Chapter 17 Monetary Policy and Inflation

| November 9, 2018

21)
An increase in the discount rate will
A)
decrease the money supply.
B)
not affect the money supply.
C)
increase the money supply.
D)
have an unclear effect on the money supply.

22)
A decrease in the discount rate will
A)
decrease the money supply.
B)
not affect the money supply.
C)
increase the money supply.
D)
have an unclear effect on the money supply.

23)
Which action could the Fed use to decrease the money supply?
A)
an open market purchase
B)
an increase in the required reserve ratio
C)
a tax increase
D)
a decrease in the discount rate

24)
In addition to lowering the discount rate to increase the money supply, the Fed
could also
A)
purchase bonds on the open market and raise reserve requirements.
B)
sell bonds on the open market and raise reserve requirements.
C)
purchase bonds on the open market and lower reserve requirements.
D)
sell bonds on the open market and lower reserve requirements.

25)
In practice, the Federal Reserve keeps the discount rate close to the ________
rate in order to avoid large swings in borrowed reserves by banks.
A)
inflation
B)
six-month Treasury bill
C)
federal funds
D)
prime

26)
What impact does the Fed’s raising the interest rate have on the money supply
and on the price level?
A)
An increase in interest rates raises the money supply and eventually reduces
prices.
B)
An increase in interest rates reduces the money demand which will slow the
growth in prices.
C)
An increase in interest rates lowers the money supply and raises the money
demand, which will neutralize price increases.
D)
An increase in interest rates will increase investment spending and GDP, which
will lower prices.

27)
What impact would the Fed’s raising the interest rate have on any inflationary
pressure in the economy?
A)
An increase in interest rates decreases the money demand, which could slow
increases in the price level.
B)
An increase in interest rates increases the money supply, which could cause the
price level to increase.
C)
An increase in interest rates decreases the exchange rate, which causes net
exports to rise, generating inflation.
D)
An increase in interest rates increases real GDP, which creates inflation in an
economy.

28)
The Fed can change the money supply by buying or selling long-term Treasury
bonds. Purchasing long-term securities is commonly called
A)
open market operations.
B)
discount operations.
C)
federal funds speculation.
D)
quantitative easing.

29)
When the Federal Reserve buys bonds on the open market, it decreases the money
supply.

30)
An open market sale of bonds by the Federal Reserve will lead to an increase of
reserves in banks.

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