The document contains 25 multiple choice questions about monetary policy and the Federal Reserve. The questions cover topics such as the goals of monetary policy, the tools used by the Fed like open market operations and interest rate changes, the transmission mechanism of monetary policy, and the effects of monetary policy on macroeconomic variables. The questions require choosing the correct answer from the given options to demonstrate an understanding of how monetary policy works in the US.

1. Multiple Choise question:
QUESTION 1
Which of the following is a monetary policy goal?
i.keeping the inflation rate low
ii.attaining maximum employment
iii.keeping the long-term interest rate at a moderate level
i, ii, and iii
ii only
i only
iii only
1 points
QUESTION 2
When the Fed ________ the federal funds rate, the opportunity cost of firms' investment
________ and so the quantity of investment ________.
decreases; rises; decreases
increases; rises; increases
increases; rises; decreases
decreases; falls; decreases
1 points
QUESTION 3
If the Fed carries out an open market operation and sells U.S. government securities, the federal
funds rate ________ and the quantity of reserves ________.
rises; decreases
falls; increases
rises; increases
rises; does not change
1 points
QUESTION 4
In the United States,
the Federal Reserve sets monetary and fiscal policies.
Congress initializes changes in monetary policy and the Fed approves the changes.
Congress must approve monetary policy changes.
the Federal Reserve sets monetary policy.
1 points
QUESTION 5

2. When the economy is in a recession, the Fed can ________ the federal funds rate, which
________ aggregate demand and ________ real GDP.
lower; increases; increases
raise; decreases; increases
lower; increases; decreases
raise; increases; decreases
1 points
QUESTION 6
The steps in the transmission of monetary policy are
Congress increases the money supply, which lowers the interest rate, and leads to an increase in
aggregate demand.
the Federal Reserve increases government expenditures on goods and services, leading to an
increase in aggregate demand.
the Federal Reserve lowers the federal funds rate, which lowers the real interest rate, and leads to
an increase in aggregate demand.
Congress increases government expenditures on goods and services, leading to an increase in
aggregate demand.
1 points
QUESTION 7
Monetary policy decisions are made by the
Council of Economic Advisors.
Federal Open Market Committee.
Congress of the United States.
Federal Reserve Economic Committee.
1 points
QUESTION 8
The Federal Reserve fears that the United States economy is growing too slowly and is stuck in a
recession. To move the economy back to its potential GDP, the most likely policy action for the
Fed is to ________ the federal funds and thus ________.
lower; increase aggregate supply
raise; increase aggregate demand
raise; decrease aggregate demand
lower; increase aggregate demand
1 points
QUESTION 9
The interest rate banks charge each other on overnight loans is called the

3. discount rate.
federal funds rate.
required reserve rate.
coupon rate.
1 points
QUESTION 10
Which of the following are policy instruments available to the Fed as it tries to achieve its
macroeconomic goals?
i.government expenditure on goods and services and taxes
ii.the government budget deficit or surplus
iii.changes in the federal funds rate
iii only
i and ii
i and iii
ii and iii
1 points
QUESTION 11
If the Fed is concerned about a possible recession, it ________ the federal funds rate, which
________ the quantity of money and ________ the amount of bank loans.
lowers; decreases; decreases
lowers; increases; increases
lowers; increases; decreases
raises; decreases; decreases
1 points
QUESTION 12
If the Fed carries out an open market operation and buys U.S. government securities, the federal
funds rate ________ and the quantity of reserves ________.
falls; increases
falls; decreases
rises; does not change
rises; increases
1 points
QUESTION 13
Which of the following statements are correct?
i.Congress does not play a role in making monetary policy decisions
ii.The FOMC meets eight times a year to make monetary policy decisions

4. iii.The President of the United States appoints members and the Chairman of the Board of
governors but has little other formal authority over monetary policy
i, ii, and iii
ii only
i and ii
i and iii
1 points
QUESTION 14
Suppose the Fed raises the federal funds rate. Put the following changes in order in which they
occur, starting with the changes that take place almost immediately and ending with the changes
that may occur up to two years afterwards:
i.short-term interest rates rise
ii. long-term interest real interest rate rises
iii.aggregate demand decreases
iv.inflation rate decreases
ii-i-iii-iv
i-iii-ii-iv
i-ii-iv-iii
i-ii-iii-iv
1 points
QUESTION 15
If the Fed lowers the federal funds rate, which of the following occurs?
The price of the dollar on the foreign exchange market increases.
Net exports decreases.
Investment increases.
Consumption expenditure decreases.
1 points
QUESTION 16
When the exchange rate falls, imports ________ and exports ________.
increase; increase
increase; decrease
decrease; decrease
decrease; increase
1 points
QUESTION 17
The Fed is concerned about inflation. Its policy will ________ U.S. short-term interest rates and,

