Multiple Choice Questions:
1. If the Fed sells a U.S. government bond from a member of the public,
a. The banking system has more reserves, and the money supply tends to grow.
b. The banking system has fewer reserves, and the money supply tends to grow.
c. The banking system has more reserves, and the money supply tends to fall.
d. The banking system has fewer reserves, and the money supply tends to fall.
2. An open market purchase of government bonds by the Fed would tend to cause
a. The money supply to fall and bond prices to go up.
b. The money supply to rise and bond prices to go up.
c. The money supply to rise and bond prices to go down.
d. The money supply to fall and bond prices to go down.
3. If the Fed lowers the discount rate, what will be the effect on the money supply?
a. The money supply will tend to increase.
b. The money supply will tend to decrease.
c. The money supply will not change nor influence an expansion or contraction process.
d. Not enough data are given to answer.
4. When the Fed sells a U.S. government bond?
a. the volume of loans issued by the banking system increases, and investment will tend to increase.
b. the volume of loans issued by the banking system increases, and investment will tend to decrease.
c. the volume of loans issued by the banking system decreases, and investment will tend to increase.
d. the volume of loans issued by the banking system decreases, and investment will tend to decrease.
5. Reducing reserve requirements, other things being equal, would tend to
a. Increase the dollar volume of loans made by the banking system.
b. Increase the money supply.
c. Increase aggregate demand.
d. Do all of the above.
e. Do a and b, but not c.
6. The combination of a decrease in the required reserve ratio and a decrease in the discount rate would
a. Increase the money supply.
b. Decrease the money supply.
c. Leave the money supply unchanged.
d. Have an indeterminate effect on the money supply.
7. When the money supply increases, other things being equal,
a. Real interest rates fall, and investment spending rises.
b. Real interest rates fall, and investment spending falls.
c. Real interest rates rise, and investment spending falls.
d. Real interest rates rise, and investment spending rises.
8. The money demand curve shows
a. The various amounts of money that individuals will hold at different price levels.
b. The various amounts of money that individuals will spend at different levels of GDP.
c. The various amounts of money that individuals will hold at different interest rates.
d. The quantity of bonds that the Fed will buy at different price levels.