Consider a U.S. Treasury Bill with a one year maturity and a face value of $1,000. If you purchased one, it would be an asset for you and a liability of the U.S. Treasury; currently, some $1.4 trillion are outstanding, which indicates that they’re pretty important. As the purchaser of this security , do you receive anything back from the U.S. Treasury besides the face value at maturity?

Question
Consider a U.S. Treasury Bill with a one year maturity and a face value of $1,000. If you purchased one, it would be an asset for you and a liability of the U.S. Treasury; currently, some $1.4 trillion are outstanding, which indicates that they’re pretty important. As the purchaser of this security , do you receive anything back from the U.S. Treasury besides the face value at maturity?
A) yes
B) no
2.
For this same T-Bill, with a face value of $1,000, say that it had a market value of $960. What would be the percentage return as a fraction of your investment? Note that this is basically the interest rate on this T-Bill.
A) $40
B) $40/$960
C) $40/$1,000
D) $960
E) $1,000
3.
Now say that same U.S. Treasury Bill rises in price to $980. What would be its percentage return now? (While not part of this question, note that if you purchased this security for $960 you could now sell it for the new price of $980 and thus earn a profit.)
A) $20
B) $20/$1,000
C) $20/$980
D) $980
E) $1,000
4.
Given your responses to the last two questions, what can you say about the relationship between the price of the U.S. Treasury Bill and its percentage return (basically its interest rate)?
A) there is no particular relationship
B) when the price rises, so does the interest rate
C) when the price rises, the interest rate falls
5.
If the Fed purchased bonds, all else equal, then what would happen to interest rates in general? (Keep in mind that interest rates move together — that is when bond interest rates change, so do other interest rates. Thus, rates on bonds, mortgages, car loans, and students loans more or less move in unison.)
A) would rise
B) would stay the same
C) would fall
6.
At http://www.clevelandfed.org/research/data/credit_easing/index.cfm you’ll see a chart of securities that the Fed has purchased since 2007 (these are most of the Fed’s assets). Note that “Traditional Security Holdings” are basically T-bills of our previous questions, “Long-Term Treasury” are Treasury notes with maturities of 2 to 10 years and Treasury Bonds with maturities of 20 and 30 years, and “Federal Agency Debt Mortgage Backed Securities” are bonds based on the payments of homeowners (that is, the owner of these securities receives payments, from homeowners — this has happened to one of my mortgages). As a result of the Fed purchasing these bonds over these years, interest rates are ___ than they otherwise would be.
A) higher
B) the same
C) lower
7.
This Next Set of Questions Deals with Dynamic Aggregate Supply and Aggregate Demand
Static aggregate supply and demand deal with ___ while their dynamic versions deal with ___.
A) inflation and economic growth, inflation and economic growth
B) inflation and economic growth, price level and real GDP
C) price level and real GDP, inflation and economic growth
8.
In the dynamic version of aggregate supply and demand, AD normally shifts ___ and SRAS normally shifts ___ by a ___ amount.
A) left, left, smaller
B) left, left, larger
C) left, right, smaller
D) left, right, larger
E) right, left, smaller
F) right, left, larger
G) right, right, smaller
H) right, right, larger
9.
In the dynamic aggregate supply and demand model, if the Fed raises interest rates, which of the following is most likely?
A) SRAS shifts more than usual to the right
B) SRAS shifts more than usual to the left
C) AD shifts more than usual to the right
D) AD shifts less than usual to the right
10.
In the dynamic aggregate supply and demand model, if the AD curve shifts right by a smaller than normal amount (such as when taxes go up), economic growth would ___ and inflation would ___.
A) speed up, speed up
B) slow (or maybe be negative), speed up
C) speed up, slow (or maybe be negative)
D) slow (or maybe be negative, slow (or maybe be negative)
11.
Questions About the Most Recent FOMC Statement
For this set of questions you’ll need to read the latest statement of the Federal Open Market Committee (FOMC): http://www.federalreserve.gov/newsevents/press/monetary/20141029a.htm . As you can see, it is from October 29. It provides a very nice summary of the current state of the economy (which we have covered in articles) and on monetary policy. The FOMC is the part of the Federal Reserve (Fed) in charge of monetary policy. Note that the term “accommodation” means using monetary policy to stimulate spending. According to their statement, what does the FOMC think say happened to “labor market conditions” since their last meeting in September?
A) worsened
B) improved
12.
What does the committee believe will be the impact of recent changes in energy prices?
A) It is likely speed up inflation.
B) It will likely have no effect on inflation.
C) It will likely slow inflation.
13.
As you know from class, the Fed has a “dual mandate” which is set by Congress. What two things are in this mandate?
A) price stability and fiscal policy
B) the purchase of Treasury bonds and price stability
C) the federal funds rate and the purchase of Treasury bonds
D) price stability and the federal funds rate
E) maximum employment and price stability
14.
According to the statement, what happened to the Fed’s “asset purchase program” where it buys Treasury Bills, Notes, Bonds, and mortgage-backed securities?
A) will continue
B) was concluded
C) even more assets will be purchased
15.
What does the Fed expect the economy to do?
A) continue to grow
B) slow
C) enter a recession
16.
Does the FOMC have a simple explanation of when it will raise the federal funds rate?
A) yes
B) no
17.
Questions About the Article “The Villain” in Our Course Pack
For this next set of questions, you’ll need to read “The Villain” in our course packet (i.e. our “Macroeconomics Supplement”). This article divides the Fed’s response to the financial crisis into how many stages?
A) one
B) two
C) three
D) four
E) five
18.
This article mentions (i) the large expansion in the Fed’s assets (part of their balance sheet, which also includes their liabilities) and (ii) the Fed setting short-term interest rates to very low levels. How many of these topics were mentioned or described in class or in a previous question here?
A) none
B) one
C) two
19.
According to the article, how often does Congress directly “meddle” with monetary policy?
A) never
B) rarely
C) often
20.
How do economists seem to grade the Fed and Bernanke on its actions during the financial crisis in 2008?
A) generally criticize it for its actions
B) generally think it did a decent job

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