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- All other things being equal, which of the following would cause interest rates to rise? a. The economy slides into a recession. b. The federal government's budget deficit declines. c. The rate of inflation decreases. d. The Federal Reserve contracts the money supply.Conducting monetary policy so that the FF rate = 1.25%, where the FF rate is the nominal federal funds interest rate, is an example of : A. an active policy rule. B. a passive policy rule. C. discretionary policy. D. an automatic stabilizer.Commercial banks increase their reserves after the Fed increases the interest rate it pays on reserves. Which of the columns above could represent this action?
- Suppose that the Fed wants to lower long-term interest rates and buys all the Treasury securities banks hold. Reflect those changes on the balance sheet (commitment to low long term interest rate environment, QE)If the Fed ____ the interest rates when inflationary expectations remain unchanged, the most likely result is that the value of dollar will ____ and the economy may ____. A. increases; appreciate; weaken B. decreases; appreciate; weaken C. increases; depreciate; strengthen D. decreases; appreciate; strengthenIf the U.S. Treasury deposits income tax receipts into its account at the Federal Reserve, then a. the money multiplier will decrease b. the money multiplier will increase c. the monetary base will decrease d. the monetary base will increase Expected inflation can be estimated as a. the return on a TIPS bond b. the return on a Treasury bond c. the return on a TIPS bond minus the return on a Treasury bond d. the return on a Treasury bond minus the return on a TIPS bond A decrease in the expected return on stocks will a. shift the demand curve for bonds leftwards b. shift the demand curve for bonds rightwards c. shift the supply curve for bonds leftwards d. shift the supply curve for bonds rightwards Which of the following is part of M2? a. Small time deposits b. Money market mutual funds c. Currency held by foreigners d. All of the above
- Explain on the effects of rising inflation rates on the economy. How can the rising inflation rate be controlled effectively?Should the economy’s current fragile recovery gather momentum, it is likely the Federal Reserve will decide to subtract liquidity from the economy. How will it do that? By selling U.S. Treasury bonds By purchasing U.S. Treasury bonds By having the U.S. Treasury purchase goods and services By having the U.S. Treasury lower taxes By having the U.S. Treasury raise taxesThe so-called “dual monetary policy mandate” of the Federal Reserve calls for setting conditions conducive to: (a) best stock market performance and lowest interest rates; (b) maximum sustainable real economic growth and highest stock market performance; (c) maximum employment and price stability; (d) maximum money supply growth and a safe and sound banking system.
- Which of the following will have the same effect on money supply as raising the reserve requirement? a) The central bank decreases the interest rate. b) The central bank purchases bonds in the market. c) The central bank purchases securities and debentures in the market. d) Lower bond prices.Which of the following Federal Reserve actions could lead to an appreciation of the U.S. dollar? Select one : (1)An increase in the monetary base (2)A discount rate decrease (3) A required reserve ratio reduction (4)A sale of government bonds (5)A purchase of government bonds82. “It took Paul Volker, who became Fed chairman in 1979, to put the monetarist theory into practice, adopting money-supply targets that drove interest rates to double-digit levels, sent the economy into a deep recession, and ultimately brought inflation down.†What is this monetarist theory?inflation is always and everywhere a monetary phenomenonthe main determinant of the inflation rate is the rate of growth of the money supplyinflation can be controlled by controlling money growthall of the above1. “Earlier in the week the central bank’s traders intervened aggressively in the money market to push the yield on last week’s Treasury bills sharply higher.”What kind of intervention is being referred to? The central banka) sold bills b) bought billsc) announced an easier monetary policy d) raised the legal reserve requirement2. “Several government bond issues will raise $400 million, with the central bank picking up at least…