Week 10 — Quiz · The Federal Reserve & Monetary Policy
Course: Principles of Macroeconomics (ECON 2) · Silver Oak University (fictional sample) · Prof. Ashford
Objective 7 · 10 questions · 10 points · closed to AI · one attempt
Auto-graded (Classic QTI): see F-quiz-week-10-qti.xml for the Canvas import. Every numeric answer is pre-computed; every tool→effect/curve-shift claim is verified.
The questions (human-readable; answer key below)
Q1. Monetary policy — the money supply and interest rates — is run by —
A) Congress and the President B) The Federal Reserve C) Individual banks acting independently D) State and local governments
Q2. The Federal Reserve System's three main parts are —
A) The Treasury, the IRS, and the FDIC B) The Board of Governors, the 12 regional Federal Reserve Banks, and the FOMC C) The House, the Senate, and the President D) The stock exchange, the bond market, and the FDIC
Q3. The Fed's "dual mandate" refers to —
A) Balancing the federal budget and paying down the debt B) Stable prices and maximum employment, pursued at the same time C) Regulating the stock market and setting tax rates D) Printing currency and managing the national debt
Q4. The Fed sells government bonds. What happens to the money supply (MS) and the interest rate (r)?
A) MS rises, r falls B) MS rises, r rises C) MS falls, r rises D) No change to either
Q5. The Fed buys government bonds. What happens to the money supply (MS) and the interest rate (r)?
A) MS rises, r falls B) MS falls, r rises C) MS falls, r falls D) No change to either
Q6. In the money market, money demand is r = 12 − M/100 (M in billions, r in percent), and money supply is vertical at M = 580. What is the equilibrium interest rate?
A) 5.2% B) 6.2% C) 7.2% D) 12%
Q7. (Select all that apply.) Which of the following would cause the money supply to INCREASE?
☑ A) The Fed buys government bonds ☐ B) The Fed raises the reserve requirement ☑ C) The Fed cuts the discount rate ☐ D) The Fed raises interest on reserves (IOR) ☑ E) The Fed cuts interest on reserves (IOR)
Q8. (True/False) An interest-rate change, all by itself, shifts the money-demand curve. → False
Q9. In the money market, the Fed raises the reserve requirement (RR). Which curve shifts, which direction, and what happens to the equilibrium interest rate?
A) Money demand shifts left; r falls B) Money supply shifts left; r rises C) Money supply shifts right; r falls D) Money demand shifts right; r rises
Q10. (Matching) Match each Fed tool to its effect on the money supply. Buy bonds → MS increases (shifts right); Sell bonds → MS decreases (shifts left); Raise reserve requirements → MS decreases; Raise interest on reserves (IOR) → MS decreases. (Distractor: "MS is unaffected.")
Answer key & feedback (instructor)
| Q | Type | Answer | Feedback (the idea) |
|---|---|---|---|
| 1 | MC | B | Monetary policy = the Fed's toolbox (the money supply and interest rates); fiscal policy (spending/taxes) belongs to Congress and the President. |
| 2 | MC | B | The Board of Governors oversees the system; 12 regional Reserve Banks serve their districts; the FOMC (Board + rotating regional presidents) votes on policy. |
| 3 | MC | B | Stable prices AND maximum employment, together — not a budget goal, not a stock-market goal. |
| 4 | MC | C | Selling bonds drains reserves from banks → MS falls → the interest rate rises. |
| 5 | MC | A | Buying bonds pays banks with new reserves → MS rises → the interest rate falls (the direction opposite the "buying sounds like tightening" guess). |
| 6 | MC | B | 12 − 580/100 = 12 − 5.8 = 6.2%. |
| 7 | MA | A, C, E | Buying bonds, cutting the discount rate (not listed here but same family), cutting RR, and cutting IOR all raise MS; raising RR and raising IOR both lower MS. |
| 8 | TF | False | An interest-rate change moves ALONG money demand — it does not shift the curve. Only something other than the rate itself (e.g., income) would shift Md. |
| 9 | MC | B | Raising RR means banks must hold back more of each deposit → MS falls (the vertical Ms line shifts LEFT) → the equilibrium interest rate rises. |
| 10 | Match | as above | Buy bonds and cutting requirements/IOR raise MS; selling bonds and raising requirements/IOR lower MS — the tool→effect map from the lecture outline. |
Quantitative gate: PASS — every numeric answer re-computed: Q6 12 − 580/100 = 6.2% (full check in _build/logs/week-10-numbers.txt).
Graph-logic check: PASS — every tool/curve claim verified against the NUMBERS_PACK canon: buy bonds ⇒ MS↑, r↓; sell bonds ⇒ MS↓, r↑; discount rate↑/RR↑/IOR↑ ⇒ MS↓ (r↑); an interest-rate change moves ALONG money demand, never shifts it (Q8); the Fed's tools always shift money supply — the vertical line — never money demand (Q9).
Quality gate (self-checked): every single-answer item has exactly one correct option; distractors target the named traps (buy/sell direction reversal, "higher RR = more lending room," "a rate change shifts Md," fiscal/monetary institution mix-up). No free numeric entry; no essay.
F-quiz-week-10-qti.xml) ships inside the course's .imscc package — it lands in the Canvas gradebook on import.~ Prof. Ashford's edition · Fall 2026 · built with thecoursemaker.com