Question 1

When good weather speeds the check-clearing process, float tends to ________ causing the Fed to initiate defensive open market ________.

Accepted Answer

A)   decrease; sales
B)   decrease; purchases
C)   increase; sales
D)   increase; purchases

Question 2

Everything else held constant, the vertical section of the supply curve of reserves is lengthened when the

Accepted Answer

A)   discount rate increases.
B)   discount rate decreases.
C)   federal funds rate rises.
D)   federal funds rate falls.

Question 3

Everything else held constant, in the market for reserves, when the supply for federal funds intersects the reserve demand curve along the horizontal section of the demand curve, lowering the interest rate paid on excess reserves

Accepted Answer

A)   increases the federal funds rate.
B)   lowers the federal funds rate.
C)   has no effect on the federal funds rate.
D)   has an indeterminate effect of the federal funds rate.

Question 4

The discount rate is

Accepted Answer

A)   the interest rate the Fed charges on loans to banks.
B)   the price the Fed pays for government securities.
C)   the interest rate that banks charge their most preferred customers.
D)   the price banks pay the Fed for government securities.

Question 5

Which of the following is NOT an argument for the Federal Reserve paying interest on excess reserve holdings?

Accepted Answer

A)   Paying interest reduces the effective tax on deposits.
B)   Paying interest will help in the implementation of monetary policy.
C)   Paying interest will help the Federal Reserve have more control of the amount of discount loans.
D)   Paying interest increases the capacity of the Fed's balance sheet which will make it easier to address financial crises.

Question 6

When bad storms slow the check-clearing process, float tends to ________ causing the Fed to initiate defensive open market ________.

Accepted Answer

A)   decrease; sales
B)   decrease; purchases
C)   increase; sales
D)   increase; purchases

Question 7

The interest rate charged on overnight loans of reserves between banks is the

Accepted Answer

A)   prime rate.
B)   discount rate.
C)   federal funds rate.
D)   Treasury bill rate.

Question 8

The most common type of discount lending that the Fed extends to banks is called

Accepted Answer

A)   seasonal credit.
B)   secondary credit.
C)   primary credit.
D)   installment credit.

Question 9

The policy tool of changing reserve requirements is

Accepted Answer

A)   the most widely used.
B)   the preferred tool from the bank's perspective.
C)   no longer used.
D)   still used, even with its disadvantages.

Question 10

A financial panic was averted in October 1987 following "Black Monday" when the Fed announced that

Accepted Answer

A)   it was lowering the discount rate.
B)   it would provide discount loans to any bank that would make loans to the security industry.
C)   it stood ready to purchase common stocks to prevent a further slide in stock prices.
D)   it was raising the discount rate.

Question 11

State whether the following statement is true or false AND explain why: "An increase in the interest rate paid on excess reserves will always cause an increase in the federal reserve funds rate."

Accepted Answer

A) True 
 B)False

Question 12

In the market for reserves, a lower discount rate

Accepted Answer

A)   decreases the supply of reserves.
B)   increases the supply of reserves.
C)   lengthens the vertical section of the supply curve of reserves.
D)   shortens the vertical section of the supply curve of reserves.

Question 13

In the market for reserves, if the federal funds rate is above the interest rate paid on excess reserves, an open market sale ________ the ________ of reserves, causing the federal funds rate to increase, everything else held constant.

Accepted Answer

A)   increases; supply
B)   increases; demand
C)   decreases; supply
D)   decreases; demand

Question 14

The Fed prefers that ________ so that ________

Accepted Answer

A)   banks borrow reserves from each other; banks can monitor each other for credit risk.
B)   banks borrow reserves from each other; the Fed can monitor banks for credit risk.
C)   banks borrow reserves from the Fed; banks can monitor each other for credit risk.
D)   banks borrow reserves from the Fed; the Fed can monitor banks for credit risk.

Question 15

Suppose on any given day the prevailing equilibrium federal funds rate is below the Federal Reserve's federal funds target rate. If the Federal Reserve wishes for the federal funds rate to be at their target level, then the appropriate action for the Federal Reserve to take is a ________ open market ________, everything else held constant.

Accepted Answer

A)   defensive; sale
B)   defensive; purchase
C)   dynamic; sale
D)   dynamic; purchase

Question 16

In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, an increase in the reserve requirement ________ the demand of reserves and causes the federal funds interest rate to ________, everything else held constant.

Accepted Answer

A)   decreases; fall
B)   increases; fall
C)   increases; rise
D)   decreases; rise

Question 17

The Federal Reserve ________ pay interest on reserves held on deposit. The European System of Central Banks ________ pay interest on reserves held on deposit.

Accepted Answer

A)   does; does
B)   does; does not
C)   does not; does
D)   does not; does not

Question 18

Open market sales ________ reserves and the monetary base thereby ________ the money supply.

Accepted Answer

A)   raise; lowering
B)   raise; raising
C)   lower; lowering
D)   lower; raising

Question 19

The Federal Reserve will engage in a matched sale-purchase transaction when it wants to ________ reserves ________ in the banking system.

Accepted Answer

A)   increase; permanently
B)   increase; temporarily
C)   decrease; temporarily
D)   decrease; permanently

Question 20

Everything else held constant, in the market for reserves, when the federal funds rate is 5%, lowering the discount rate from 5% to 4%

Accepted Answer

A)   lowers the federal funds rate.
B)   raises the federal funds rate.
C)   has no effect on the federal funds rate.
D)   has an indeterminate effect on the federal funds rate.

