Question 1

The general directive from the FOMC is carried out by

Accepted Answer

A) the presidents of the district banks. 
B) the presidents of commercial banks that are members of the Federal Reserve System. 
C) the account manager at the Federal Reserve Bank of New York. 
D) private dealers in the bond market. 
A) the presidents of the district banks. 
B) the presidents of commercial banks that are members of the Federal Reserve System. 
C) the account manager at the Federal Reserve Bank of New York. 
D) private dealers in the bond market.

Question 2

Which type of loan has the highest interest rate?

Accepted Answer

A) Primary credit 
B) Secondary credit 
C) Seasonal credit 
D) Federal funds 
A) Primary credit 
B) Secondary credit 
C) Seasonal credit 
D) Federal funds

Question 3

Between 1950 and 1980, the Fed adjusted required reserve ratios

Accepted Answer

A) daily. 
B) about once a year. 
C) only once. 
D) only twice. 
A) daily. 
B) about once a year. 
C) only once. 
D) only twice.

Question 4

As the federal funds rate rises,

Accepted Answer

A) the reserve tax increases. 
B) banks prefer to hold more reserves. 
C) the opportunity cost of holding excess reserves falls. 
D) the reserve tax falls. 
A) the reserve tax increases. 
B) banks prefer to hold more reserves. 
C) the opportunity cost of holding excess reserves falls. 
D) the reserve tax falls.

Question 5

In a matched sale-purchase transaction, the Fed

Accepted Answer

A) buys securities from a dealer and the dealer agrees to buy them back. 
B) sells securities to a dealer and the dealer agrees to sell them back. 
C) buys securities from one dealer and sells the same dollar amount of securities to another dealer. 
D) sells securities to one dealer and buys the same dollar amount of securities from another dealer. 
A) buys securities from a dealer and the dealer agrees to buy them back. 
B) sells securities to a dealer and the dealer agrees to sell them back. 
C) buys securities from one dealer and sells the same dollar amount of securities to another dealer. 
D) sells securities to one dealer and buys the same dollar amount of securities from another dealer.

Question 6

When the staff of the account manager at the Fed's Open Market Trading Desk analyzes forecasts on Treasury deposits and information on the timing of future Treasury sales of securities, what agency does it interact with?

Accepted Answer

A) The Securities and Exchange Commission 
B) The Treasury's Office of Government Finance 
C) The Treasury's Office of Federal Reserve Relations 
D) The Federal Deposit Insurance Corporation 
A) The Securities and Exchange Commission 
B) The Treasury's Office of Government Finance 
C) The Treasury's Office of Federal Reserve Relations 
D) The Federal Deposit Insurance Corporation

Question 7

An increase in the volume of discount loans

Accepted Answer

A) increases the monetary base, but decreases the money supply. 
B) decreases the monetary base, but increases the money supply. 
C) increases both the monetary base and the money supply. 
D) decreases both the monetary base and the money supply. 
A) increases the monetary base, but decreases the money supply. 
B) decreases the monetary base, but increases the money supply. 
C) increases both the monetary base and the money supply. 
D) decreases both the monetary base and the money supply.

Question 8

All of the following statements about secondary credit are true EXCEPT

Accepted Answer

A) it may be used to expand a bank's assets. 
B) the secondary credit interest rate is set above the primary credit rate. 
C) it is intended for banks not eligible for primary credit. 
D) borrowers of secondary credit are less financially healthy. 
A) it may be used to expand a bank's assets. 
B) the secondary credit interest rate is set above the primary credit rate. 
C) it is intended for banks not eligible for primary credit. 
D) borrowers of secondary credit are less financially healthy.

Question 9

What important change did the Fed make in its FOMC statement in February 2000? What change in the FOMC's views on the economy became evident from the FOMC statements issue between November 2000 and January 2001?

Accepted Answer

Beginning in February 2000, the Fed incl

Question 10

In order to increase its target for the federal funds rate, the Fed would normally

Accepted Answer

A) conduct open market sales 
B) conduct open market purchases 
C) increase the discount rate 
D) increase reserve requirements 
A) conduct open market sales 
B) conduct open market purchases 
C) increase the discount rate 
D) increase reserve requirements

Question 11

Which of the following statements is correct?

Accepted Answer

A) Dynamic open market operations are carried out to offset fluctuations in the monetary base. 
B) Defensive open market operations are carried out to change monetary policy. 
C) The volume of defensive open market operations is much greater than the volume of dynamic open market operations. 
D) Defensive open market operations are usually carried out through outright purchases or sales. 
A) Dynamic open market operations are carried out to offset fluctuations in the monetary base. 
B) Defensive open market operations are carried out to change monetary policy. 
C) The volume of defensive open market operations is much greater than the volume of dynamic open market operations. 
D) Defensive open market operations are usually carried out through outright purchases or sales.

Question 12

The Open Market Trading Desk is

Accepted Answer

A) another name for the Federal Open Market Committee. 
B) an organization of private traders in government securities. 
C) the area on the floor of the New York Stock Exchange set aside for bond trading. 
D) a group of bond traders at the Federal Reserve Bank of New York. 
A) another name for the Federal Open Market Committee. 
B) an organization of private traders in government securities. 
C) the area on the floor of the New York Stock Exchange set aside for bond trading. 
D) a group of bond traders at the Federal Reserve Bank of New York.

Question 13

Which of the following statements is correct?

