Week 10 Quiz

Which of these actions is monetary policy?

Select one.

• The legislature raises the tax on gasoline
• The central bank buys government bonds from banks
• The legislature funds a new highway program
• A bank lends its excess reserves to a builder

The dual mandate's maximum-employment goal is read with the unemployment rate. An illustrative labor market has an adult population of 200, a labor force of 120, and 6 unemployed people (all in millions). What is the unemployment rate?

Select one.

• 95%
• 3%
• 5%
• 6%

The dual mandate's stable-prices goal is read with the inflation rate. An illustrative price index rose from 100 in the base year to 108 in year 2. What is the inflation rate, and which goal does it track?

Select one.

• 8%, the reading for stable prices
• 108%, the reading for stable prices
• 8%, the reading for maximum employment
• 1.08%, the reading for stable prices

In the illustrative banking system the required reserve ratio is 0.10 and the monetary base is 105 dollars. The central bank buys bonds from banks and the monetary base rises to 110 dollars. What is the new money supply?

Select one.

• 550 dollars
• 1,055 dollars
• 1,000 dollars
• 1,100 dollars

In the illustrative money market, money demand is M_d = 1,200 − 25r, with r in percent, and the vertical money supply is 1,050 dollars. What is the equilibrium interest rate?

Select one.

• 6%
• 42%
• 48%
• 7%

Starting from the illustrative money market (M_d = 1,200 − 25r and an equilibrium rate of 6%), the central bank sells bonds and the money supply falls to 1,000 dollars. What is the new equilibrium interest rate?

Select one.

• 4%
• 8%
• 6%
• 40%

After an open-market purchase, the equilibrium interest rate falls from 6% to 4%. True or false: this fall in the interest rate is shown as a shift of the money demand curve to the left.

True or false.

• True
• False

Select every action that tends to raise the money supply.

Select every option that applies.

• The central bank buys government bonds from banks
• The central bank raises the interest rate it pays on reserve balances
• The central bank lowers the discount rate it charges banks
• The central bank sells government bonds to banks
• The central bank lowers the reserve requirement
• The central bank raises the reserve requirement

The illustrative monetary base is 105 dollars. If the required reserve ratio rises from 0.10 to 0.20, what is the largest money supply the base can support?

Select one.

• 2,100 dollars
• 1,050 dollars
• 525 dollars
• 21 dollars

With the money supply held fixed, which change shifts the money demand curve to the right and raises the equilibrium interest rate?

Select one.

• A fall in the interest rate itself
• The central bank buys government bonds
• The central bank lowers the discount rate
• Incomes rise and people make more purchases