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Chapter 16 - Interest Rates and Monetary Policy
201. In the latter end of 2001 the Fed cut the Federal funds rate several times. The Fed's
purpose was to:
202. Between March 2001 and November 2002, the Fed reduced the Federal funds rate from 5
percent to just above 1 percent. The Fed's purpose was to:
203. From 2004 to 2006 the Fed raised the Federal funds rate gradually in a series of steps.
The Fed's purpose was to raise the prime interest rate so that:
Chapter 16 - Interest Rates and Monetary Policy
204. From September 2007 to April 2008 the Fed lowered the Federal funds rate from 5.25
percent to 2 percent in a series of steps. The Fed's actions were largely in response to:
205. In an effort to stabilize the banking sector and keep banks lending, from October 2008 to
September 2009, the Fed:
206. One of the strengths of monetary policy relative to fiscal policy is that monetary policy:
Chapter 16 - Interest Rates and Monetary Policy
207. Which of the following is least likely to be a problem for monetary policy?
208. The problem of cyclical asymmetry refers to the idea that:
209. In economics, the expression "You can lead a horse to water, but you can't make it drink"
illustrates the:
Chapter 16 - Interest Rates and Monetary Policy
210. An expansionary monetary policy may be less effective than a restrictive monetary
policy because:
211. An expansionary monetary policy may be frustrated if the:
212. Monetary policy is thought to be:
Chapter 16 - Interest Rates and Monetary Policy
213. The impact of monetary policy on investment spending may be weakened:
214. 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:
215. The possible asymmetry of monetary policy is the central idea of the:
Chapter 16 - Interest Rates and Monetary Policy
16-83
216. The pushing-on-a-string analogy makes the point that, monetary policy may be better at:
217. The liquidity trap refers to the situation where:
Chapter 16 - Interest Rates and Monetary Policy
218. Refer to the above table, in which investment is in billions. Which of the following
scenarios would be consistent with the occurrence of cyclical asymmetry?
219. Refer to the above 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:
Chapter 16 - Interest Rates and Monetary Policy
220. The Fed introduced the term auction facility in response to:
221. (Consider This) The Fed's ability to alter the level of reserves in the banking system is
the main idea of the:
222. (Consider This) The Fed is like a sponge in that it can:
Chapter 16 - Interest Rates and Monetary Policy
223. (Consider This) During and immediately following the severe recession of 2007-2009,
on the consolidated balance sheet of the twelve Federal Reserve banks:
224. (Consider This) During and immediately following the severe recession of 2007-2009,
commercial bank reserves held on deposit in Federal Reserve banks:
225. (Last Word) Other things equal, an increase in productivity will:
Chapter 16 - Interest Rates and Monetary Policy
226. (Last Word) Other things equal, an increase in input prices will:
227. (Last Word) Other things equal, a restrictive monetary policy during a period of demand-
pull inflation will:
228. (Last Word) Other things equal, a reduction in income taxes would:
Chapter 16 - Interest Rates and Monetary Policy
229. The higher the interest rate, the larger will be the amount of money demanded for
transaction purposes.
230. The asset demand for money varies inversely with the nominal GDP.
231. Bond prices and interest rates are directly or positively related.
232. The Fed reduces interest rates mainly by selling government securities.
Chapter 16 - Interest Rates and Monetary Policy
233. The Fed increases interest rates mainly by selling government securities.
234. Ben Bernanke is the current chair of the Board of Governors.
235. 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.
236. The term auction facility is the most frequently used monetary policy tool.
Chapter 16 - Interest Rates and Monetary Policy
237. When the Fed auctions reserves through the term auction facility, the interest rate is set
by the rate offered by the lowest bidder whose bid is accepted.
238. When the Fed auctions reserves through the term auction facility, the interest rate is set
by the rate offered by the highest bidder.
239. The prime interest rate and the Federal funds rate normally change in opposite
directions.
240. The largest single liability of the Federal Reserve Banks is their outstanding loans to
commercial banks.
Chapter 16 - Interest Rates and Monetary Policy
241. An expansionary monetary policy is one that reduces the supply of money.
242. Changes in the interest rate are more likely to affect investment spending than consumer
spending.
243. The job of the Fed in limiting the supply of money may be made more complex if
commercial banks initially have substantial excess reserves.
244. Other things equal, an expansionary monetary policy will shift the economy's aggregate
demand curve to the right.
Chapter 16 - Interest Rates and Monetary Policy
245. A restrictive monetary policy may be frustrated if the investment-demand curve shifts to
the left.
246. A restrictive monetary policy reduces investment spending and shifts the economy's
aggregate demand curve to the right.
247. The Federal Reserve adheres strictly to the Taylor rule when formulating monetary
policy.
248. 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.
Chapter 16 - Interest Rates and Monetary Policy
249. A liquidity trap occurs when the Federal Reserve reduces reserves in the system, choking
off aggregate demand.
250. (Consider This) In March 2010, total bank reserves held at the Fed exceeded total
checkable deposits held by the banks.
