True / False
1. The central bank in the United States is known as the Federal Reserve System.
a.
True
b.
False
True
Easy
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
America’s Central Bank: The Federal Reserve System
2. The Federal Reserve’s principal tool in the manipulation of aggregate demand is the personal income tax.
a.
True
b.
False
False
Easy
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Implementing Monetary Policy in Normal Times: Open Market Operations
3. Money and income are used interchangeably by noneconomists but mean different things.
a.
True
b.
False
True
Easy
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Money and Income: The Important Difference
4. Money is a concept that has a certain value at a point in time.
a.
True
b.
False
True
Easy
DISC: The study of economics, an – DISC: The study of economics, and definitions in
economics
5. When you use the word income, you mean a value that must be qualified by a length of time.
a.
True
b.
False
True
Easy
economics
6. When someone asks how much money you made this year, they are using the term “money” correctly.
a.
True
b.
False
False
Moderate
7. Unconventional monetary policies include massive lending to banks and open-market purchases of assets other than
Treasury bills.
a.
True
b.
False
True
Moderate
8. Monetary policy is the system of actions taken by the Fed to influence the money supply.
a.
True
b.
False
True
Moderate
9. The Federal Reserve System can be described as a bank for bankers.
a.
True
b.
False
True
Easy
10. The United States was among the first of the modern industrial nations to establish a central banking system.
a.
True
b.
False
False
Moderate
11. The Federal Reserve Bank was modeled after the European Central Bank.
a.
True
b.
False
False
Easy
12. The Federal Reserve Open Market Committee includes the seven members of the Board of Governors, presidents of
five of the twelve district banks, and the Secretary of the Treasury.
a.
True
b.
False
False
Difficult
13. The Fed’s founders viewed the Fed as a means of maintaining the money supply during economic contractions and as
a lender of last resort.
a.
True
b.
False
True
Easy
14. Recessions are typically associated with increases on interest rates on risky securities coupled with increases on
interest rates on Treasury securities.
a.
True
b.
False
False
Moderate
15. The Federal Open Market Committee oversees the money supply through the purchase and sale of government
securities.
a.
True
b.
False
True
Easy
16. The demand for reserves depends on income and the price level.
a.
True
b.
False
True
Easy
17. An increase in the average price level will lead to a decrease in the demand for reserves.
a.
True
b.
False
False
Moderate
18. As the federal funds rate rises, the banks’ opportunity cost of holding excess reserves falls.
a.
True
b.
False
False
Difficult
19. The opportunity cost of holding excess reserves will be lower at an 8 percent federal funds rate in comparison to a 10
percent federal funds rate.
a.
True
b.
False
True
Moderate
20. Open market operations affect the supply of reserves.
a.
True
b.
False
True
Easy
21. To increase the money supply, the Fed purchases government securities from banks, paying for them with new
reserves.
a.
True
b.
False
True
Moderate
22. To decrease the money supply, the Fed purchases government securities, which decreases government spending.
a.
True
b.
False
False
Moderate
23. Open market operations refer to the purchase and sales of stocks listed on the New York Stock Exchange.
a.
True
b.
False
False
Easy
24. The creation of new bank reserves could lead to a multiple increase in the money supply.
a.
True
b.
False
True
Moderate
25. There is a positive relationship between the quantity of reserves supplied and the federal funds rate.
a.
True
b.
False
True
Easy
26. As interest rates rise, banks seek to decrease their loans and, thereby, shrink the money supply.
a.
True
b.
False
False
Difficult
27. At higher interest rates, banks will want to hold more reserves.
a.
True
b.
False
False
Moderate
28. The demand for reserves will increase at lower levels of GDP.
a.
True
b.
False
False
Easy
29. The Fed has control over bank reserves and complete control over the money supply.
a.
True
b.
False
False
Moderate
30. An increase in the interest rate is associated with an increase in bond prices.
a.
True
b.
False
False
Moderate
31. The Fed can drive up interest rates by selling government securities and decreasing the money supply.
a.