5. in the foreign exchange market, lead to the value of the U.S. dollar ________.
lower; rising
lower; falling
raise; not changing
raise; rising
1 points
QUESTION 18
Inflation targeting requires that the central bank
avoid changing the amount of the monetary base.
use a short-term interest rate as its policy instrument.
adopt a k-percent rule for the inflation rate.
publicize its targeted inflation rate.
1 points
QUESTION 19
The Fed ________ influence the real interest rate in the short run and ________ influence the
real interest rate in the long run.
cannot; cannot
can; can
can; cannot
cannot; can
1 points
QUESTION 20
To fight a recession, an appropriate monetary policy would be that the Fed conducts an open
market operation that ________ government securities, ________ the federal funds rate, and
________ aggregate demand.
sells; raises; decreases
buys; lowers; decreases
buys; lowers; increases
sells; raises; increases
1 points
QUESTION 21
If the Fed is concerned about a possible recession, it ________ the federal funds rate and, in
response, long-term interest rates ________ by a ________ amount than the change in short-term
rates.
lowers; increase; smaller
raises; increase; larger

6. raises; decrease; larger
lowers; decrease; smaller
1 points
QUESTION 22
If the Fed's policies aim to increase aggregate demand, the Fed must fear
a supply shock that decreases potential GDP.
stagflation.
recession.
inflation.
1 points
QUESTION 23
When the Federal Reserve increases the federal funds rate, bank loans ________, the supply of
loanable funds ________, and the real interest rate ________.
decrease; decreases; rises
increase; increases; rises
increase; increases; falls
does not change; decreases; rises
1 points
QUESTION 24
If the Fed increases interest rates, other things remaining the same, foreigners demand ________
dollars thereby ________ the exchange rate.
fewer; increasing
more; increasing
fewer; decreasing
more; decreasing
1 points
QUESTION 25
Under a gold standard, the central bank is willing to
make the monetary base consistent of only gold.
use the federal funds rate to conduct monetary policy.
let the price of gold be determined on the free and open market.
convert its currency into gold on demand.
i, ii, and iii
ii only
i only
iii only

7. Solution
The option in bold and italics in the answer:
Which of the following is a monetary policy goal?
i.keeping the inflation rate low
ii.attaining maximum employment
iii.keeping the long-term interest rate at a moderate level
i, ii, and iii
ii only
i only
iii only
1 points
QUESTION 2
When the Fed ________ the federal funds rate, the opportunity cost of firms' investment
________ and so the quantity of investment ________.
decreases; rises; decreases
increases; rises; increases
increases; rises; decreases
decreases; falls; decreases
1 points
QUESTION 3
If the Fed carries out an open market operation and sells U.S. government securities, the federal
funds rate ________ and the quantity of reserves ________.
rises; decreases
falls; increases
rises; increases
rises; does not change
1 points
QUESTION 4
In the United States,
the Federal Reserve sets monetary and fiscal policies.
Congress initializes changes in monetary policy and the Fed approves the changes.
Congress must approve monetary policy changes.
the Federal Reserve sets monetary policy.
1 points

8. QUESTION 5
When the economy is in a recession, the Fed can ________ the federal funds rate, which
________ aggregate demand and ________ real GDP.
lower; increases; increases
raise; decreases; increases
lower; increases; decreases
raise; increases; decreases
1 points
QUESTION 6
The steps in the transmission of monetary policy are
Congress increases the money supply, which lowers the interest rate, and leads to an increase in
aggregate demand.
the Federal Reserve increases government expenditures on goods and services, leading to an
increase in aggregate demand.
the Federal Reserve lowers the federal funds rate, which lowers the real interest rate, and leads to
an increase in aggregate demand.
Congress increases government expenditures on goods and services, leading to an increase in
aggregate demand.
1 points
QUESTION 7
Monetary policy decisions are made by the
Council of Economic Advisors.
Federal Open Market Committee.
Congress of the United States.
Federal Reserve Economic Committee.
1 points
QUESTION 8
The Federal Reserve fears that the United States economy is growing too slowly and is stuck in a
recession. To move the economy back to its potential GDP, the most likely policy action for the
Fed is to ________ the federal funds and thus ________.
lower; increase aggregate supply
raise; increase aggregate demand
raise; decrease aggregate demand
lower; increase aggregate demand
1 points
QUESTION 9

