Question 1

If the Federal Open Market Committee decides to increase the money supply,then the Federal Reserve
A)creates dollars and uses them to purchase government bonds from the public.
B)sells government bonds from its portfolio to the public.
C)creates dollars and uses them to purchase various types of stocks and bonds from the public.
D)sells various types of stocks and bonds from its portfolio to the public.

Accepted Answer

When the Federal Open Market Committee decides to increase the money supply, the Federal Reserve creates new money by purchasing government bonds from the public through open market operations. This increases the amount of money in circulation, which can help stimulate economic growth by making credit more available and reducing interest rates. Therefore, choice A is the correct answer.

Question 2

An open-market purchase
A)increases the number of dollars and the number of bonds in the hands of the public.
B)increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public.
C)decreases the number of dollars and the number of bonds in the hands of the public.
D)decreases the number of dollars in the hands of the public and increases the number of bonds in the hands of the public.

Accepted Answer

An open-market purchase by the central bank involves the purchase of bonds from the public using newly created money. This increases the number of dollars in the hands of the public while decreasing the number of bonds in the hands of the public. Therefore, option B is correct.

Question 3

If the Federal Open Market Committee decides to decrease the money supply,it will
A)sell government bonds.
B)purchase corporate bonds.
C)purchase government bonds.
D)reduce interest rates.

Accepted Answer

When the Federal Open Market Committee decides to decrease the money supply, it can sell government bonds in the open market. This reduces the amount of money that banks have to lend, which in turn reduces the money supply. Purchasing corporate bonds or reducing interest rates would not necessarily achieve the same goal of reducing the money supply. Purchasing government bonds would actually increase the money supply.

Question 4

Which government body is primarily responsible for regulating banks and ensuring the health of the banking system?
A)​The U.S.Treasury
B)Federal Deposit Insurance Corporation
C)The Federal Reserve Board
D)​The regional Federal Reserve Banks

Accepted Answer

The answer of Which government body is primarily responsible for...

Question 5

When the Federal Reserve sells assets from its portfolio to the public with the intent of changing the money supply,
A)those assets are government bonds and the Fed's reason for selling them is to increase the money supply.
B)those assets are government bonds and the Fed's reason for selling them is to decrease the money supply.
C)those assets are items that are included in M2 and the Fed's reason for selling them is to increase the money supply.
D)those assets are items that are included in M2 and the Fed's reason for selling them is to decrease the money supply.

Accepted Answer

When the Federal Reserve sells assets from its portfolio, the assets are usually government bonds. The Fed's reason for selling them is to decrease the money supply, as selling bonds reduces the amount of money in circulation. This action is often taken to combat inflation by reducing the availability of funds for spending and investment.

Question 6

Over one time horizon or another,Fed policy decisions influence
A)inflation and employment.
B)inflation but not employment.
C)employment but not inflation.
D)neither inflation nor employment.

Accepted Answer

The Federal Reserve's monetary policy decisions directly impact both inflation and employment levels. For example, if the Fed raises interest rates, it can lead to lower inflation but potentially also slower job growth. Alternatively, if the Fed lowers interest rates, it can stimulate job growth but potentially also increase inflation. Therefore, Fed policy decisions can impact both economic indicators over various time horizons.

Question 7

When conducting an open-market sale,the Fed
A)buys government bonds,and in so doing increases the money supply.
B)buys government bonds,and in so doing decreases the money supply.
C)sells government bonds,and in so doing increases the money supply.
D)sells government bonds,and in so doing decreases the money supply.

Accepted Answer

When the Fed conducts an open-market sale, it sells government bonds to the public in exchange for cash, which reduces the amount of money in circulation and hence, decreases the money supply. Hence, option D is correct.

Question 8

An open-market sale
A)increases the number of dollars and the number of bonds in the hands of the public.
B)increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public.
C)decreases the number of dollars and the number of bonds in the hands of the public.
D)decreases the number of dollars in the hands of the public and increases the number of bonds in the hands of the public.

Accepted Answer

An open-market sale by the central bank involves selling government bonds to the public, which decreases the money supply (dollars) in the public's hands and increases the number of bonds held by the public.

Question 9

The Fed can influence unemployment in
A)the short run and in the long run.
B)the short run,but not in the long run.
C)the long run,but not in the short run.
D)neither the short nor the long run.

Accepted Answer

The Fed can influence unemployment in the short run through monetary policy by affecting interest rates and aggregate demand, but in the long run, unemployment is determined by structural factors and natural rates, which are not influenced by monetary policy.

Question 10

When conducting an open-market purchase,the Fed
A)buys government bonds,and in so doing increases the money supply.
B)buys government bonds,and in so doing decreases the money supply.
C)sells government bonds,and in so doing increases the money supply.
D)sells government bonds,and in so doing decreases the money supply.

Accepted Answer

When the Fed conducts an open-market purchase, it buys government bonds from banks and individuals in exchange for cash, which increases the amount of money in circulation and thus increases the money supply.

Question 11

FOMC voting rights
A)are given to all twelve regional bank presidents.
B)​rotate among the twelve regional bank presidents.
C)​rotate among the twelve regional bank presidents,except the president of the New York Fed,who always gets a vote.
D)​are all given to the president of the New York Fed,since all of the Fed's bond sales and purchases are conducted at the New York Fed trading desk.

Accepted Answer

The FOMC voting rights rotate among the twelve regional bank presidents, but the president of the New York Fed always has a vote due to the central role of the New York Fed in implementing monetary policy.

Question 12

Monetary policy affects employment
A)only in the long run.
B)only in the short run.
C)in both the long run and the short run.
D)in neither the long run nor the short run.

Accepted Answer

The answer of Monetary policy affects employment
A)only in the long...

Quiz 16: The Monetary System: The Federal Reserve System

If the Federal Open Market Committee decides to increase the money supply,then the Federal Reserve

An open-market purchase

If the Federal Open Market Committee decides to decrease the money supply,it will

Which government body is primarily responsible for regulating banks and ensuring the health of the banking system?

When the Federal Reserve sells assets from its portfolio to the public with the intent of changing the money supply,

Over one time horizon or another,Fed policy decisions influence

When conducting an open-market sale,the Fed

An open-market sale

The Fed can influence unemployment in

When conducting an open-market purchase,the Fed

FOMC voting rights

Monetary policy affects employment