True
b.
False
True
Difficult
32. The rate of interest that the Fed charges banks on loans is called the reserve rate.
a.
True
b.
False
False
Easy
33. Individual banks always respond quickly and significantly to changes in the discount rate.
a.
True
b.
False
False
Moderate
34. The money supply can be increased by decreasing the required reserve ratio.
a.
True
b.
False
True
Easy
35. The Fed frequently uses the discount rate and the required reserve ratio as instruments of monetary policy.
a.
True
b.
False
False
Moderate
36. Contractionary monetary policy shifts the reserve supply schedule inward.
a.
True
b.
False
True
Moderate
37. The Fed carries out monetary policy chiefly by influencing the demand for reserves schedule.
a.
True
b.
False
False
Moderate
38. Personal consumption spending is the most sensitive component of aggregate demand to monetary policy.
a.
True
b.
False
False
Easy
39. We should expect to see home construction activity decrease when interest rates increase.
a.
True
b.
False
True
Moderate
40. An increase in the money supply should cause the expenditure schedule to shift upward.
a.
True
b.
False
True
Moderate
41. In the Keynesian causal chain, changes in GDP cause changes in the level of interest rates.
a.
True
b.
False
False
Difficult
42. The inflationary effect of an expansionary monetary policy depends on the slope of the aggregate supply curve.
a.
True
b.
False
True
Moderate
43. Higher price levels will eventually lead to lower interest rates as people reduce their demand for money.
a.
True
b.
False
False
Moderate
44. One of the principal ways in which Congress intended the Fed to provide insurance against financial panics was to act
as a “lender of first resort.”
a.
True
b.
False
False
Moderate
45. One example of qualitative easing, or unconventional monetary policy, is a purchase by the Fed of Treasury bonds.
a.
True
b.
False
False
46. Generally, most of the world’s industrial countries believe that central banks should be independent of their
governments.
a.
True
b.
False
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Multiple Choice
47. The central bank of the United States is known as the
a.
Internal Revenue Service.
b.
Federal Reserve System.
c.
Federal Deposit Insurance Corporation.
d.
Department of Commerce.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
America’s Central Bank: The Federal Reserve System
48. Who is considered to be the most powerful person in the economic world by many observers?
a.
Federal Reserve Chair
b.
EU Central Bank President
c.
Director-General of the WTO
d.
World Bank President
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
49. The Federal Reserve System functions as America’s
a.
tax collector.
b.
stock and bond market.
c.
savings bank.
d.
central bank.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
America’s Central Bank: The Federal Reserve System
50. The Fed’s principal objective is to
a.
make profits to pay into the U.S. Treasury.
b.
collect tax revenues.
c.
supervise the business decisions of banks.
d.
manage the money supply and interest rates.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
America’s Central Bank: The Federal Reserve System
51. The current chair of the Federal Reserve System is
a.
Tim Geithner.
b.
Hillary Clinton.
c.
Ben Bernanke.
d.
Alan Greenspan.
e.
Janet Yellen
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Implementing Monetary Policy in Normal Times: Open-Market Operations
52. The principal difference between income and money is that income is a ____ and money is a ____.
a.
schedule, curve
b.
point, line
c.
stock, flow
d.
flow, stock
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Money and Income: The Important Difference
53. Part of the reason that people confuse money and income is because
a.
money is tangible, but income is intangible.
b.
money serves as the unit of account.
c.
money is abstract, but income is concrete.
d.
income is almost impossible to measure.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Money and Income: The Important Difference
54. People are often heard saying, “She makes good money.” An economic interpretation of this statement would be that
a.
she has an honest job.
b.
she makes money that is not counterfeit.
c.
she has a high income.
d.
there is little inflation.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Money and Income: The Important Difference
55. Money supply is to income as
a.
real is to ideal.
b.
stock is to flow.
c.
real is to nominal.
d.
flow is to stock.
