SIE Economic Factors and Business Cycles 2

Question 1

Which of the following is the Federal Reserve's primary tool for implementing monetary policy?

Accepted Answer

Adjusting the federal funds rate

Answer

Setting federal income tax rates

Answer

Controlling government spending levels

Answer

Imposing import tariffs on foreign goods

Question 2

When the Federal Reserve raises interest rates, what is the typical effect on existing fixed-rate bond prices?

Accepted Answer

Bond prices decrease

Answer

Bond prices increase

Answer

Bond prices remain unchanged

Answer

Bond prices become uncorrelated with rates

Question 3

Expansionary fiscal policy is best described as:

Accepted Answer

Decreasing taxes and/or increasing government spending to stimulate the economy

Answer

Increasing taxes and reducing government spending to reduce deficits

Answer

The Federal Reserve selling Treasury securities to reduce the money supply

Answer

Raising the federal funds rate to slow borrowing

Question 4

Open market operations conducted by the Federal Reserve refer to:

Accepted Answer

The Fed's purchase or sale of U.S. government securities to influence the money supply

Answer

Regulating the hours that stock exchanges are open

Answer

Setting margin requirements for securities purchases

Answer

Issuing new U.S. Treasury bonds to fund the federal deficit

Question 5

To combat rising inflation, the Federal Reserve would most likely:

Accepted Answer

Sell government securities on the open market

Answer

Lower the reserve requirement for member banks

Answer

Purchase government securities on the open market

Answer

Lower the discount rate charged to member banks

Question 6

The discount rate is best defined as:

Accepted Answer

The rate at which the Federal Reserve lends money to member banks

Answer

The interest rate banks charge their most creditworthy corporate customers

Answer

The yield on 90-day U.S. Treasury bills

Answer

The rate at which banks lend to each other overnight

Question 7

When the Federal Reserve purchases government securities through open market operations, the effect on the money supply is:

Accepted Answer

The money supply increases

Answer

The money supply decreases

Answer

The money supply remains unchanged

Answer

The money supply becomes more volatile but does not change in size