Question 1

What is monetary policy?

Accepted Answer

Policy that a central bank can use to affect the economy

Answer

Policy that businesses can use to affect the economy

Answer

Policy that a government can use to affect the economy

Answer

Policy that individuals can use to affect the economy

Question 2

What is the key tool central banks use to adjust the money supply?

Accepted Answer

Open market operations

Answer

Printing money

Answer

Interest rate changes

Answer

Reserve requirement changes

Question 3

What effect does increasing the money supply have on nominal interest rates?

Accepted Answer

Decreases nominal interest rates

Answer

Increases nominal interest rates

Answer

Decreases real interest rates

Answer

Has no effect on nominal interest rates

Question 4

What is the purpose of setting a target federal funds rate?

Accepted Answer

To influence banks' overnight lending rates

Answer

To regulate government spending

Answer

To determine currency exchange rates

Answer

To control inflation rates

Question 5

What is the likely outcome of a central bank selling bonds?

Accepted Answer

Decreases the money supply

Answer

Unchanged money supply

Answer

Increases reserve requirements

Answer

Increases the money supply

Question 6

How does changing the reserve requirement impact the money supply?

Accepted Answer

Changes the money multiplier

Answer

Decreases the money multiplier

Answer

Increases the money multiplier

Answer

No impact on the money supply

Question 7

What tool is used by central banks during emergencies to lend money to struggling banks?

Accepted Answer

Discount window

Answer

Open market operations

Answer

Reserve requirement changes

Answer

Federal funds rate

Question 8

What is a likely consequence of decreasing nominal interest rates?

Accepted Answer

Increased borrowing and investment

Answer

Increased inflation rates

Answer

Decreased borrowing and investment

Answer

Higher savings rates

Question 9

What factor does not impact the equilibrium nominal interest rate in the money market model?

Accepted Answer

Government spending decisions

Answer

Demand for money

Answer

Nominal interest rate

Answer

Quantity of money

Question 10

What is the purpose of monetary policy during a recessionary gap?

Accepted Answer

To stimulate economic activity

Answer

To increase savings rates

Answer

To reduce government spending

Answer

To lower taxes

Question 11

What is monetary policy?

Accepted Answer

Policy that a central bank can use to affect the economy

Answer

Policy that a government can use to affect the economy

Answer

Policy that a government can use to affect the stock market

Answer

Policy that a central bank can use to affect the stock market

Question 12

What is the vertical axis in the model for the money market?

Accepted Answer

Nominal interest rate

Answer

Real interest rate

Answer

GDP

Answer

Quantity of money

Question 13

What happens at the point where the supply and demand for money intersect?

Accepted Answer

Equilibrium nominal interest rate

Answer

Zero nominal interest rate

Answer

Equilibrium real interest rate

Answer

Maximum nominal interest rate

Question 14

How can a central bank lower interest rates?

Accepted Answer

Increase the money supply

Answer

Decrease government spending

Answer

Decrease the money supply

Answer

Increase taxes

Question 15

What is the tool that central banks most typically use to increase the money supply?

Accepted Answer

Open market operations

Answer

Fiscal policy

Answer

Discount rate

Answer

Reserve requirement

Question 16

What is the money multiplier if the reserve requirement is 12.5%?

Accepted Answer

8

Answer

4

Answer

6

Answer

10

Question 17

What is the rate at which banks lend reserves to each other overnight called?

Accepted Answer

Federal funds rate

Answer

Federal reserve rate

Answer

Discount rate

Answer

Interest rate

Question 18

What can the central bank do to cool down an overheating economy?

Accepted Answer

Increase interest rates

Answer

Decrease interest rates

Answer

Decrease the reserve requirement

Answer

Increase the money supply

Question 19

Which tool is used to set a target federal funds rate?

Accepted Answer

Open market operations

Answer

Reserve requirement

Answer

Fiscal policy

Answer

Discount rate

Question 20

What is the lag time typically associated with monetary policy actions?

Accepted Answer

There is usually a lag time for the effects of monetary policy to be realized.

Answer

The effects are felt after a month

Answer

The effects are felt after a year

Answer

The effects are immediate

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