Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question. Five points
each.
|
|
|
1.
|
With
a 10% reserve requirement, what is the potential increase in the money supply of a $10,000 bank
deposit? a. | $100,
000 | c. | $8,000 | b. | $90,000 | d. | $10,000 | | | | |
|
|
|
2.
|
What
is the long-term effect of an easy money policy? a. | An increase in the money supply and a decrease in
inflation | b. | A decrease in the money supply and an increase in
inflation. | c. | An increase in the money supply and an increase in
inflation. | d. | A decrease in the money supply and a decrease in inflation.
| | |
|
|
|
3.
|
How
does monetary policy affect interest rates? a. | Through changes in government
spending. | b. | Through changes in the money supply. | c. | Through changes
in employment. | d. | Through changes in economic growth. | | |
|
|
|
4.
|
How
can bank deposits create new money? a. | Banks can print new money. | b. | Banks can loan
some of their deposits to other customers. | c. | Banks can loan some of their treasury securities to other
customers. | d. | Banks can borrow from their prime
customers. | | |
|
|
|
5.
|
Which
monetary policy tool is used most often to control the economy? a. | Tax
rates | c. | Reserve
requirements | b. | Discount rates | d. | Open market operations | | | | |
|
|
|
6.
|
How
do open market operations affect interest rates? a. | Buying securities increases the money supply and decreases the
interest rates. | b. | Selling securities increases the money supply and increases the
interest rates. | c. | Buying securities decreases the money supply and decreases the
interest rates. | d. | Selling securities decreases the money supply and decreases the
interest rates. | | |
|
|
|
7.
|
Which
of the following monetary policy tools would be appropriate when the economy is in a
peak? a. | Increase tax
rates | c. | Decrease the
reserve requirement | b. | Sell government securities | d. | Increase the prime rate | | | | |
|
|
|
8.
|
Which
of the following is an example of the FED using moral suasion? a. | The Fed counsels
the Congress on budget deficits. | b. | The Fed increases tax rates. | c. | The Fed
increases the reserve requirement. | d. | The Fed decreases the discount rate. | | |
|
|
|
9.
|
What
does the Federal Reserve hope to accomplish through monetary policy? a. | full employment
and low interest rates | c. | price stability
and economic growth | b. | low interest rates and price
stability | d. | economic growth
and full investment | | | | |
|
|
|
10.
|
Which
of the following accounts would be included in the M2 money supply measurement? a. | stock
portfolios | c. | checking
accounts | b. | uninsured savings accounts | d. | Treasury securities | | | | |
|