Week 3 Knowledge Check Study Guide

Week 3 Knowledge Check Study Guide
Concepts

Mastery

Score: 7 / 9

Questions

INTEREST RATE

67%

1

2

3

MONEY MULTIPLIER

100%

4

5

6

QUANTITATIVE EASING

100%

7

MONETARY POLICIES

50%

8

9

Concept: INTEREST RATE
Mastery

67%

Questions

1.
If you expect interest rates to rise, you will want to be holding

A. more money because prices will likely fall

1

2

3

B. less money because bond prices will likely rise
C. more money because bond prices will likely rise
D. less money because bond prices will likely fall

Incorrect:
The Correct Answer is: A.
2.
The interest rate is the price paid for the use of a

A. real liability
B. real asset
C. financial liability
D. financial asset

Correct:
The Correct Answer is: D.
3.
Which of the following do policy makers tend to target when setting monetary policy?

A. Money supply
B. Interest rates
C. Reserves
D. Exchange rates

Correct:
The Correct Answer is: B.

Concept: MONEY MULTIPLIER
Mastery

100%

Questions

4

5

6

4.
If the Federal Reserve reduced its reserve requirement from 6.5 percent to 5 percent, this policy would most likely

A. increase both the money multiplier and the money supply
B. increase the money multiplier but decrease the money supply
C. decrease the money multiplier but increase the money supply
D. decrease both the money multiplier and the money supply

Correct:
The Correct Answer is: A.
5.
If banks hold excess reserves whereas before they did not, the money multiplier

A. will become larger

B. will become smaller
C. will be unaffected
D. might increase or might decrease

Correct:
The Correct Answer is: B.
6.
The process of money multiplier depends on

A. the public holding all the currency
B. the banks holding all the currency
C. the Fed holding all the currency
D. foreigners holding all the currency

Correct:
The Correct Answer is: B.

Concept: QUANTITATIVE EASING
Mastery

100%

Questions

7

7.
Quantitative easing refers to

A. a gradual reduction in interest rates by the Federal Reserve
B. Looser restrictions on banks' investments in derivatives
C. a gradual reduction in marginal tax rates
D. non-standard monetary policy design to extend credit in the economy Correct:
The Correct Answer is: D.

Concept: MONETARY POLICIES
Mastery

50%

Questions

8

9

8.
If the Fed wants an easier monetary policy, it might

A. sell government securities to increase the federal funds rate
B. sell government securities to reduce the federal funds rate
C. buy government securities to increase the federal funds rate
D. buy government securities to reduce the federal funds rate

Incorrect:
The Correct Answer is: D.
9.
When the Fed raised the interest rates between 2004 and 2007, the Federal Reserve

A. bought U.S. government securities, thereby creating and supplying additional federal funds

B. sold U.S. government securities, thereby contracting funds to the federal funds market

C. sped up the clearing of checks to make more funds available to banks

D. encouraged banks to loan out funds to ease their reserves requirements and thus lower the demand for federal funds

Correct:
The Correct Answer is: B.