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Chapter 16: Q10. (page 347)
True or False: In the United States, monetary policy has two key advantages over fiscal policy: (1) isolation from political pressure and (2) speed and flexibility.
The given statement is true.
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Which of the following Fed actions will increase bank lending?
Select one or moreanswers from the choices shown.
a. The Fed raises the discount rate from 5 percent to 6 percent.
b. The Fed raises the reserve ratio from 10 percent to 11 percent.
c. The Fed lowers the discount rate from 4 percent to 2 percent.
d. The Fed sells bonds to commercial banks.
Suppose a bond with no expiration date has a face value of \(10,000 and annually pays \)800 in fixed interest. In the table provided below, calculate and enter either the interest rate that the bond would yield to a bond buyer at each of the bond prices listed or the bond price at each of the interest yields shown. What generalization can you draw from the completed table?
Bond Price \( 8,000 | Interest Yield, % ________ |
______ | 8.9 |
\)10,000 $11,000 _______ | ________ ________ 6.2 |
When bond prices go up, interest rates go _______.
a. up
b. down
c. nowhere
The Taylor Rule puts _________ as much weight on closing the unemployment gap as it does on closing the inflation gap.
a. just
b. twice
c. half
d. ten times
True or False: A liquidity trap occurs when expansionary monetary policy fails to work because an increase in bank reserves by the Fed does not lead to an increase in bank lending.
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