9. The interest rate banks charge each other on overnight loans is called the
discount rate.
federal funds rate.
required reserve rate.
coupon rate.
1 points
QUESTION 10
Which of the following are policy instruments available to the Fed as it tries to achieve its
macroeconomic goals?
i.government expenditure on goods and services and taxes
ii.the government budget deficit or surplus
iii.changes in the federal funds rate
iii only
i and ii
i and iii
ii and iii
1 points
QUESTION 11
If the Fed is concerned about a possible recession, it ________ the federal funds rate, which
________ the quantity of money and ________ the amount of bank loans.
lowers; decreases; decreases
lowers; increases; increases
lowers; increases; decreases
raises; decreases; decreases
1 points
QUESTION 12
If the Fed carries out an open market operation and buys U.S. government securities, the federal
funds rate ________ and the quantity of reserves ________.
falls; increases
falls; decreases
rises; does not change
rises; increases
1 points
QUESTION 13
Which of the following statements are correct?
i.Congress does not play a role in making monetary policy decisions

10. ii.The FOMC meets eight times a year to make monetary policy decisions
iii.The President of the United States appoints members and the Chairman of the Board of
governors but has little other formal authority over monetary policy
i, ii, and iii
ii only
i and ii
i and iii
1 points
QUESTION 14
Suppose the Fed raises the federal funds rate. Put the following changes in order in which they
occur, starting with the changes that take place almost immediately and ending with the changes
that may occur up to two years afterwards:
i.short-term interest rates rise
ii. long-term interest real interest rate rises
iii.aggregate demand decreases
iv.inflation rate decreases
ii-i-iii-iv
i-iii-ii-iv
i-ii-iv-iii
i-ii-iii-iv
1 points
QUESTION 15
If the Fed lowers the federal funds rate, which of the following occurs?
The price of the dollar on the foreign exchange market increases.
Net exports decreases.
Investment increases.
Consumption expenditure decreases.
1 points
QUESTION 16
When the exchange rate falls, imports ________ and exports ________.
increase; increase
increase; decrease
decrease; decrease
decrease; increase
1 points
QUESTION 17

11. The Fed is concerned about inflation. Its policy will ________ U.S. short-term interest rates and,
in the foreign exchange market, lead to the value of the U.S. dollar ________.
lower; rising
lower; falling
raise; not changing
raise; rising
1 points
QUESTION 18
Inflation targeting requires that the central bank
avoid changing the amount of the monetary base.
use a short-term interest rate as its policy instrument.
adopt a k-percent rule for the inflation rate.
publicize its targeted inflation rate.
1 points
QUESTION 19
The Fed ________ influence the real interest rate in the short run and ________ influence the
real interest rate in the long run.
cannot; cannot
can; can
can; cannot
cannot; can
1 points
QUESTION 20
To fight a recession, an appropriate monetary policy would be that the Fed conducts an open
market operation that ________ government securities, ________ the federal funds rate, and
________ aggregate demand.
sells; raises; decreases
buys; lowers; decreases
buys; lowers; increases
sells; raises; increases
1 points
QUESTION 21
If the Fed is concerned about a possible recession, it ________ the federal funds rate and, in
response, long-term interest rates ________ by a ________ amount than the change in short-term
rates.
lowers; increase; smaller

12. raises; increase; larger
raises; decrease; larger
lowers; decrease; smaller
1 points
QUESTION 22
If the Fed's policies aim to increase aggregate demand, the Fed must fear
a supply shock that decreases potential GDP.
stagflation.
recession.
inflation.
1 points
QUESTION 23
When the Federal Reserve increases the federal funds rate, bank loans ________, the supply of
loanable funds ________, and the real interest rate ________.
decrease; decreases; rises
increase; increases; rises
increase; increases; falls
does not change; decreases; rises
1 points
QUESTION 24
If the Fed increases interest rates, other things remaining the same, foreigners demand ________
dollars thereby ________ the exchange rate.
fewer; increasing
more; increasing
fewer; decreasing
more; decreasing
1 points
QUESTION 25
Under a gold standard, the central bank is willing to
make the monetary base consistent of only gold.
use the federal funds rate to conduct monetary policy.
let the price of gold be determined on the free and open market.
convert its currency into gold on demand.
i, ii, and iii
ii only
i only

13. iii only