If the Federal Reserve raises the discount rate, how are the interest rates and real GDP affected?

Interest rates increase and real GDP decreases

Which of the following best explains why the money demand curve is downward sloping?

Higher interest rates cause people to exchange $ for things like a bond

Banks may not be able to create the maximum amount of money if..

Individuals hold a larger portion of their assets outside a bank

If businesses predict that the economy will improve and sales will increase, what happens the in loanable funds market

Demand for loans increases and the Real Interest Rate increases

Open market operations refer to which of the following activities?

The buying and selling of government securities by the Federal Reserve

What is the Federal Funds Rate?

Interest rates charged for overnight loans between two banks

The Federal Reserve can increase the money supply by..

Buying bonds in the open market

If you use money as a store of value, you would be

Putting money into a savings account

An expansionary monetary policy will lead to

Lower interest rates and more investment

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Unit 4

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Questions 15

Answers

1
If the Federal Reserve raises the discount rate, how are the interest rates and real GDP affected?
Interest rates increase and real GDP decreases
The reserve requirement goes up, leading to a smaller money supply
Interest rate decrease and real GDP increases
The reserve requirement goes down, leading to a bigger money supply
2
Which of the following best explains why the money demand curve is downward sloping?
Higher interest rates cause people to exchange $ for things like a bond
Households need to hold money for daily transactions
High interest rates lead to less investment
Households need to hold money for daily transactions
3
Banks may not be able to create the maximum amount of money if..
Individuals hold a larger portion of their assets outside a bank
The banks can have a zero reserve requirement
Decrease in required reserve ratio
Increased demand for investment
4
If businesses predict that the economy will improve and sales will increase, what happens the in loanable funds market
Demand for loans doesn't change and the Real Interest Rates Decrease
Demand for loans decreases and the Real Interest Rate increases
Demand for loans increases and the Real Interest Rate increases
Demand for loans decreases and Real Interest Rates go up
5
To eliminate an inflationary gap, CONGRESS might
Sell bonds on the open market
Decrease the federal funds rate
Increase personal income taxes
Buy bonds on the open market
6
Open market operations refer to which of the following activities?
The government’s purchases and sales of municipal bonds for K-12 education
The buying and selling of government securities by the Federal Reserve
The loans paid by the Fed to member commercial banks
The government’s contribution to social security
7
What is the equation you need to figure out the money multiplier
1/discout rate
1 X reserve requirement
1/federal funds rate
1/reserve requirement
8
Which of the following is NOT part of M1
Currency
Certificate of Deposits
Checkable deposits
Travelers checks
9
What is the Federal Funds Rate?
It is the target rate of inflation set by the Federal Reserve
Interest rates charged for overnight loans between two banks
Interest rate the Fed charges for loaning out money
It is usually higher than the discount rate
10
The relationship between quantity supplied and price is __and the relationship between quantity demanded and price is __
inverse/direct
direct/direct
inverse/inverse
direct/inverse
11
The Federal Reserve can increase the money supply by..
Selling government bonds in the open market
Buying bonds in the open market
Buying gold in the open market
Selling gold in the open market
12
If the Fed institutes a policy to reduce inflation, which of the following is most likely to increase?
Tax rates
Interest rates
Government deficits
Real GDP
13
If the money multiplier is 10 and the federal reserve buys 100m of bonds, what's the total effect to economy
Decrease of of 100M in the money supply
Increase of 1B in money supply
Increase of 100M in money supply
Decrease of 1B in money supply
14
If you use money as a store of value, you would be
Paying for gas on your credit card
Buying a stock
Buying a new car
Putting money into a savings account
15
An expansionary monetary policy will lead to
Higher interest rates and higher prices
Higher interest rates and lower prices
Lower interest rates and less investment
Lower interest rates and more investment

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