Question 1

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

Accepted Answer

A)   rise; lowering
B)   decline; raising
C)   decline; lowering
D)   rise; raising

Question 2

State whether the following statement is true or false AND explain why: "A decrease in the discount rate will always cause a decrease in the federal reserve funds rate."

Accepted Answer

False.Since the discount rate is set abo...

Question 3

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 4

If the Fed expects currency holdings to rise,it conducts open market ________ to offset the expected ________ in reserves.

Accepted Answer

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

Question 5

The Fed can offset the effects of an increase in float by engaging in

Accepted Answer

A)   a repurchase agreement.
B)   a matched sale-purchase transaction.
C)   an interest rate swap.
D)   an open market purchase.

Question 6

When the federal funds rate equals the discount rate

Accepted Answer

A)   the supply curve of reserves is vertical.
B)   the supply curve of reserves is horizontal.
C)   the demand curve for reserves is vertical.
D)   the demand curve for reserves is horizontal.

Question 7

The two types of open market operations are

Accepted Answer

A)   offensive and defensive.
B)   dynamic and reactionary.
C)   active and passive.
D)   dynamic and defensive.

Question 8

Everything else held constant,in the market for reserves,when the federal funds rate is 3%,increasing the interest rate paid on excess reserves from 1% to 2%

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.

Question 9

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

Accepted Answer

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

Question 10

If the Fed wants to temporarily inject reserves into the banking system,it will engage in

Accepted Answer

A)   a repurchase agreement.
B)   a matched sale-purchase transaction.
C)   a reverse repurchase agreement.
D)   an open market sale.

Question 11

Much of the credit for prevention of a financial market meltdown after "Black Monday" (October 19,1987) must be given to the Federal Reserve System and its chairman

Accepted Answer

A)   Paul Volker.
B)   Alan Blinder.
C)   Arthur Burns.
D)   Alan Greenspan.

Question 12

In the market for reserves,a lower interest rate paid on excess reserves

Accepted Answer

A)   decreases the supply of reserves.
B)   increases the supply of reserves.
C)   decreases the effective floor for the federal funds rate.
D)   increases the effective floor for the federal funds rate.

Question 13

Open market operations intended to offset movements in noncontrollable factors (such as float) that affect reserves and the monetary base are called

Accepted Answer

A)   defensive open market operations.
B)   dynamic open market operations.
C)   offensive open market operations.
D)   reactionary open market operations.

Question 14

When the European System of Central Banks uses long-term refinancing operations,it is similar to the Federal Reserve using

Accepted Answer

A)   dynamic open market operations.
B)   defensive open market operations.
C)   discount policy.
D)   reserve requirements.

Question 15

Everything else held constant,in the market for reserves,when the supply for federal funds intersects the reserve demand curve on the downward sloping section,decreasing 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 on the federal funds rate.

Question 16

The facility that was created in December of 2007 that banks can use to borrow from the Fed that has less of a stigma for banks compared to borrowing from the discount window is the

Accepted Answer

A)   Term Securities Lending Facility.
B)   Term Auction Facility.
C)   Primary Dealer Credit Facility.
D)   Commercial Paper Funding Facility.

Question 17

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 18

The primary indicator of the Fed's stance on monetary policy is

Accepted Answer

A)   the discount rate.
B)   the federal funds rate.
C)   the growth rate of the monetary base.
D)   the growth rate of M2.

Question 19

Explain the Fed's three tools of monetary policy and how each is used to change the money supply.Does each tool affect the monetary base or the money multiplier?

Accepted Answer

The three tools are open market operatio...

Question 20

In the market for reserves,if the federal funds rate is above the interest rate paid on excess reserves,an open market purchase ________ the ________ of reserves which causes the federal funds rate to fall,everything else held constant.

Accepted Answer

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

Exam 15: Tools of Monetary Policy

Everything else held constant,in the market for reserves,when the federal funds rate is 3%,increasing the interest rate paid on excess reserves from 1% to 2%

Correct AnswerverifiedShow Answer

The primary indicator of the Fed's stance on monetary policy is

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,a ________ in the reserve requirement increases the demand for reserves,________ the federal funds interest rate,everything else held constant.

Correct AnswerverifiedShow Answer

Everything else held constant,in the market for reserves,when the supply for federal funds intersects the reserve demand curve on the downward sloping section,decreasing the interest rate paid on excess reserves

Correct AnswerverifiedShow Answer

If the Fed expects currency holdings to rise,it conducts open market ________ to offset the expected ________ in reserves.

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 purchase ________ the ________ of reserves which causes the federal funds rate to fall,everything else held constant.

Correct AnswerverifiedShow Answer

When the federal funds rate equals the discount rate

Correct AnswerverifiedShow Answer

The Fed prefers that so that

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In the market for reserves,a lower discount rate

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The two types of open market operations are

Correct AnswerverifiedShow Answer

When the European System of Central Banks uses long-term refinancing operations,it is similar to the Federal Reserve using

Correct AnswerverifiedShow Answer

The Fed can offset the effects of an increase in float by engaging in

Correct AnswerverifiedShow Answer

If the Fed wants to temporarily inject reserves into the banking system,it will engage in

Correct AnswerverifiedShow Answer

Much of the credit for prevention of a financial market meltdown after "Black Monday" (October 19,1987) must be given to the Federal Reserve System and its chairman

Correct AnswerverifiedShow Answer

The facility that was created in December of 2007 that banks can use to borrow from the Fed that has less of a stigma for banks compared to borrowing from the discount window is the

Correct AnswerverifiedShow Answer

Explain the Fed's three tools of monetary policy and how each is used to change the money supply.Does each tool affect the monetary base or the money multiplier?

Correct AnswerverifiedThe three tools are open market operatio...View AnswerShow Answer

In the market for reserves,a lower interest rate paid on excess reserves

Correct AnswerverifiedShow Answer

State whether the following statement is true or false AND explain why: "A decrease in the discount rate will always cause a decrease in the federal reserve funds rate."

Correct AnswerverifiedFalse.Since the discount rate is set abo...View AnswerShow Answer

Open market operations intended to offset movements in noncontrollable factors (such as float) that affect reserves and the monetary base are called

Correct AnswerverifiedShow Answer

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In the market for reserves,if the federal funds rate is between the discount rate and the interest rate paid on excess reserves,a in the reserve requirement increases the demand for reserves, the federal funds interest rate,everything else held constant.

Correct Answer
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Correct Answer
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If the Fed expects currency holdings to rise,it conducts open market to offset the expected in reserves.

Correct Answer
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In the market for reserves,if the federal funds rate is above the interest rate paid on excess reserves,an open market purchase the of reserves which causes the federal funds rate to fall,everything else held constant.

Correct Answer
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Open market purchases reserves and the monetary base thereby the money supply.

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The three tools are open market operatio...
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Correct Answer
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False.Since the discount rate is set abo...
View Answer

Correct Answer
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