Question 1

The Federal Open Market Committee directive is a

Accepted Answer

A)  general statement of Federal Reserve policy goals. 
B)  detailed description of government security purchases to be carried out by the New York Federal Reserve bank. 
C)  statement specifying the maximum level of inflation the Federal Reserve will accept. 
D)  statement specifying the maximum level of unemployment the Federal Reserve will accept. 
A)  general statement of Federal Reserve policy goals. 
B)  detailed description of government security purchases to be carried out by the New York Federal Reserve bank. 
C)  statement specifying the maximum level of inflation the Federal Reserve will accept. 
D)  statement specifying the maximum level of unemployment the Federal Reserve will accept. A

Question 2

Which of the following is a reserve target specified in the FOMC directive?

Accepted Answer

A)  Bank reserves 
B)  Commercial bank capital requirements 
C)  Demand deposits 
D)  The prime rate 
A)  Bank reserves 
B)  Commercial bank capital requirements 
C)  Demand deposits 
D)  The prime rate A

Question 3

Which of the following cannot be controlled precisely by the Federal Reserve?

Accepted Answer

A)  Government securities held by the New York Federal Reserve 
B)  The discount rate 
C)  Reserve requirement ratios 
D)  Total bank reserves 
A)  Government securities held by the New York Federal Reserve 
B)  The discount rate 
C)  Reserve requirement ratios 
D)  Total bank reserves D

Question 4

Federal funds are

Accepted Answer

A)  funds owned by the federal government. 
B)  funds owned by the Federal Reserve. 
C)  bank reserves that are lent overnight between banks. 
D)  bank reserves that are lent overnight by the Federal Reserve to banks. 
A)  funds owned by the federal government. 
B)  funds owned by the Federal Reserve. 
C)  bank reserves that are lent overnight between banks. 
D)  bank reserves that are lent overnight by the Federal Reserve to banks.

Question 5

Which of the following is a goal of the Federal Reserve?

Accepted Answer

A)  The federal funds rate target 
B)  Changes in reserve aggregates 
C)  Changes in monetary aggregates 
D)  Control of the rate of inflation 
A)  The federal funds rate target 
B)  Changes in reserve aggregates 
C)  Changes in monetary aggregates 
D)  Control of the rate of inflation

Question 6

The Federal Reserve uses the federal funds rate as an operating target because

Accepted Answer

A)  it is an excellent indicator of the economy's underlying inflation rate. 
B)  it is very sensitive to bank reserve level changes. 
C)  it is determined by the Treasury. 
D)  the Fed sets the rate directly. 
A)  it is an excellent indicator of the economy's underlying inflation rate. 
B)  it is very sensitive to bank reserve level changes. 
C)  it is determined by the Treasury. 
D)  the Fed sets the rate directly.

Question 7

Since mid-2000, the Fed's only operating target has been

Accepted Answer

A)  M2 money supply growth. 
B)  the discount rate. 
C)  the consumer price index. 
D)  the federal funds rate. 
A)  M2 money supply growth. 
B)  the discount rate. 
C)  the consumer price index. 
D)  the federal funds rate.

Question 8

Targeting reserves would be the best choice if

Accepted Answer

A)  there is a close and predictable relationship between bank reserves and total spending. 
B)  there is an unpredictable relationship between bank reserves and total spending. 
C)  the discount rate is fixed. 
D)  private sector spending is very stable. 
A)  there is a close and predictable relationship between bank reserves and total spending. 
B)  there is an unpredictable relationship between bank reserves and total spending. 
C)  the discount rate is fixed. 
D)  private sector spending is very stable.

Question 9

One effect of a shrinking economy is

Accepted Answer

A)  an increase in the discount rate. 
B)  a decrease in the discount rate. 
C)  an increase in the federal funds rate. 
D)  a decrease in the federal funds rate. 
A)  an increase in the discount rate. 
B)  a decrease in the discount rate. 
C)  an increase in the federal funds rate. 
D)  a decrease in the federal funds rate.

Question 10

Under the new discount window system, the interest rate for primary credit loans is set

Accepted Answer

A)  one percentage point below the federal funds rate target. 
B)  one percentage point above the federal funds rate target. 
C)  two percentage points above the federal funds rate target. 
D)  two percentage points below the federal funds rate target. 
A)  one percentage point below the federal funds rate target. 
B)  one percentage point above the federal funds rate target. 
C)  two percentage points above the federal funds rate target. 
D)  two percentage points below the federal funds rate target.

Question 11

The demand for reserves is __________ related to the federal funds rate because banks __________ their excess reserves as the federal funds rate falls.

Accepted Answer

A)  inversely; increase 
B)  inversely; decrease 
C)  positively; increase 
D)  positively; decrease 
A)  inversely; increase 
B)  inversely; decrease 
C)  positively; increase 
D)  positively; decrease

Question 12

Long-term interest rates are an example of

Accepted Answer

A)  an intermediate target. 
B)  an operating target. 
C)  a monetary policy objective. 
D)  a monetary policy tool. 
A)  an intermediate target. 
B)  an operating target. 
C)  a monetary policy objective. 
D)  a monetary policy tool.

Question 13

The FOMC directive contains a target growth rate for

Accepted Answer

A)  nominal GDP. 
B)  real GDP. 
C)  the inflation rate. 
D)  M2. 
A)  nominal GDP. 
B)  real GDP. 
C)  the inflation rate. 
D)  M2.

