CHAPTER 51
Monetary Policy
579. Monetary policy may be defined as
a. a policy designed to increase or decrease the flow of money and credit.
b. a policy designed to increase or decrease the ability of consumers to spend money.
c. a policy designed to increase the convertability of paper money into gold.
d. a policy designed to develop money that is more resistant to counterfeiters.
580. The central bank of the United States is called
a. the Bank of America.
b. the U.S. Bank.
c. the Central Bank of the United States.
d. the Federal Reserve.
581. The Board of Governors of the Federal Reserve are
a. appointed for life like Supreme Court Justices.
b. elected by the governors of the 50 states.
c. appointed by the Senate and confirmed by the Supreme Court.
d. appointed by the President and confirmed by the Senate.
582. Monetary policy is conducted by
a. the Banking Committee of Congress
b.
c. the Federal Open Market Committee.
d. Chamber of Commerce
583. The function of the Federal Deposit Insurance Corporation is to
a. conduct monetary policy.
b. issue new currency and coin.
c. insure loans made by members of Congress
d. insure bank deposits.
584. The Federal Reserve makes loans to individual banks at an interest rate
a. called the federal funds rate.
b. called the discount rate
c. called the prime rate
d. called the rate of last resort.
585. During a recession, the Federal Reserve may try to lower interest rates by
a. increasing the required reserve ratio.
b. selling government bonds to banks or individuals.
c. buying government bonds from banks or individuals.
d. sending directives to bank officials.
586. During inflationary periods, the Federal Reserve can be expected to
a. try to lower interest rates.
b. try to raise interest rates.
c. try lend more reserves to banks.
d. try to lower the required reserve ratio.
587. The interest rate that banks charge each other for overnight loans is called
a. the prime rate
b. the federal funds rate
c. the discount rate
d. the penalty rate
APPENDIX 51.1
Furious Debates on Monetary Policy
588. In a barter system
a. commodities are exchanged for commodities.
b. commodities are exchanged for money, then money is exchanged for other commodities.
c. money is exchanged for commodities, then these commodiites are exchanged for more
money.
d. money is exchanged for money
589. The view that the only function of money is to serve as a medium of exchange means
a. commodities are exchanged for commodities.
b. commodities are exchanged for money, then money is exchanged for other commodities.
c. money is exchanged for commodities, then these commodiites are exchanged for more
money.
d. money is exchanged for money
590. According to progressives, the role of money in capitalism differs from that in
precapitalism economies in that
a. commodities are exchanged for commodities.
b. commodities are exchanged for money, then money is exchanged for other commodities.
c. money is exchanged for commodities, then these commodiites are exchanged for more
money.
d. money is exchanged for money
591. The existence of credit in a capitalist economy
a. forces consumers to spend less than their income.
b. forces businesses to use current revenues to buy capital goods.
c. increases the stability of the economy.
d. allows consumers to spend beyond their income
592. What is Monetarism?
a. the belief that the economic system works well except when the government makes
makes in monetary policy.
b. the belief that monetary policy can stabilize the economy in the short run.
c. the belief that the Federal Reserve should continually adjust the money supply to
accommodate fluctuations in demand over the business cycle.
d. the belief that an increase in the money supply will lead to an increase in GDP.
593. Critics of Monetarism argue that the factor that is more important than the supply of money
is
a. the expansion and contraction of credit.
b. the rise and fall of demand deposits.
c. the quantity of currency in circulation.
d. the frequency of outside shocks that cause booms and busts.