978-1259723223 Test Bank TBChap036 Part 9

348.

If the Fed reduces the interest paid on banks‘ reserves, it is trying to make banks hold

349.

The interest rate that banks charge one another for the loan of excess reserves is the

350.

Traditionally, the Fed often communicated its intentions to restrict or expand monetary

policy by announcing a change in its target for the

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B.

federal funds rate.

C.

discount rate.

D.

consumer price index.

351.

Before the financial crisis of 2008, if the Fed wanted to lower the Federal funds rate, it

352.

Before the financial crisis of 2008, when the Federal Reserve Banks decided to buy

government bonds from commercial banks and the general

public, the supply of reserves in

the federal funds market

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Test Bank: II

Topic: Targeting the Federal Funds Rate

353.

Which of the following is not a result of policy actions taken by the Fed since the

financial crisis in 2008?

354.

As a result of policy actions taken by the Fed since 2008, it (the Fed) can no longer

expect to affect the federal funds rate through traditional open

market operations to alter the

overall amount of excess reserves in the banking system. This is because

355.

The interest rate that banks use as a reference point for interest rates on a wide range of

loans to businesses and individuals is the

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D. real interest rate.

356.

If the Federal funds rate

358.

Which of the following statements is correct?

359.

Before the financial crisis of 2008, if the Fed bought government securities in the open

market, it

360.

Since the financial crisis of 2008, the main tool of expansionary monetary policy used

by the Fed has been

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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: 36-04 Describe the federal funds rate and how the Fed directly influences

it.

Test Bank: II

Topic: Targeting the Federal Funds Rate

361.

As expansionary monetary policy tools, quantitative easing (QE) and traditional open-

market purchase differ in terms of the following, except

362.

Quantitative easing (QE) and traditional open-market purchase differ in that

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Topic: Targeting the Federal Funds Rate

363.

Before the financial crisis of 2008, restrictive monetary policy by the Fed involved

364.

The Fed, at the end of 2015, announced its intent to start “normalizing” monetary policy

and returning short-term interest rates to their normal

range of 3 percent or higher. Its

normalization plan had two major tools,

365.

Which of the following combinations of Fed actions would be most effective in

“mopping up” reserves away from the banking system?

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nonbanks

B.

raising the interest paid on excess reserves and also doing “repos” with banks and

nonbanks

C.

reducing the interest paid on excess reserves and also doing “reverse repos” with banks

and nonbanks

D. raising the interest paid on excess reserves and also doing “reverse repos” with banks

and nonbanks

366.

According to the Taylor rule, if the target rate of inflation for the Fed is 2 percent and

real GDP rises by 1 percent above potential GDP, then the

Fed should

367.

According to the Taylor rule, if the inflation rate is one percentage point below the

target of 2 percent, then the Fed should

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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: 36-04 Describe the federal funds rate and how the Fed directly influences

it.

Test Bank: II

Topic: Targeting the Federal Funds Rate

368.

According to the Taylor rule, when real GDP is equal to potential GDP and the

inflation rate is equal to its target rate of 2 percent, the Federal

funds rate should be

369.

If real GDP is 2 percent below potential GDP and the inflation rate is 1 percent, then

according to the Taylor rule, the Fed should make the real

federal funds rate

370.

In the cause-effect chain linking changes in the banks‘ excess reserves and the resulting

changes in output and employment in the economy,

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A. a decrease in aggregate demand will increase output.

B.

an increase in the money supply will decrease the rate of interest.

C.

a decrease in excess reserves will increase the money supply.

D.

a decrease in the rate of interest will decrease aggregate demand.

371.

Changes in interest rates, ceteris paribus, cause a shift in

372.

The level of GDP, ceteris paribus, will tend to increase when

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Topic: Monetary Policy, Real GDP, and the Price Level

373.

The Federal Reserve can increase aggregate demand by

374.

Which of the following is the most accurate description of events when monetary

authorities increase the size of commercial banks’ excess

reserves?

375.

Which of the following best describes what occurs when monetary authorities sell

government securities?

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GDP.

B.

There is a decrease in the size of commercial banks’ excess reserves, the money supply

decreases, and interest rates rise, thereby causing a

decrease in investment spending and

real GDP.

C.

There is a decrease in the size of commercial banks‘ excess reserves, the money supply

decreases, and interest rates rise, thereby causing an

increase in investment spending and

real GDP.

D.

There is an increase in the size of commercial bank reserves, the money supply increases,

and interest rates fall, thereby causing an increase in

investment spending and real GDP.

376.

If the Fed wants to maintain current interest rates, it would be buying government bonds

in the open market when

377.

An increase in the money supply, ceteris paribus, usually

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A c c e s s i b i l i t y : Keyboard Navigation

Blooms: Remember

Di ff ic ulty: 01 Easy

Learning Objective: 36-05 Identify the mechanisms by which monetary policy affects GDP and

the price level.

Test Bank: II

Topic: Monetary Policy, Real GDP, and the Price Level

378.

Refer to the graphs, in which the numbers in parentheses near the AD1, AD2, and AD3

labels indicate the level of investment spending associated

with each curve. All numbers

are in billions of dollars. The interest rate and the level of investment spending in the

economy are at point D on the

investment demand curve. To achieve the long-run goal of a

noninflationary, full-employment output Qf in the economy, the Fed should try to

379.

Refer to the graphs, in which the numbers in parentheses near the AD1, AD2, and AD3

labels indicate the level of investment spending associated

with each curve. All numbers

are in billions of dollars. The interest rate and the level of investment spending in the

economy are at point B on the

investment demand curve. To achieve the long-run goal of a

noninflationary, full-employment output Qf in the economy, the Fed should

380.

Refer to the graphs, in which the numbers in parentheses near the AD1, AD2, and AD3

labels indicate the level of investment spending associated

with each curve. All numbers

are in billions of dollars. The interest rate and the level of investment spending in the

economy are at point C on the investment demand curve. To achieve the long-run goal of a

noninflationary, full-employment output Qf in the economy, the Fed should try to

381.

Refer to the graphs, in which the numbers in parentheses near the AD1, AD2, and AD3

labels indicate the levels of investment spending associated

with each curve. All figures are

in billions. What is the desired level of investment spending in this economy if it is to

achieve a noninflationary,

full-employment level of real GDP?

382.

Refer to the graphs, in which the numbers in parentheses near the AD1, AD2, and AD3

labels indicate the level of investment spending associated

with each curve. All figures are

in billions. The interest rate in the economy is 4 percent. What should the Fed do to achieve

a noninflationary, full-employment level of real GDP?

383.

Refer to the graphs, in which the numbers in parentheses near the AD1, AD2, and AD3

labels indicate the level of investment spending associated

with each curve. All figures are

in billions. The economy is at equilibrium at the intersection of the aggregate supply curve

and aggregate demand curve AD3. What policy should the Fed pursue to achieve a

noninflationary, full-employment level of real GDP?

384.

Refer to the graphs, in which the numbers in parentheses near the AD1, AD2, and AD3

labels indicate the level of investment spending associated

with each curve. All figures are

in billions. The economy is at point X on the investment demand curve. Given these

conditions, what policy should the Fed pursue to achieve a noninflationary, full-employment

level of real GDP?

385.

Refer to the graphs, in which the numbers in parentheses near the AD1, AD2, and AD3

labels indicate the level of investment spending associated

with each curve. All figures are

in billions. The economy is at point Y on the investment demand curve. Given these

conditions, what policy should the Fed pursue to achieve a noninflationary, full-employment

level of real GDP?