Chapter Fifteen: Module Quiz -- The Federal Reserve and Monetary Policy

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  1. The name of the committee which conducts monetary policy is

      F.O.M.C. (Federal Open Market Committee)
      Board of Governors
      District Banks
      Council of Economic Advisors
      None of the above

  2. A possible reason that the Federal Reserve might raise interest rates in the economy is that

      there is a perception is that the economy is growing too strongly.
      there is a fear that inflation will begin to increase soon.
      there are some signs that wage gains are beginning to increase.
      the level of unemployment has dropped below the natural rate of unemployment.
      all of the above.

  3. The current chairperson of the Federal Reserve is

      President Bush
      Ben Bernanke
      Alan Greenspan
      Milton Friedman
      None of the above

  4. Suppose the U.S. economy had inflation of 2.7 percent and unemployment of 9 percent. The best monetary policy in this scenario is

      an open market sale.
      an open market purchase.
      a rise in the discount rate.
      a decrease in taxes.
      All of the above.

  5. Given a required reserve ratio of 10 percent, if the Fed performed an open market sale of $1,000, by how much could the money supply change?

      +$1,000
      -$1,000
      +$10,000
      -$10,000
      none of the above

  6. Suppose the Federal Reserve wishes to prevent the economy from going into recession. What action should it take?

      Open market purchase.
      Lower the RRR.
      Lower the discount rate.
      All of the above.

  7. The difference between the discount rate and the federal funds rate is

      the discount rate is the interest rate that the Federal Reserve charges for loans, while the federal funds rate is the interest rate that the U.S. Treasury pays on the bonds that it issues.
      the discount rate is the interest rate that the Federal Reserve charges for loans, while the federal funds rate is the interest rate that one bank charges another bank for borrowing funds.
      the federal funds rate is the interest rate that the Federal Reserve charges for loans, while the discount rate is the interest rate that one bank charges another bank for borrowing funds.
      the federal funds rate is the interest rate that the Fed sets directly, while the discount rate is set by forces of supply and demand in the market.

  8. Monetary policy primarily affects which component of Aggregate Demand?

      savings
      government expenditures
      investment
      GDP
      None of the above

  9. Expansionary monetary policy injects reserves into the banking system, which shifts the supply of loanable funds to the right, lowering interest rates and stimulating Aggregate Demand.

      True
      False

  10. The F.O.M.C. consists of the 12 District Bank Presidents.

      True
      False
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