Accepted Answer

A) Open market purchases are expansionary and open market sales are contractionary. 
B) Open market purchases are contractionary and open market sales are expansionary. 
C) Both open market purchases and open market sales are expansionary. 
D) Both open market purchases and open market sales are contractionary. 
A) Open market purchases are expansionary and open market sales are contractionary. 
B) Open market purchases are contractionary and open market sales are expansionary. 
C) Both open market purchases and open market sales are expansionary. 
D) Both open market purchases and open market sales are contractionary.

Question 14

Primary credit is only a backup source of funds for health banks since

Accepted Answer

A) the primary credit rate is set 1% above the federal funds rate. 
B) restrictions as to its use limit its benefits. 
C) the secondary credit rate pays 0.5% more. 
D) banks must seek funds from other sources prior to requesting a discount loan. 
A) the primary credit rate is set 1% above the federal funds rate. 
B) restrictions as to its use limit its benefits. 
C) the secondary credit rate pays 0.5% more. 
D) banks must seek funds from other sources prior to requesting a discount loan.

Question 15

Why did the Fed expand discount lending in the aftermath of the terrorist attacks in the fall of 2001?

Accepted Answer

A) It feared that inflation was going to increase. 
B) To ensure the smooth operation of banks in the affected areas. 
C) It feared the effects on the U.S. economy of rising oil prices. 
D) It was attempting to increase the chances that President Bush would be reelected. 
A) It feared that inflation was going to increase. 
B) To ensure the smooth operation of banks in the affected areas. 
C) It feared the effects on the U.S. economy of rising oil prices. 
D) It was attempting to increase the chances that President Bush would be reelected.

Question 16

If the FOMC's directive indicates a change in monetary policy, the account manager at the Fed's Open Market Trading Desk must

Accepted Answer

A) design dynamic open market operations. 
B) design defensive open market operations. 
C) seek approval of the change from the Secretary of the Treasury. 
D) seek approval of the change from a majority of the presidents of the Federal Reserve district banks. 
A) design dynamic open market operations. 
B) design defensive open market operations. 
C) seek approval of the change from the Secretary of the Treasury. 
D) seek approval of the change from a majority of the presidents of the Federal Reserve district banks.

Question 17

Reserve requirements

Accepted Answer

A) may be set by the FOMC at whatever level they choose. 
B) may be set by the Board of Governors at whatever level it chooses. 
C) are established annually by Congress. 
D) are set by the Board of Governors within limits set by Congress. 
A) may be set by the FOMC at whatever level they choose. 
B) may be set by the Board of Governors at whatever level it chooses. 
C) are established annually by Congress. 
D) are set by the Board of Governors within limits set by Congress.

Question 18

Which of the following statements concerning seasonal credit is true?

Accepted Answer

A) It tends to have a lower interest rate than federal funds. 
B) It has become increasingly more important in recent years. 
C) Only firms receiving secondary credit are eligible to receive seasonal credit. 
D) Improvements in credit markets have reduced the need for a seasonal credit facility. 
A) It tends to have a lower interest rate than federal funds. 
B) It has become increasingly more important in recent years. 
C) Only firms receiving secondary credit are eligible to receive seasonal credit. 
D) Improvements in credit markets have reduced the need for a seasonal credit facility.

Question 19

Expansionary monetary policy consists of all of the following EXCEPT

Accepted Answer

A) open market sales. 
B) lower interest rates. 
C) increased monetary base. 
D) increased money supply. 
A) open market sales. 
B) lower interest rates. 
C) increased monetary base. 
D) increased money supply.

Question 20

Which of the following statements is correct?

Accepted Answer

A) The volume of open market operations is determined jointly by the actions of the public, banks, and the Fed. 
B) The volume of open market operations is determined jointly by the actions of banks and the Fed. 
C) The volume of open market operations is determined jointly by the actions of the public and the Fed. 
D) The volume of open market operations is determined solely by the Fed. 
A) The volume of open market operations is determined jointly by the actions of the public, banks, and the Fed. 
B) The volume of open market operations is determined jointly by the actions of banks and the Fed. 
C) The volume of open market operations is determined jointly by the actions of the public and the Fed. 
D) The volume of open market operations is determined solely by the Fed.

Exam 20: Monetary Policy Tools

The general directive from the FOMC is carried out by

Which type of loan has the highest interest rate?

Between 1950 and 1980, the Fed adjusted required reserve ratios

As the federal funds rate rises,

In a matched sale-purchase transaction, the Fed

When the staff of the account manager at the Fed's Open Market Trading Desk analyzes forecasts on Treasury deposits and information on the timing of future Treasury sales of securities, what agency does it interact with?

An increase in the volume of discount loans

All of the following statements about secondary credit are true EXCEPT

What important change did the Fed make in its FOMC statement in February 2000? What change in the FOMC's views on the economy became evident from the FOMC statements issue between November 2000 and January 2001?

In order to increase its target for the federal funds rate, the Fed would normally

Which of the following statements is correct?

The Open Market Trading Desk is

Which of the following statements is correct?

Primary credit is only a backup source of funds for health banks since

Why did the Fed expand discount lending in the aftermath of the terrorist attacks in the fall of 2001?

If the FOMC's directive indicates a change in monetary policy, the account manager at the Fed's Open Market Trading Desk must

Reserve requirements

Which of the following statements concerning seasonal credit is true?

Expansionary monetary policy consists of all of the following EXCEPT

Which of the following statements is correct?

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

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