Question: An increase in the money supply is likely to reduce: The general price level Nominal income Money demand Interest rates

Answer: Interest rates

Question: A decrease in the reserve ratio increases the: amount of actual reserves in the banking system. amount of excess reserves in the banking system. number of government securities held by the Federal Reserve Banks. ratio of coins to paper currency in the economy.

Answer: amount of excess reserves in the banking system.

Question: An increase in nominal GDP will: Increase the transactions demand and the total demand for money Decrease the transactions demand and the total demand for money Increase the transactions demand for money but decrease the total demand for money Decrease the transactions demand for money but increase the total demand for money

Answer: Increase the transactions demand and the total demand for money

Question: Assuming that the Federal Reserve Banks sell $40 million in government securities to commercial banks and the reserve ratio is 20 percent, then the effect will be to reduce: Excess reserves by $8 million Excess reserves by $200 million The money supply by potentially $200 million The money supply by potentially $400 million

Answer: The money supply by potentially $200 million

Question: Federal Reserve Notes in circulation are: an asset as viewed by the Federal Reserve Banks. a liability as viewed by the Federal Reserve Banks. neither an asset nor a liability as viewed by the Federal Reserve Banks. part of M1 but not of M2.

Answer: a liability as viewed by the Federal Reserve Banks.

Question: A newspaper headline reads: "Fed Cuts Federal Funds Rate for Fifth Time This Year." This headline indicates that the Federal Reserve is most likely trying to: Reduce inflation in the economyRaise interest ratesCorrect Ease monetary policyTighten monetary policy

Answer: Ease monetary policy

Question: It is costly to hold money because: deflation may reduce its purchasing power. in doing so, one sacrifices interest income. bond prices are highly variable. the rate at which money is spent may decline.

Answer: in doing so, one sacrifices interest income.

Question: If the Board of Governors of the Federal Reserve System increases the legal reserve ratio, this change will: Increase the excess reserves of member banks and thus increase the money supply Increase the excess reserves of member banks and thus decrease the money supply Decrease the excess reserves of member banks and thus decrease the money supply Decrease the excess reserves of member banks and thus increase the money supply

Answer: Decrease the excess reserves of member banks and thus decrease the money supply

Question: A restrictive monetary policy reduces investment spending and shifts the economy's aggregate demand curve to the right. True False

Answer: FALSE

Question: If the economy were encountering a severe recession, proper monetary and fiscal policies would call for: selling government securities, raising the reserve ratio, lowering the discount rate, increasing interest paid on reserves held at Fed banks, and a budgetary surplus. buying government securities, reducing the reserve ratio, reducing the discount rate, reducing interest paid on reserves held at Fed banks, and a budgetary deficit. buying government securities, raising the reserve ratio, raising the discount rate, reducing interest paid on reserves held at Fed banks, and a budgetary surplus. buying government securities, reducing the reserve ratio, raising the discount rate, reducing interest paid on reserves held at Fed banks, and a budgetary deficit.

Answer: buying government securities, reducing the reserve ratio, reducing the discount rate, reducing interest paid on reserves held at Fed banks, and a budgetary deficit.

Question: A consumer holds money to meet spending needs. This would be an example of the: Use of money as a measure of value Use of money as legal tender Transactions demand for money Asset demand for money

Answer: Transactions demand for money

Question: If bond prices decrease, then the: Interest rate decreases Interest rate increases Transactions demand for money will decrease Transactions demand for money will increase

Answer: Interest rate increases