Exam 18: Tools of Monetary Policy

The policy tool of changing reserve requirements is

Correct Answer
verified

The discount rate is

Correct Answer
verified

The Federal Reserve pay interest on reserves held on deposit. The European System of Central Banks pay interest on reserves held on deposit.

Correct Answer
verified

The Federal Reserve will engage in a matched sale-purchase transaction when it wants to reserves in the banking system.

Correct Answer
verified

When bad storms slow the check-clearing process, float tends to causing the Fed to initiate defensive open market .

Correct Answer
verified

The interest rate charged on overnight loans of reserves between banks is the

Correct Answer
verified

The most common type of discount lending that the Fed extends to banks is called

Correct Answer
verified

Everything else held constant, in the market for reserves, when the supply for federal funds intersects the reserve demand curve along the horizontal section of the demand curve, lowering the interest rate paid on excess reserves

Correct Answer
verified

Open market sales reserves and the monetary base thereby the money supply.

Correct Answer
verified

Everything else held constant, in the market for reserves, when the federal funds rate is 5%, lowering the discount rate from 5% to 4%

Correct Answer
verified

State whether the following statement is true or false AND explain why: "An increase in the interest rate paid on excess reserves will always cause an increase in the federal reserve funds rate."

Correct Answer
verified

Which of the following is NOT an argument for the Federal Reserve paying interest on excess reserve holdings?

Correct Answer
verified

A financial panic was averted in October 1987 following "Black Monday" when the Fed announced that

Correct Answer
verified

When good weather speeds the check-clearing process, float tends to causing the Fed to initiate defensive open market .

Correct Answer
verified

The Fed prefers that so that

Correct Answer
verified

In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, an increase in the reserve requirement the demand of reserves and causes the federal funds interest rate to , everything else held constant.

Correct Answer
verified

In the market for reserves, if the federal funds rate is above the interest rate paid on excess reserves, an open market sale the of reserves, causing the federal funds rate to increase, everything else held constant.

Correct Answer
verified

Everything else held constant, the vertical section of the supply curve of reserves is lengthened when the

Correct Answer
verified

Correct Answer
verified

In the market for reserves, a lower discount rate

Correct Answer
verified

Exam 18: Tools of Monetary Policy

The policy tool of changing reserve requirements is

Correct AnswerverifiedShow Answer

The discount rate is

Correct AnswerverifiedShow Answer

The Federal Reserve ________ pay interest on reserves held on deposit. The European System of Central Banks ________ pay interest on reserves held on deposit.

Correct AnswerverifiedShow Answer

The Federal Reserve will engage in a matched sale-purchase transaction when it wants to ________ reserves ________ in the banking system.

Correct AnswerverifiedShow Answer

When bad storms slow the check-clearing process, float tends to ________ causing the Fed to initiate defensive open market ________.

Correct AnswerverifiedShow Answer

The interest rate charged on overnight loans of reserves between banks is the

Correct AnswerverifiedShow Answer

The most common type of discount lending that the Fed extends to banks is called

Correct AnswerverifiedShow Answer

Everything else held constant, in the market for reserves, when the supply for federal funds intersects the reserve demand curve along the horizontal section of the demand curve, lowering the interest rate paid on excess reserves

Correct AnswerverifiedShow Answer

Open market sales ________ reserves and the monetary base thereby ________ the money supply.

Correct AnswerverifiedShow Answer

Everything else held constant, in the market for reserves, when the federal funds rate is 5%, lowering the discount rate from 5% to 4%

Correct AnswerverifiedShow Answer

State whether the following statement is true or false AND explain why: "An increase in the interest rate paid on excess reserves will always cause an increase in the federal reserve funds rate."

Correct AnswerverifiedShow Answer

Which of the following is NOT an argument for the Federal Reserve paying interest on excess reserve holdings?

Correct AnswerverifiedShow Answer

A financial panic was averted in October 1987 following "Black Monday" when the Fed announced that

Correct AnswerverifiedShow Answer

When good weather speeds the check-clearing process, float tends to ________ causing the Fed to initiate defensive open market ________.

Correct AnswerverifiedShow Answer

The Fed prefers that ________ so that ________

Correct AnswerverifiedShow Answer

In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, an increase in the reserve requirement ________ the demand of reserves and causes the federal funds interest rate to ________, everything else held constant.

Correct AnswerverifiedShow Answer

In the market for reserves, if the federal funds rate is above the interest rate paid on excess reserves, an open market sale ________ the ________ of reserves, causing the federal funds rate to increase, everything else held constant.

Correct AnswerverifiedShow Answer

Everything else held constant, the vertical section of the supply curve of reserves is lengthened when the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the market for reserves, a lower discount rate

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

The Federal Reserve pay interest on reserves held on deposit. The European System of Central Banks pay interest on reserves held on deposit.

Correct Answer
verified

The Federal Reserve will engage in a matched sale-purchase transaction when it wants to reserves in the banking system.

Correct Answer
verified

When bad storms slow the check-clearing process, float tends to causing the Fed to initiate defensive open market .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Open market sales reserves and the monetary base thereby the money supply.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

When good weather speeds the check-clearing process, float tends to causing the Fed to initiate defensive open market .

Correct Answer
verified

The Fed prefers that so that

Correct Answer
verified

In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, an increase in the reserve requirement the demand of reserves and causes the federal funds interest rate to , everything else held constant.

Correct Answer
verified

In the market for reserves, if the federal funds rate is above the interest rate paid on excess reserves, an open market sale the of reserves, causing the federal funds rate to increase, everything else held constant.

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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