DISC: The study of economics, an – DISC: The study of economics, and definitions in
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Money and Income: The Important Difference
56. Are money and income the same thing?
a.
No, money is measured at a point in time and income is measured for a period of time.
b.
No, money is measured for a period of time and income is measured at a point in time.
c.
Yes, they are just measured in different ways.
d.
Yes, the only difference is real versus nominal.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Money and Income: The Important Difference
57. Income is measured as
a.
average cash holdings per time period.
b.
change in cash holdings per time period.
c.
some amount per time period.
d.
some amount at a point in time.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Money and Income: The Important Difference
58. Which of the following phrases indicates that income is being spoken of?
a.
Tuesday, at 12:30 p.m.
b.
July 14, 1948
c.
from January 1 to March 30
d.
yesterday afternoon
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Money and Income: The Important Difference
59. Which of the following would indicate that the dollar amount being analyzed is money?
a.
M1 money stock of $1.4 trillion at the end of 2010
b.
Microsoft profits of $500 billion in 2010
c.
The first quarter of 2002
d.
Nominal GDP in 2010 of $14.7 trillion
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Money and Income: The Important Difference
60. Which of the following phrases would be used to describe an income amount?
a.
per year
b.
per month
c.
per week
d.
All of the above are correct.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Money and Income: The Important Difference
61. Income is to money as
a.
short story is to novel.
b.
video is to digital photo.
c.
song is to symphony.
d.
entree is to dessert.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Money and Income: The Important Difference
62. Which of the following is an income number?
a.
M1
b.
M2
c.
GDP
d.
cash
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Money and Income: The Important Difference
63. The Federal Reserve System was established by Congress in 1914
a.
as a result of a breakthrough in economic theory.
b.
against significant opposition from the banking sector.
c.
because of the need for a central bank.
d.
as the world’s first central bank.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
America’s Central Bank: The Federal Reserve System
64. The Fed is unlike other central banks in that it
a.
has 12 branches.
b.
is completely centralized.
c.
has no real powers.
d.
also has control over fiscal policy.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
America’s Central Bank: The Federal Reserve System
65. The immediate impetus for the establishment of the Federal Reserve System came from
a.
severe outbreaks of inflation in the early 1900s.
b.
four severe banking panics between 1873 and 1907.
c.
the discovery of gold in Alaska.
d.
the desire to copy the founding of the Bank of England.
Easy
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
America’s Central Bank: The Federal Reserve System
66. Technically, the Federal Reserve district banks are corporations whose stockholders are the
a.
state governments in each district.
b.
citizens of the United States.
c.
Departments of Treasury and Commerce.
d.
member banks.
Easy
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
America’s Central Bank: The Federal Reserve System
67. In reality, commercial banks function most like ____ of the district Federal Reserve Banks.
a.
stockholders
b.
regulators
c.
customers
d.
competitors
c
Moderate
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
America’s Central Bank: The Federal Reserve System
68. The actual control of the Federal Reserve System resides in the
a.
Congress of the United States.
b.
member banks.
c.
Senate Banking Committee.
d.
Board of Governors.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
America’s Central Bank: The Federal Reserve System
69. The president has influence on Federal Reserve policy because
a.
he can veto any Fed policy.
b.
he appoints the board members and the chair.
c.
he can fire the chair.
d.
he can replace board members at any time.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
America’s Central Bank: The Federal Reserve System
70. Members of the Board of Governors of the Fed are
a.
elected to two-year terms by the Electoral College.
b.
appointed by the president for four-year terms and confirmed by the Congress.
c.
appointed by the president for 14-year terms and confirmed by the Senate.
d.
appointed by the president for 14-year terms and confirmed by the Supreme Court.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
America’s Central Bank: The Federal Reserve System
71. Which of the following observations is true?
a.
State governments are the shareholders of the Fed.
b.
The Fed chairman is appointed for a ten year term.
c.
FOMC decisions largely determine short-term interest rates.
d.
Member banks proportionately share all of Federal Reserve’s profits.