1. Federal Reserve Banks fund their operations through a. fees charged to banks

Question

1. Federal Reserve Banks fund their operations through

                a. fees charged to banks that use their services.

                b. interest on the securities they own.

                c. government tax revenue.

                d. dividends paid by local banks.

                e. a & b

2. If banks decide to loan out more of their excess reserves, this will

                a. decrease the M2 money multiplier.

                b. decrease the currency ratio

                c. decrease M1 but not M2

                d. decrease the excess reserve ratio

3. Expansionary monetary policy will usually result in a _____ unemployment rate and a ____ inflation rate over time.

                a. lower; lower

                b. higher; higher

                c. higher; lower

                d. lower; higher

4. Typically, the ideal inflation rate is taken to be

                a. decreasing over time.

                b. zero percent.

                c. increasing over time.

                d. positive and constant over time.

5. The Fed enacts a tight money policy when it

                a. increases the money supply, which increases the federal funds rate.

                b. decreases the money supply, which increases the federal funds rate.

                c. increases the money supply, which decreases the federal funds rate.

                d. decreases the money supply, which decreases the federal funds rate.

6. Monetarists think that the Fed should

                a. rely on discretionary policy making.

                b. the Fed should actively target interest rates

                c. set a constant money supply growth rate and not change it even if the economy experiences problems

                d. respond to short run economic fluctuations.

7. A monetary policy rule that responds to the state of the economy is ____ rule.

                a. a non-activist

                b. a lagging

                c. an activist

                d. a leading

8. The Taylor rule implies that the nominal federal funds rate should be increased if there is a _____ output gap or a _____ inflation gap.

                a. positive; positive

                b. negative; positive

                c. positive; negative

                d. negative; negative

9. Suppose the economy has an output gap of 1 percent, an inflation rate of 4 percent. According to the Taylor Rule, what should the nominal federal funds rate be?

                a. 7 percent

                b. 3.5 percent

                c. 6.5 percent

                d. 9 percent

10. Suppose the Taylor Rule forecasts that the nominal federal funds rate should be 5%. If the current nominal federal funds rate is 6% then the Fed should

                a. decrease the money supply to raise interest rates

                b. increase the money supply to raise interest rates

                c. decrease the money supply to lower interest rates

d. increase the money supply to lower interest rates

Explanation / Answer

Federal Reserve Banks fund their operations through- interest on the securities they own.

If banks decide to loan out more of their excess reserves, this will decrease the excess reserve ratio

Expansionary monetary policy will usually result in a _____ unemployment rate and a ____ inflation rate over time.

lower; higher

Typically, the ideal inflation rate is taken to be-positive and constant over time.

The Fed enacts a tight money policy when it-decreases the money supply, which increases the federal funds rate.

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