1. Monetary policy directly affects: A) social spending.
B) tax rates. C) the availability of credit. D) the antitrust laws.

2. True/False, Explain. In the AS/AD model, expansionary monetary policy causes an increase in the interest rate and an increase in investment spending.

3. Assuming an economy is initially at potential output, an expansionary monetary policy will: A) not affect output in the long run. B) not affect output in either the short run or the long run. C) affect output, but only in the long run.
D) affect output in both the short run and the long run.

4. The tools of monetary policy include all of the following except: A) changing the exchange rate. B) changing the reserve requirement. C) changing the discount rate.
D) executing open market operations.

5. The reserve requirement is the: A) maximum ratio of reserves to deposits that a bank can have. B) minimum ratio of reserves to deposits that a bank can have. C) maximum level of reserves a bank can have. D) minimum level of reserves a bank can have.

6. To decrease the nation's money supply, the Fed can: A) increase reserve requirements. B) decrease reserve requirements. C) decrease the discount rate.
D) buy government securities in the open market.

7. In October of 2001, Taiwan's central bank reduced its reserve requirement from 6.22 percent to 5 percent. This policy most likely:
A) increased both the money multiplier and the money supply. B) increased the money multiplier but decreased the money supply. C) decreased the money multiplier but increased the money supply. D) decreased both the money multiplier and the money supply.

8. The discount rate is the interest rate: A) commercial banks charge their largest customers. B) the Fed charges on loans to individuals. C) the Fed charges on loans to commercial banks. D) the interest rate commercial banks charge one another for overnight loans.

9. To increase the nation's money supply, the Fed can: A) increase the required reserve ratio. B) decrease the discount rate. C) increase the discount rate.
D) sell bonds.

10. True/False, Explain. An increase in the discount rate is a signal that the Fed wants a tighter monetary policy.

11. When the Fed reduces the discount rate, this sends a signal to banks that the Fed wants: A) the money supply to expand. B) the money supply to contract. C) the Federal funds rate to increase.
D) to reduce the reserve requirement.

12. The primary tool of monetary policy is: A) the discount rate.
B) the reserve requirement. C) the prime rate. D) open market operations.

13. Deciding on offensive Fed's purchases and sales of government securities is the responsibility of:
A) the Federal Advisory Council. B) the Comptroller of the Currency. C) the 12 regional Federal Reserve Banks. D) the Federal Open Market Committee.

14. Open market operations are related to: A) actions taken by the Fed to close or merge weakened banks. B) changes in the reserve requirement. C) changes in the discount rate. D) the Fed's buying and selling of government securities.

15. A decline in interest rates might be explained by an: A) open market purchases of government securities by the Fed. B) open market sales of government securities by the Fed. C) increase in the discount rate. D) increase in reserve requirements.

16. Which of the following Fed actions increases the money supply? A) Decreasing the amount of loans made to commercial banks. B) Buying government securities in the open market. C) Selling government securities in the open market.
D) Increasing reserve requirements.

17. If the Fed sells government securities, you might expect: A) a decrease in short-term interest rates. B) an increase in short-term interest rates. C) an increase in the money supply.
D) a fall in the discount rate.

18. Which of the following actions by the Fed would likely cause short-term interest rates to rise?
A) Open market sales of government securities. B) Open market purchases of government securities. C) A decrease in the discount rate.