monetary
policy.
260.
According to the Taylor rule, if real GDP falls by 1 percent below potential GDP, the
Fed should lower the federal funds rate by one-half a
percentage point.
261.
A liquidity trap occurs when the Federal Reserve reduces reserves in the system,
choking off aggregate demand.
262.
(Consider This) “Repo” stands for “Repossession purchase” and describes when the
Fed buys mortgage-backed securities from banks.
263.
A consumer holds money to meet spending needs. This would be an example of the
264.
The transactions demand for money will shift to the
265.
The transactions demand for money is least likely to be a function of the
36-120
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written consent of McGraw-Hill Education.
Blooms: Understand
D i f f i c u l t y : 02 Medium
Learning Objective: 36-01 Discuss how the equilibrium interest rate is determined in the
market for money.
Test Bank: II
Topic: Interest Rates
266.
If the dollars held for transactions purposes are, on the average, spent four times a year
for final goods and services, then the quantity of money
people will wish to hold for
transactions purposes is equal to
267.
If nominal GDP is $800 billion and, on average, each dollar is spent four times in the
economy over a year, then the quantity of money demanded
for transactions purposes will
be
268.
If nominal GDP is $4,000 billion and the amount of money demanded for transactions