Question 1

During recent years, the Fed's focus has clearly been on the use of

Accepted Answer

A)  the discount rate. 
B)  the federal funds rate. 
C)  the M2 money supply. 
D)  borrowed reserves. 
A)  the discount rate. 
B)  the federal funds rate. 
C)  the M2 money supply. 
D)  borrowed reserves.

Question 2

Reserve targets and federal funds targets are compatible when the Federal Reserve wants to

Accepted Answer

A)  lower interest rates and expand reserves. 
B)  raise interest rates and the money supply. 
C)  raise interest rates and reserves. 
D)  contract interest rates and reserves. 
A)  lower interest rates and expand reserves. 
B)  raise interest rates and the money supply. 
C)  raise interest rates and reserves. 
D)  contract interest rates and reserves.

Question 3

If the Federal Reserve wants to lower the federal funds rate, it should

Accepted Answer

A)  increase reserve requirements. 
B)  announce a lower rate. 
C)  request a lower rate. 
D)  purchase government securities. 
A)  increase reserve requirements. 
B)  announce a lower rate. 
C)  request a lower rate. 
D)  purchase government securities.

Question 4

Total bank reserves are an example of a Federal Reserve

Accepted Answer

A)  tool. 
B)  intermediate target. 
C)  operating target. 
D)  objective. 
A)  tool. 
B)  intermediate target. 
C)  operating target. 
D)  objective.

Question 5

The interest rate target emphasized in recent Federal Open Market Committee press releases is the

Accepted Answer

A)  discount rate. 
B)  prime rate. 
C)  federal funds rate. 
D)  equilibrium rate. 
A)  discount rate. 
B)  prime rate. 
C)  federal funds rate. 
D)  equilibrium rate.

Question 6

Which of the following is an example of a Federal Reserve operating target?

Accepted Answer

A)  Federal funds rate 
B)  Unemployment rate 
C)  Non-financial debt 
D)  M2 
A)  Federal funds rate 
B)  Unemployment rate 
C)  Non-financial debt 
D)  M2

Question 7

M3 is an example of a Federal Reserve

Accepted Answer

A)  directive. 
B)  tool. 
C)  intermediate target. 
D)  operating target. 
A)  directive. 
B)  tool. 
C)  intermediate target. 
D)  operating target.

Question 8

The FOMC directive does not contain a target

Accepted Answer

A)  growth rate for M1. 
B)  growth rate for M2. 
C)  growth rate for M3. 
D)  federal funds interest rate. 
A)  growth rate for M1. 
B)  growth rate for M2. 
C)  growth rate for M3. 
D)  federal funds interest rate.

Question 9

The supply of and demand for bank reserves determines the

Accepted Answer

A)  Treasury bill rate. 
B)  prime rate. 
C)  discount rate. 
D)  federal funds rate. 
A)  Treasury bill rate. 
B)  prime rate. 
C)  discount rate. 
D)  federal funds rate.

Question 10

If banks borrowed from the Fed when the federal funds rate was below its target level

Accepted Answer

A)  the supply of reserves would decrease and the federal funds rate could fall even further. 
B)  the supply of reserves would increase and the federal funds rate would rise. 
C)  the supply of reserves would decrease and the federal funds rate would rise. 
D)  the supply of reserves would increase and the federal funds rate could fall even further. 
A)  the supply of reserves would decrease and the federal funds rate could fall even further. 
B)  the supply of reserves would increase and the federal funds rate would rise. 
C)  the supply of reserves would decrease and the federal funds rate would rise. 
D)  the supply of reserves would increase and the federal funds rate could fall even further.

Question 11

The federal funds rate is a better target for the Fed when

Accepted Answer

A)  the link between reserves and spending is strong. 
B)  there is a lot of variation in the demand for reserves that isn't related to changes in spending. 
C)  changes in interest rates stabilize the economy. 
D)  bank reserves are very stable. 
A)  the link between reserves and spending is strong. 
B)  there is a lot of variation in the demand for reserves that isn't related to changes in spending. 
C)  changes in interest rates stabilize the economy. 
D)  bank reserves are very stable.

Question 12

Which of the following is an ultimate objective of the Federal Reserve?

Accepted Answer

A)  Real GDP growth 
B)  M1 growth 
C)  M2 growth 
D)  Low interest rates 
A)  Real GDP growth 
B)  M1 growth 
C)  M2 growth 
D)  Low interest rates

Question 13

Federal funds rate targets and reserve targets are incompatible when the Federal Reserve wants to

Accepted Answer

A)  expand reserves and lower interest rates. 
B)  expand reserves and raise interest rates. 
C)  contract reserves and the money supply. 
D)  contract reserves and raise interest rates. 
A)  expand reserves and lower interest rates. 
B)  expand reserves and raise interest rates. 
C)  contract reserves and the money supply. 
D)  contract reserves and raise interest rates.

