Question 1

A decrease in Federal Reserve float will

Accepted Answer

A) increase nonborrowed reserves. 
B) increase borrowed reserves. 
C) increase the federal funds rate. 
D) decrease the federal funds rate. 
A) increase nonborrowed reserves. 
B) increase borrowed reserves. 
C) increase the federal funds rate. 
D) decrease the federal funds rate. C

Question 2

Which of the following statements is true?

Accepted Answer

A) Only about 10% of reserves are held as deposits with the Fed. 
B) About 90% of banks meet their reserve requirements with vault cash. 
C) Large banks may not use vault cash to meet their reserve requirements. 
D) All banks must keep at least half of their required reserves on deposit at a Federal Reserve bank. 
A) Only about 10% of reserves are held as deposits with the Fed. 
B) About 90% of banks meet their reserve requirements with vault cash. 
C) Large banks may not use vault cash to meet their reserve requirements. 
D) All banks must keep at least half of their required reserves on deposit at a Federal Reserve bank. B

Question 3

If the Fed is generous in its granting of discount loans during a crisis,

Accepted Answer

A) the result will likely be a contraction of the money supply. 
B) risk taking by banks and corporations may be encouraged. 
C) the discount rate will be bid up as the demand for loans exceeds the supply. 
D) market interest rates will rise sharply. 
A) the result will likely be a contraction of the money supply. 
B) risk taking by banks and corporations may be encouraged. 
C) the discount rate will be bid up as the demand for loans exceeds the supply. 
D) market interest rates will rise sharply. B

Question 4

When did Congress first give the Board of Governors authority over reserve requirements?

Accepted Answer

A) 1913 
B) 1935 
C) 1980 
D) 1998 
A) 1913 
B) 1935 
C) 1980 
D) 1998

Question 5

The main way in which the Fed's policy tools affect the monetary base is through

Accepted Answer

A) changes in the demand for or supply of reserves. 
B) changes in interest rates. 
C) the announcement effect. 
D) their impact on the portfolio decisions of the nonbank public. 
A) changes in the demand for or supply of reserves. 
B) changes in interest rates. 
C) the announcement effect. 
D) their impact on the portfolio decisions of the nonbank public.

Question 6

How does the Open Market Trading Desk conduct its operations?

Accepted Answer

A) Directly with government securities dealers on the floor of the New York Stock Exchange 
B) Directly with government securities dealers on the floor of the Federal Reserve Bank of New York 
C) Over-the-counter electronically with government securities dealers 
D) By sending its buy and sell orders to the U.S. Treasury for execution 
A) Directly with government securities dealers on the floor of the New York Stock Exchange 
B) Directly with government securities dealers on the floor of the Federal Reserve Bank of New York 
C) Over-the-counter electronically with government securities dealers 
D) By sending its buy and sell orders to the U.S. Treasury for execution

Question 7

All of the following are ways a bank may meet its reserve requirement EXCEPT

Accepted Answer

A) using treasury securities as required reserves 
B) seeking discount loans from the Fed 
C) borrowing in the federal funds market 
D) carrying up to 4% or $50,000 to the next period 
A) using treasury securities as required reserves 
B) seeking discount loans from the Fed 
C) borrowing in the federal funds market 
D) carrying up to 4% or $50,000 to the next period

Question 8

At one time Milton Friedman proposed that banks be obliged to hold 100% reserves against deposits. If this proposal were adopted, how would the relationship between M1 and the monetary base change? How would the process of financial intermediation be affected by the proposal?

Accepted Answer

Under the proposal, bank reserves would

Question 9

Banks and Wall Street firms engage in Fed watching in order to

Accepted Answer

A) guide lending and investment decisions. 
B) assess the riskiness of borrowers. 
C) evaluate the potential for changes in tax policy. 
D) better gauge movements in exchange rates. 
A) guide lending and investment decisions. 
B) assess the riskiness of borrowers. 
C) evaluate the potential for changes in tax policy. 
D) better gauge movements in exchange rates.

