Question 1

In the federal funds market diagram, a decrease in the discount rate

Accepted Answer

A) decreases the slope of the reserve supply curve. 
B) increases the slope of the reserve supply curve. 
C) decreases the federal funds rate. 
D) has no effect on the reserve supply curve. 
A) decreases the slope of the reserve supply curve. 
B) increases the slope of the reserve supply curve. 
C) decreases the federal funds rate. 
D) has no effect on the reserve supply curve.

Question 2

In 1980, the Depository Institutions Deregulation and Monetary Control Act

Accepted Answer

A) gave the Board of Governors authority over reserve requirements. 
B) established that country banks would have lower reserve requirements than urban banks. 
C) established uniform reserve requirements for all depository institutions. 
D) eliminated reserve requirements on demand deposits at S&Ls. 
A) gave the Board of Governors authority over reserve requirements. 
B) established that country banks would have lower reserve requirements than urban banks. 
C) established uniform reserve requirements for all depository institutions. 
D) eliminated reserve requirements on demand deposits at S&Ls.

Question 3

The effect of which of the following on the monetary base could be offset with a defensive open market purchase?

Accepted Answer

A) The Treasury pays for $1 billion in federal government purchases out of its account at the Fed. 
B) Federal Reserve float declines. 
C) Discount loans increase. 
D) The amount of Treasury coins outstanding increases. 
A) The Treasury pays for $1 billion in federal government purchases out of its account at the Fed. 
B) Federal Reserve float declines. 
C) Discount loans increase. 
D) The amount of Treasury coins outstanding increases.

Question 4

Dynamic open market operations

Accepted Answer

A) are aimed at achieving changes in monetary policy. 
B) are used much more frequently than defensive open market transactions. 
C) are used to offset disturbances to the monetary base. 
D) make it easy to deduce the Fed's intentions for monetary policy. 
A) are aimed at achieving changes in monetary policy. 
B) are used much more frequently than defensive open market transactions. 
C) are used to offset disturbances to the monetary base. 
D) make it easy to deduce the Fed's intentions for monetary policy.

Question 5

A member of Congress argues: "The Fed has too much discretion over granting discount loans. Congress should set the discount rate and then require that the Fed grants loans to any depository institution that wishes to borrow at that rate." Do you agree that this would be good policy?

Accepted Answer

This would be a poor policy. Having Cong

Question 6

FOMC directives to the account manager

Accepted Answer

A) are usually very detailed, leaving him little room for discretion. 
B) are issued very infrequently, leaving the account manager effectively in charge of monetary policy for months at a time. 
C) are usually vaguely worded. 
D) are usually concerned with technical matters and have little to do with monetary policy. 
A) are usually very detailed, leaving him little room for discretion. 
B) are issued very infrequently, leaving the account manager effectively in charge of monetary policy for months at a time. 
C) are usually vaguely worded. 
D) are usually concerned with technical matters and have little to do with monetary policy.

Question 7

Discount loans in the form of primary credit tend

Accepted Answer

A) to increase the money supply by increasing bank reserves. 
B) to decrease the money supply by increasing bank liabilities. 
C) to increase the money supply by increasing the money multiplier. 
D) not to affect the money supply. 
A) to increase the money supply by increasing bank reserves. 
B) to decrease the money supply by increasing bank liabilities. 
C) to increase the money supply by increasing the money multiplier. 
D) not to affect the money supply.

Question 8

Which of the following statements is true?

Accepted Answer

A) The Fed sets the discount rate, but Congress sets the conditions for the availability of discount loans. 
B) The Fed sets the discount rate, but the Secretary of the Treasury sets the conditions for the availability of discount loans. 
C) The Secretary of the Treasury sets both the discount rate and the conditions for the availability of discount loans. 
D) The Fed sets both the discount rate and the conditions for the availability of discount loans. 
A) The Fed sets the discount rate, but Congress sets the conditions for the availability of discount loans. 
B) The Fed sets the discount rate, but the Secretary of the Treasury sets the conditions for the availability of discount loans. 
C) The Secretary of the Treasury sets both the discount rate and the conditions for the availability of discount loans. 
D) The Fed sets both the discount rate and the conditions for the availability of discount loans.

Question 9

During the mid-to-late 1930s

Accepted Answer

A) the Fed cut reserve requirements in order to stimulate the economy. 
B) banks accumulated substantial excess reserves. 
C) the Fed successfully reduced bank holdings of excess reserves by raising required reserve ratios. 
D) the economy grew rapidly despite large increases in bank holdings of excess reserves and increases in required reserve ratios. 
A) the Fed cut reserve requirements in order to stimulate the economy. 
B) banks accumulated substantial excess reserves. 
C) the Fed successfully reduced bank holdings of excess reserves by raising required reserve ratios. 
D) the economy grew rapidly despite large increases in bank holdings of excess reserves and increases in required reserve ratios.

Question 10

The original Federal Reserve Act

Accepted Answer

A) specified open market operations as the Fed's main policy tool. 
B) specified open market operations as one of several Fed policy tools. 
C) specified that open market operations be employed by the Fed only in circumstances where discount loans were ineffective. 
D) did not specifically mention open market operations. 
A) specified open market operations as the Fed's main policy tool. 
B) specified open market operations as one of several Fed policy tools. 
C) specified that open market operations be employed by the Fed only in circumstances where discount loans were ineffective. 
D) did not specifically mention open market operations.

Question 11

If the federal funds rate was above the discount rate,

Accepted Answer

A) banks would choose not to borrow from the Fed. 
B) banks would want to borrow as much as they could from the Fed. 
C) reserves would decline, causing the two to become equal. 
D) the reserve supply curve would become vertical. 
A) banks would choose not to borrow from the Fed. 
B) banks would want to borrow as much as they could from the Fed. 
C) reserves would decline, causing the two to become equal. 
D) the reserve supply curve would become vertical.

Question 12

The discussion of the balance of risks in the FOMC statement refers to the relative risk

Accepted Answer

A) of increasing or decreasing interest rates. 
B) toward economic weakness or higher inflation. 
C) of changing policy now or waiting for more information. 
D) open market sales or purchases. 
A) of increasing or decreasing interest rates. 
B) toward economic weakness or higher inflation. 
C) of changing policy now or waiting for more information. 
D) open market sales or purchases.

Question 13

Which of the following is the dominant means by which the Fed attempts to change the monetary base?

Accepted Answer

A) Discount loans 
B) Open market operations 
C) Changes in the required reserve ratio 
D) Moral suasion 
A) Discount loans 
B) Open market operations 
C) Changes in the required reserve ratio 
D) Moral suasion

Question 14

Is it possible to deduce the Fed's intentions for monetary policy from observing the Fed's trading activity?

Accepted Answer

No. The Fed routinely engages

Question 15

Since 1980, discount loans have been available

Accepted Answer

A) only to member banks of the Federal Reserve System. 
B) only to national banks. 
C) only to state banks. 
D) to all depository institutions. 
A) only to member banks of the Federal Reserve System. 
B) only to national banks. 
C) only to state banks. 
D) to all depository institutions.

Question 16

Which of the following is true of current reserve requirements?

Accepted Answer

A) Time deposits have no reserve requirement. 
B) Eurocurrency liabilities have no reserve requirement. 
C) All checkable deposits are subject to a 10% reserve requirement. 
D) Checkable deposits in rural banks have a lower reserve requirement than checkable deposits in urban banks. 
A) Time deposits have no reserve requirement. 
B) Eurocurrency liabilities have no reserve requirement. 
C) All checkable deposits are subject to a 10% reserve requirement. 
D) Checkable deposits in rural banks have a lower reserve requirement than checkable deposits in urban banks.

Question 17

How were open market operations conducted prior to 1935?

Accepted Answer

A) They were carried out by the Federal Open Market Committee. 
B) They were carried out under the direction of the Secretary of the Treasury. 
C) They were carried out by the district Federal Reserve banks. 
D) They were carried out by the Banking Committee of the House of Representatives. 
A) They were carried out by the Federal Open Market Committee. 
B) They were carried out under the direction of the Secretary of the Treasury. 
C) They were carried out by the district Federal Reserve banks. 
D) They were carried out by the Banking Committee of the House of Representatives.

Question 18

In December 2004, what action did the Fed take to make communication with the public more transparent?

Accepted Answer

A) Holding press conferences 
B) Televising meetings 
C) Publishing minutes 3 weeks after the meeting 
D) Issuing policy statements following each meeting 
A) Holding press conferences 
B) Televising meetings 
C) Publishing minutes 3 weeks after the meeting 
D) Issuing policy statements following each meeting

Question 19

Congress established the FOMC because

Accepted Answer

A) a group was needed to set reserve requirements for member banks. 
B) of a lack of coordination among district banks in carrying out open market operations. 
C) Congress was attempting to expand its influence within the Federal Reserve System. 
D) a group was needed to coordinate the setting of discount rates by the district banks. 
A) a group was needed to set reserve requirements for member banks. 
B) of a lack of coordination among district banks in carrying out open market operations. 
C) Congress was attempting to expand its influence within the Federal Reserve System. 
D) a group was needed to coordinate the setting of discount rates by the district banks.

Question 20

Discount loans available to health banks which can be used for any purpose are called

Accepted Answer

A) primary credit. 
B) secondary credit. 
C) seasonal credit. 
D) repo loans. 
A) primary credit. 
B) secondary credit. 
C) seasonal credit. 
D) repo loans.

Exam 20: Monetary Policy Tools

In the federal funds market diagram, a decrease in the discount rate

In 1980, the Depository Institutions Deregulation and Monetary Control Act

The effect of which of the following on the monetary base could be offset with a defensive open market purchase?

Dynamic open market operations

A member of Congress argues: "The Fed has too much discretion over granting discount loans. Congress should set the discount rate and then require that the Fed grants loans to any depository institution that wishes to borrow at that rate." Do you agree that this would be good policy?

FOMC directives to the account manager

Discount loans in the form of primary credit tend

Which of the following statements is true?

During the mid-to-late 1930s

The original Federal Reserve Act

If the federal funds rate was above the discount rate,

The discussion of the balance of risks in the FOMC statement refers to the relative risk

Which of the following is the dominant means by which the Fed attempts to change the monetary base?

Is it possible to deduce the Fed's intentions for monetary policy from observing the Fed's trading activity?

Since 1980, discount loans have been available

Which of the following is true of current reserve requirements?

How were open market operations conducted prior to 1935?

In December 2004, what action did the Fed take to make communication with the public more transparent?

Congress established the FOMC because

Discount loans available to health banks which can be used for any purpose are called

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