Open market operations take place when the
(A)central bank buys or sells stocks
(B)central bank buys or sells government bonds
(C)central bank increases or decreases the discount rate to monitor the money supply
(D)central bank increases or decreases reserve requirements for depository institutions
(E)commercial banks borrow reserves from the central bank
If the central bank conducts an open-market purchase of bonds, which of the following will occur?
(A)The price of bonds will increase.
(B)The money supply will decrease.
(C)Total bank reserves will decrease.
(D)Consumption will decrease.
(E)The government will balance its budget.
To counter a recession, the central bank might pursue which of the following actions?
(A)Increasing reserve requirements and selling securities on the open market
(B)Increasing capital gains tax and selling securities on the open market
(C)Decreasing reserve requirements and increasing the discount rate
(D)Decreasing the discount rate and buying securities on the open market
(E)Decreasing the capital gains tax and selling securities on the open market
Which of the following actions by the Federal Reserve of the United States increases the money supply?
(A)Buying government bonds on the open market
(B)Selling government bonds on the open market
(C)Increasing the reserve requirement
(D)Increasing the discount rate
(E)Increasing the federal funds rate
Expansionary monetary policy will most likely cause interest rates and investment to change in which of the following
ways in the short-run?
(A)Interest Rates = Increase ; Investment = Increase
(B)Interest Rates = Increase ; Investment = Decrease
(C)Interest Rates = Decrease ; Investment = Increase
(D)Interest Rates = Decrease ; Investment = Decrease
(E)Interest Rates = No change ; Investment = Increase
Which of the following will lead to an increase in the money supply?
(A)A decrease in income tax rates
(B)A decrease in government spending
(C)Open-market purchase of securities by the central bank
(D)Increased borrowing by the federal government by issuing new bonds
(E)An increase in the discount rate
Which of the following is a cause of hyperinflation?
(A)Rapid growth of real gross domestic product
(B)Rapid growth of the money supply
(C)Unanticipated decrease in aggregate demand
(D)Unanticipated increase in aggregate supply
(E)Unanticipated rise in real interest rates
If a country’s economy is operating below the full-employment level of output at a very low inflation rate, the central
bank of the country is most likely to
(A)pursue an expansionary monetary policy because it is required to do so by law whenever output is below the fullemployment level
(B)pursue an expansionary fiscal policy because it is required to do so by law whenever output is below the fullemployment level
(C)lower the discount rate and buy bonds on the open market to generate an increase in output
(D)lower the required reserve ratio and sell bonds on the open market to generate an increase in output
(E)raise the discount rate and lower the required reserve ratio to generate an increase in output
If aggregate demand is growing faster than long-run aggregate supply, the Federal Reserve is most likely to
(A)sell securities on the open market
(B)increase bond prices
(C)increase income taxes
(D)decrease the discount rate
(E)decrease the required reserve ratio
When the central bank sells government bonds on the open market, which of the following will most likely increase?
(A)Bank reserves
(B)Price of bonds
(C)Money supply
(D)Nominal interest rates
(E)The required reserve ratio
If a central bank significantly increases its sales of government bonds, it is most likely responding to which of the
following?
(A)Slow economic growth
(B)An appreciating domestic currency
(C)Rising unemployment
(D)Rising price levels
(E)Rising imports and declining exports
Which of the following will lead to a decrease in a nation’s money supply?
(A)A decrease in income tax rates
(B)A decrease in the discount rate
(C)An open market purchase of government securities by the central bank
(D)An increase in reserve requirements
(E)An increase in government expenditures on goods and services
Which of the following will most likely lead to a decrease in inflationary expectations?
(A)A decrease in the marginal propensity to save
(B)A decrease in imports
(C)A decrease in the money supply
(D)An increase in the government budget deficit
(E)An increase in the prices of raw materials
Policies intended to reduce demand-pull inflation are most likely to increase which of the following in the short-run?
(A)Gross domestic product
(B)The labor force participation rate
(C)The price level
(D)Unemployment
(E)Wage levels