Question 14

A(n)__________ in consumer spending will __________ the demand for reserves, resulting in a __________ federal funds rate.

Accepted Answer

A)  increase; raise; lower 
B)  increase; raise; higher 
C)  decrease; raise; higher 
D)  decrease; lower; higher 
A)  increase; raise; lower 
B)  increase; raise; higher 
C)  decrease; raise; higher 
D)  decrease; lower; higher

Question 15

Until the year 2000, the Humphrey-Hawkins Act directed the Fed to pursue all of the following, except

Accepted Answer

A)  maximum employment. 
B)  price stability. 
C)  high economic growth. 
D)  moderate long-term interest rates. 
A)  maximum employment. 
B)  price stability. 
C)  high economic growth. 
D)  moderate long-term interest rates.

Question 16

Which of the following is an example of a reserve aggregate closely watched by the Federal Reserve?

Accepted Answer

A)  Monetary base 
B)  Currency held by the public 
C)  Vault cash 
D)  Total non-financial debt 
A)  Monetary base 
B)  Currency held by the public 
C)  Vault cash 
D)  Total non-financial debt

Question 17

In general, the fed funds rate

Accepted Answer

A)  moves in the direction suggested by the Taylor rule. 
B)  moves in the opposite direction as suggested by the Taylor rule. 
C)  is uncorrelated with the Taylor rule prediction. 
D)  None of the above. 
A)  moves in the direction suggested by the Taylor rule. 
B)  moves in the opposite direction as suggested by the Taylor rule. 
C)  is uncorrelated with the Taylor rule prediction. 
D)  None of the above.

Question 18

If the federal funds rate is below the equilibrium federal funds rate, then the supply of reserves would be __________ than the demand for reserves and the banks would try to __________ reserves causing the federal funds rate to fall.

Accepted Answer

A)  greater than; lend 
B)  greater than; borrow 
C)  less than; lend 
D)  less than; borrow 
A)  greater than; lend 
B)  greater than; borrow 
C)  less than; lend 
D)  less than; borrow

Question 19

An effective Federal Reserve operating target is a target that is reliably linked to

Accepted Answer

A)  inflation and unemployment rates. 
B)  other operating targets. 
C)  fiscal policy. 
D)  open market operations. 
A)  inflation and unemployment rates. 
B)  other operating targets. 
C)  fiscal policy. 
D)  open market operations.

Question 20

The supply of reserves __________ when the federal funds rate __________.

Accepted Answer

A)  increases; increases 
B)  increases; decreases 
C)  decreases; increases 
D)  decreases; decreases 
E)  does not change; changes 
A)  increases; increases 
B)  increases; decreases 
C)  decreases; increases 
D)  decreases; decreases 
E)  does not change; changes

Exam 21: Monetary Policy Strategy

The Federal Open Market Committee directive is a

Which of the following is a reserve target specified in the FOMC directive?

Which of the following cannot be controlled precisely by the Federal Reserve?

Federal funds are

Which of the following is a goal of the Federal Reserve?

The Federal Reserve uses the federal funds rate as an operating target because

Since mid-2000, the Fed's only operating target has been

Targeting reserves would be the best choice if

One effect of a shrinking economy is

Under the new discount window system, the interest rate for primary credit loans is set

The demand for reserves is __________ related to the federal funds rate because banks __________ their excess reserves as the federal funds rate falls.

Long-term interest rates are an example of

The FOMC directive contains a target growth rate for

A(n)__________ in consumer spending will __________ the demand for reserves, resulting in a __________ federal funds rate.

Until the year 2000, the Humphrey-Hawkins Act directed the Fed to pursue all of the following, except

Which of the following is an example of a reserve aggregate closely watched by the Federal Reserve?

In general, the fed funds rate

If the federal funds rate is below the equilibrium federal funds rate, then the supply of reserves would be __________ than the demand for reserves and the banks would try to __________ reserves causing the federal funds rate to fall.

An effective Federal Reserve operating target is a target that is reliably linked to

The supply of reserves __________ when the federal funds rate __________.

Introducing Money, Banking, and Financial Markets

The Role of Money in the Macroeconomy

Financial Instruments, Markets, and Institutions

Interest Rate Measurement and Behavior

The Term and Risk Structure of Interest Rates

The Structure and Performance of Securities Markets

The Pricing of Risky Financial Assets

Money and Capital Markets

Demystifying Derivatives

Understanding Foreign Exchange

The Nature of Financial Intermediation

Depository Financial Institutions

Nondepository Financial Institutions

Understanding Financial Contracts

The Regulation of Markets and Institutions

Financial System Design

Who's in Charge Here?

Bank Reserves and the Money Supply

The Instruments of Central Bankin

Understanding Movements in Bank Reserves

The Classical Foundations

The Keynesian Framework

The ISLM World

Money and Economic Stability in the ISLM World

An Aggregate Supply and Demand Perspective on Money and Economic Stability

Rational Expectations: Theory and Policy Implications

Empirical Evidence on the Effectiveness of Monetary Policy

Tying It All Together

Filters

The demand for reserves is related to the federal funds rate because banks their excess reserves as the federal funds rate falls.

A(n) in consumer spending will the demand for reserves, resulting in a __ federal funds rate.

If the federal funds rate is below the equilibrium federal funds rate, then the supply of reserves would be than the demand for reserves and the banks would try to reserves causing the federal funds rate to fall.

The supply of reserves when the federal funds rate .