Exam 13: Central Banking and Monetary Policy: Exploring Tools and Strategies

Suppose the banking system's nonborrowed reserves total $100 billion with total legal reserves standing at $125 billion. What must borrowed reserves be?

A Federal Reserve reverse REPO temporarily increases the volume of funds available to a government securities dealer.

When the Federal Reserve conducts purchases and sales of securities on behalf of foreign central banks these are known as:

The purchase of securities by the Fed will decrease total legal reserves.

In the 1990s and early 21st century Japan was struggling with deflation and used a policy known as quantitative easing, which is establishing a zero interest rate and also injecting reserves into the banking system and a rapid pace.

Many economists believe that the natural unemployment rate in the United States is around 5%.

In the U.S., the Fed seems very hesitant about suddenly changing the direction of interest rates, even when it would be beneficial.

The Federal Reserve policy directive issued after each FOMC meeting summarizes information regarding:

Because of the possibility of negative psychological effects, the discount rate is changed infrequently and often lags behind interest rates in the open market.

Federal Reserve is authorized to adjust reserve requirements downward, even going to zero reserves required.

The natural rate of unemployment arises from the temporary unemployment jobseekers, who are either new to the workforce or who are in transition from one job to another.

The total quantity of reserves available to the banking system can be changed directly by central bank open-market operations.

The principal purpose of reserve requirements is to safeguard the public's deposits.

The European Central Bank pays interest on required reserve balances whereas the Federal Reserve does not.

The type of unemployment in the economy that arises from the temporary unemployment of persons who are changing jobs in response to higher wages or better working conditions is known as:

An agreement to purchase securities which will be sold back at a specified time and results in a temporary increase in legal reserves is called:

Borrowing from the Fed's discount window reduces total reserves available to the banking system until the loan is repaid.

The Federal Reserve can keep the Federal funds interest rate at or near its desired level so long as the central bank is willing to offset changes in the demand for reserves by adjustments in the supply of nonborrowed reserves through open market operations.

Many countries have taken actions that allow the elimination of any reserve requirements.

Other central banks around the world may use different types of securities to buy or sell in conducting their open-market operations. Among the more common financial instruments traded by many central banks today are: