Unit 4 of 5
Study guide for CLEP CLEP Principles of Macroeconomics — Unit 4: Money and Monetary Policy. Practice questions, key concepts, and exam tips.
97
Practice Questions
11
Flashcards
7
Key Topics
Try these 5 questions from this unit. Sign up for full access to all 97.
Which of the following is a tool of monetary policy?
Fiscal policy
Price controls
Government spending
Taxation
Reserve requirements
Answer: E — Reserve requirements is correct because reserve requirements are a tool used by the Fed to implement monetary policy.
An increase in the money supply will
Increase interest rates and reduce borrowing
Reduce economic growth
Have no effect on interest rates or borrowing
Lead to higher inflation and lower unemployment
Decrease interest rates and increase borrowing
Answer: E — Decrease interest rates and increase borrowing is correct because more money reduces interest rates, increasing borrowing..
The money multiplier is affected by
Reserve requirements
Inflation rate
Interest rates
Government debt
Exchange rates
Answer: A — Reserve requirements is correct because reserve requirements determine the proportion of deposits lent out..
What happens when the Fed buys government securities?
Money supply decreases
Interest rates rise
Banks' reserves increase
Aggregate demand falls
Inflation increases immediately
Answer: C — Banks' reserves increase is correct because when the Fed buys government securities, it injects liquidity into the economy, increasing banks' reserves and the money supply.
Which of the following is a monetary policy tool used by the Federal Reserve?
Fiscal policy
Regulation
Government spending
Taxation
Open market operations
Answer: E — Open market operations is correct because open market operations are a key tool used by the Federal Reserve to implement monetary policy, while fiscal policy is a tool of government spending and taxation.
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