17.2 Monetary Policy Transmission
1) Steps in the transmission of monetary policy are
A) Congress increases government expenditures on goods and services, leading to an increase in aggregate demand.
B) Congress increases the money supply, which lowers the interest rate, and leads to an increase in aggregate demand.
C) the Federal Reserve increases government expenditures on goods and services, leading to an increase in aggregate demand.
D) the Federal Reserve lowers the federal funds rate, which lowers the real interest rate, and leads to an increase in aggregate demand.
E) Congress increases the budget deficit, which increases the money supply, which increases aggregate supply.
2) Which of the following is NOT an effect from a change in the federal funds rate?
A) change in the real interest rate
B) change in investment
C) change in government expenditures
D) change in aggregate demand
E) change in the quantity of money
3) If the Fed buys U.S. government securities,
A) the federal funds rate will fall.
B) the federal funds rate will rise.
C) the discount rate will fall.
D) bank reserves will decrease.
E) the discount rate will rise.
4) If the Fed sells U.S. government securities,
A) the federal funds rate rises.
B) the U.S. Treasury gains some revenue.
C) the U.S. Treasury loses some revenue.
D) banks' reserves increase.
E) None of the above answers is correct.
5) If the Fed carries out an open market operation and buys U.S. government securities, the federal funds rate ________ and the quantity of reserves ________.
A) falls; increases
B) rises; increases
C) falls; decreases
D) rises; does not change
E) rises; decreases
6) If the Fed carries out an open market operation and sells U.S. government securities, the federal funds rate ________ and the quantity of reserves ________.
A) falls; increases
B) rises; increases
C) rises; does not change
D) falls; decreases
E) rises; decreases
7) In an open market purchase, the Fed ________ government securities, which ________ bank reserves and ________ the federal funds rate.
A) buys; increases; raises
B) buys; decreases; raises
C) sells; increases; lowers
D) sells; decreases; lowers
E) buys; increases; lowers
8) If the Fed buys U.S. government securities from banks, the federal funds rate ________ and banks' reserves ________.
A) falls; increase
B) rises; increase
C) does not change; increases
D) falls; decrease
E) rises; decrease
9) If the Fed sells U.S. government securities to banks, the federal funds rate ________ and banks' reserves ________.
A) falls; increase
B) rises; do not change
C) rises; increase
D) falls; decrease
E) rises; decrease
10) In the short run, to decrease the interest rate, the Federal Reserve ________ the quantity of money by ________ government securities.
A) increases; selling
B) increases; buying
C) decreases; selling
D) decreases; buying
E) None of the above answers is correct because in the short run, the Federal Reserve cannot change the interest rate.