Question 10

Which of the following statements is NOT true?

Accepted Answer

A) Each Federal Reserve bank maintains its own discount window. 
B) Before 1980, the Fed rarely made loans to banks which were not members of the Federal Reserve System. 
C) Since 1980, all depository institutions have had access to the discount window. 
D) An increase in the volume of discount loans reduces the monetary base. 
A) Each Federal Reserve bank maintains its own discount window. 
B) Before 1980, the Fed rarely made loans to banks which were not members of the Federal Reserve System. 
C) Since 1980, all depository institutions have had access to the discount window. 
D) An increase in the volume of discount loans reduces the monetary base.

Question 11

A higher discount rate exerts upward pressure on other short-term interest rates because

Accepted Answer

A) banks try to raise funds from sources other than discount loans. 
B) by law, the spread between the discount rate and other interest rates must remain constant. 
C) other lenders become aware that the Fed would like them to raise their interest rates as well. 
D) banks generally increase their lending following a rise in the discount rate. 
A) banks try to raise funds from sources other than discount loans. 
B) by law, the spread between the discount rate and other interest rates must remain constant. 
C) other lenders become aware that the Fed would like them to raise their interest rates as well. 
D) banks generally increase their lending following a rise in the discount rate.

Question 12

An open market sale

Accepted Answer

A) decreases the price of Treasury securities and also decreases their yield. 
B) increases the price of Treasury securities and decreases their yield. 
C) increases the price of Treasury securities and also increases their yield. 
D) decreases the price of Treasury securities and increases their yield. 
A) decreases the price of Treasury securities and also decreases their yield. 
B) increases the price of Treasury securities and decreases their yield. 
C) increases the price of Treasury securities and also increases their yield. 
D) decreases the price of Treasury securities and increases their yield.

Question 13

Under current Fed practice, changes in policy made by the FOMC

Accepted Answer

A) are announced at the time they are made. 
B) are announced six weeks after they are made. 
C) must be approved by the Secretary of the Treasury. 
D) must be approved by a majority of the presidents of the Federal Reserve district banks. 
A) are announced at the time they are made. 
B) are announced six weeks after they are made. 
C) must be approved by the Secretary of the Treasury. 
D) must be approved by a majority of the presidents of the Federal Reserve district banks.

Question 14

Primary bond dealers are those

Accepted Answer

A) permitted to trade directly with the Fed. 
B) who work under the account manager at the Federal Reserve Bank of New York. 
C) who specialize in selling bonds to small private investors. 
D) responsible for assuring that interest rates do not decline unless the FOMC has given specific instructions that they decline. 
A) permitted to trade directly with the Fed. 
B) who work under the account manager at the Federal Reserve Bank of New York. 
C) who specialize in selling bonds to small private investors. 
D) responsible for assuring that interest rates do not decline unless the FOMC has given specific instructions that they decline.

Question 15

In the federal funds market diagram, an open market sale by the Fed

Accepted Answer

A) shifts the reserve supply curve to the right. 
B) shifts the reserve supply curve to the left. 
C) decreases the federal funds rate. 
D) increases the volume of federal funds traded. 
A) shifts the reserve supply curve to the right. 
B) shifts the reserve supply curve to the left. 
C) decreases the federal funds rate. 
D) increases the volume of federal funds traded.

Question 16

The Fed monitors reserve requirements

Accepted Answer

A) daily. 
B) during two-week maintenance periods. 
C) montly. 
D) annually. 
A) daily. 
B) during two-week maintenance periods. 
C) montly. 
D) annually.

Question 17

As of 2006, what was the reserve requirement for checkable deposits?

