Assignment 4
Econ 205
Mana Komai Molle
(This assignment has 25 points. Multiple choice questions: 1 point each. Question 16 which is a long question: 10 points)
For multiple choice questions, please choose the co
ect answer. Explaining your answers allows me to give you partial credit.
Question 16 is a long question. Please answer the question precisely and support your answer graphically.
1) Which of the following is true?
a) To tackle inflation, the Fed sells bills, thereby decreases the money supply.
) To tackle inflation the Fed purchases treasury bills, thereby decreases the money supply.
c) To tackle inflation the Fed sells treasury bills, thereby increases the supply of Treasury bills.
d) None of the above.
e) a and c.
2) Which of the following is true?
a) The negative relationship between the FFR and the price of treasury bills is a result of a change in the demand of treasury bills.
) The price of treasury bills is likely to increase in the time of inflation because the Fed increases the demand of treasury bills.
c) The price of treasury bills is likely to decrease in the time of inflation as a result of an increase in the supply of treasury bills.
d) a and b.
e) a and c.
3) Regulating the banking system is necessary
a) Because the banking system determines the money supply and money supply affects private investment.
) To make sure that fiscal policy is not influenced mainly by profit minded banks.
d) b and a.
e) None of the above.
4) Open market operations in the time of inflation
a) Refers to selling treasury bills in order to decrease interest rate.
) Refers to buying treasury bills in order to increase money supply
c) Refers to buying treasury bills in order to decrease the interest rate.
d) Refers to selling treasury bills in order to decrease the supply of reserves.
e) None.
5) There is a negative relationship between the interest rate and the price of treasury bills because
a) When treasury bills become more expensive, the effective return to their holders increases.
) When treasury bills become more expensive, the effective return to their holders decreases.
c) When treasury bills become cheaper, the effective return to their holders increases.
d) When treasury bills become cheaper, the effective return to their holders decreases.
e) b and c.
6) Which of the following is co
ect?
a) The Fed can precisely target the money supply but not the interest rate.
) The Fed can precisely target the interest rate but not the money supply.
c) The Fed can precisely target the money supply but not the supply of reserves.
d) The Fed can precisely target the supply of reserves but not the money supply.
e) b and d.
7) Which of the following is co
ect?
a) The Fed can precisely target the money supply because it can exactly determine the money multiplier.
) The Fed can precisely target the interest rate because it can exactly determine the money multiplier.
c) The Fed cannot precisely target the money supply because it cannot exactly determine the money multiplier.
d) The Fed cannot precisely target the supply of reserves because it cannot exactly determine the money multiplier.
e) c and d.
8) If the rate of required reserves is 0.1, then the money multiplier is approximately
a) 5
) 4
c) 10
d) 0.1
9) If the rate of required reserves is 0.2, then
a) A 2 percent increase in the interest rate increases the money supply by 4 percent.
) A 2 percent increase in the interest rate decreases the money supply by 4 percent.
c) A 1 dollar increase in the reserves increases the money supply by 5 dollars.
d) A 1 dollar increase in the money supply increases the reserves by 5 dollars.
10) Which of the following is not an example of expansionary monetary policy?
a) A reduction in the rate of required reserves.
) Buying treasury bills.
c) Lending to banks.
d) Decreasing the interest rate.
e) All are examples of expansionary monetary policy.
11) The money multiplie
a) Cannot be precisely determined because private banks may choose to keep more reserves than what is mandatory by the rate of required reserves.
) Cannot be precisely determined because private banks may choose to keep less reserves than what is mandatory by the rate of required reserves.
c) Can be precisely determined because the Fed can precisely target the interest rate.
d) None of the above.
12) Which of the following is an example of contractionary monetary policy?
a) An increase in the rate of required reserves.
) Buying treasury bills.
c) Selling treasury bills.
d) a, c.
e) a, b.
13) Which of the following is true?
a) To tackle recession, the Fed buys treasury bills, thereby increases the money supply.
) To tackle recession the Fed purchases treasury bills, thereby increases the reserves.
c) To tackle inflation the Fed buys treasury bills, thereby decreases the interest rate.
d) a and b.
e) a, b, c.
14) Which of the following is true?
a) The money multiplier is easily calculated by the Fed.
) Monetary policy is usually not successful because the government cannot control its expenditures.
c) Monetary policy cannot fix the economy overnight because the Fed cannot precisely calculate the money multiplier.
d) Consumer spending immediately reacts to money supply.
e) None of the above.
15) Expansionary monetary policy
a) Decreases private investment.
) Increases aggregate demand.
c) a and
d) None is co
ect.
16) Explain expansionary monetary policy via open market operations. Support your answer graphically. (10 points)