Question 14

The relationship between money and spending is

Accepted Answer

A)  very reliable. 
B)  very unreliable. 
C)  not important. 
D)  None of the above. 
A)  very reliable. 
B)  very unreliable. 
C)  not important. 
D)  None of the above.

Question 15

When forecasting interest rates and the direction of monetary policy, economists often examine the

Accepted Answer

A)  Federal Deposit Insurance Corporation Report. 
B)  Economic Report of the President. 
C)  Federal Advisory Council Statement. 
D)  Federal Open Market Committee directive. 
A)  Federal Deposit Insurance Corporation Report. 
B)  Economic Report of the President. 
C)  Federal Advisory Council Statement. 
D)  Federal Open Market Committee directive.

Question 16

Assume that the actual inflation rate is 3 percent, the target inflation rate is 3 percent, and that the percentage difference between actual and potential real GDP is 2 percent. According to the Taylor rule, the federal funds rate target should be

Accepted Answer

A)  3.5 percent. 
B)  6.5 percent. 
C)  5.5 percent. 
D)  5.0 percent. 
A)  3.5 percent. 
B)  6.5 percent. 
C)  5.5 percent. 
D)  5.0 percent.

Question 17

The unemployment rate is an example of a Federal Reserve

Accepted Answer

A)  tool. 
B)  operating target. 
C)  intermediate target. 
D)  ultimate objective. 
A)  tool. 
B)  operating target. 
C)  intermediate target. 
D)  ultimate objective.

Question 18

The effectiveness of the federal funds rate as an operating target is limited because

Accepted Answer

A)  the Treasury often uses federal funds market. 
B)  reserve requirements often change. 
C)  the demand for reserves is difficult to predict. 
D)  the deposit expansion multiplier is difficult to predict. 
A)  the Treasury often uses federal funds market. 
B)  reserve requirements often change. 
C)  the demand for reserves is difficult to predict. 
D)  the deposit expansion multiplier is difficult to predict.

Question 19

Assume that the actual inflation rate is 3 percent, the target inflation rate is 2.5 percent, and that the percentage difference between actual and potential real GDP is 1 percent. According to the Taylor rule, the federal funds rate target should be

Accepted Answer

A)  3.25 percent. 
B)  5.75 percent. 
C)  6.25 percent. 
D)  5.50 percent. 
A)  3.25 percent. 
B)  5.75 percent. 
C)  6.25 percent. 
D)  5.50 percent.

Question 20

If the federal funds rate is __________ the equilibrium interest rate, banks would try to __________ in the federal funds market.

Accepted Answer

A)  above; borrow 
B)  below; lend 
C)  below; borrow 
D)  None of the above. 
A)  above; borrow 
B)  below; lend 
C)  below; borrow 
D)  None of the above.

Exam 21: Monetary Policy Strategy

During recent years, the Fed's focus has clearly been on the use of

Reserve targets and federal funds targets are compatible when the Federal Reserve wants to

If the Federal Reserve wants to lower the federal funds rate, it should

Total bank reserves are an example of a Federal Reserve

The interest rate target emphasized in recent Federal Open Market Committee press releases is the

Which of the following is an example of a Federal Reserve operating target?

M3 is an example of a Federal Reserve

The FOMC directive does not contain a target

The supply of and demand for bank reserves determines the

If banks borrowed from the Fed when the federal funds rate was below its target level

The federal funds rate is a better target for the Fed when

Which of the following is an ultimate objective of the Federal Reserve?

Federal funds rate targets and reserve targets are incompatible when the Federal Reserve wants to

The relationship between money and spending is

When forecasting interest rates and the direction of monetary policy, economists often examine the

Assume that the actual inflation rate is 3 percent, the target inflation rate is 3 percent, and that the percentage difference between actual and potential real GDP is 2 percent. According to the Taylor rule, the federal funds rate target should be

The unemployment rate is an example of a Federal Reserve

The effectiveness of the federal funds rate as an operating target is limited because

Assume that the actual inflation rate is 3 percent, the target inflation rate is 2.5 percent, and that the percentage difference between actual and potential real GDP is 1 percent. According to the Taylor rule, the federal funds rate target should be

If the federal funds rate is __________ the equilibrium interest rate, banks would try to __________ in the federal funds market.

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

If the federal funds rate is the equilibrium interest rate, banks would try to in the federal funds market.