Accepted Answer

A) All checkable deposits are subject to a 10% reserve requirement. 
B) Checkable deposits at banks are subject to a 10% reserve requirement, while checkable deposits at S&Ls are not subject to a reserve requirement. 
C) The first $8.5 million is subject to 0%, then 3% up to $45.8 million in checkable deposits are subject to a 3% reserve requirement and checkable deposits above $45.8 million are subject to a 10% reserve requirement. 
D) Reserve requirements on checkable deposits vary according to the location and size of the depository institution. 
A) All checkable deposits are subject to a 10% reserve requirement. 
B) Checkable deposits at banks are subject to a 10% reserve requirement, while checkable deposits at S&Ls are not subject to a reserve requirement. 
C) The first $8.5 million is subject to 0%, then 3% up to $45.8 million in checkable deposits are subject to a 3% reserve requirement and checkable deposits above $45.8 million are subject to a 10% reserve requirement. 
D) Reserve requirements on checkable deposits vary according to the location and size of the depository institution.

Question 18

The FOMC states its overall objectives for interest rates in

Accepted Answer

A) the Governors' Order. 
B) the General Directive. 
C) the Federal Reserve Bulletin. 
D) the Chairman's Order. 
A) the Governors' Order. 
B) the General Directive. 
C) the Federal Reserve Bulletin. 
D) the Chairman's Order.

Question 19

The oldest policy tool of the Fed is

Accepted Answer

A) open market operations. 
B) reserve requirements. 
C) moral suasion. 
D) discount policy. 
A) open market operations. 
B) reserve requirements. 
C) moral suasion. 
D) discount policy.

Question 20

The Fed can use open market operations to regulate the money supply provided that

Accepted Answer

A) interest rates are low enough. 
B) the inflation rate is low enough. 
C) the money multiplier is stable. 
D) the President or Congress does not object. 
A) interest rates are low enough. 
B) the inflation rate is low enough. 
C) the money multiplier is stable. 
D) the President or Congress does not object.

Exam 20: Monetary Policy Tools

A decrease in Federal Reserve float will

Which of the following statements is true?

If the Fed is generous in its granting of discount loans during a crisis,

When did Congress first give the Board of Governors authority over reserve requirements?

The main way in which the Fed's policy tools affect the monetary base is through

How does the Open Market Trading Desk conduct its operations?

All of the following are ways a bank may meet its reserve requirement EXCEPT

At one time Milton Friedman proposed that banks be obliged to hold 100% reserves against deposits. If this proposal were adopted, how would the relationship between M1 and the monetary base change? How would the process of financial intermediation be affected by the proposal?

Banks and Wall Street firms engage in Fed watching in order to

Which of the following statements is NOT true?

A higher discount rate exerts upward pressure on other short-term interest rates because

An open market sale

Under current Fed practice, changes in policy made by the FOMC

Primary bond dealers are those

In the federal funds market diagram, an open market sale by the Fed

The Fed monitors reserve requirements

As of 2006, what was the reserve requirement for checkable deposits?

The FOMC states its overall objectives for interest rates in

The oldest policy tool of the Fed is

The Fed can use open market operations to regulate the money supply provided that

Introducing Money and the Financial System

Money and the Payments System

Overview of the Financial System

Interest Rates and Rates of Return

The Theory of Portfolio Allocation

Determining Market Interest Rates

Risk Structure and Term Structure of Interest Rates

The Foreign-Exchange Market and Exchange Rates

Derivative Securities and Derivative Markets

Information and Financial Market Efficiency

Reducing Transactions Costs and Information Costs

What Financial Institutions Do

The Business of Banking

The Banking Industry

Banking Regulation: Crisis and Response

Banking in the International Economy

The Money Supply Process

Changes in the Monetary Base

Organization of Central Banks

The Conduct of Monetary Policy

The International Financial System and Monetary Policy

The Demand for Money

Linking the Financial System and the Economy: the Is-Lm-Fe Model

Aggregate Demand and Aggregate Supply

Money and Output in the Short Run

Information Problems and Channels for Monetary Policy

Inflation: Causes and Consequences

Filters