Question 1

Seasonal credit provided by the Fed is not as common as it used to be because:

Accepted Answer

A) there are fewer banks in seasonal areas. 
B) other sources for long-term loans have developed for banks in seasonal areas. 
C) seasonal credit has been replaced by secondary credit. 
D) seasonal credit is being replaced by primary credit. 
A) there are fewer banks in seasonal areas. 
B) other sources for long-term loans have developed for banks in seasonal areas. 
C) seasonal credit has been replaced by secondary credit. 
D) seasonal credit is being replaced by primary credit. B

Question 2

The European Central Bank's equivalent of the Fed's open market operations (OMO) is:

Accepted Answer

A) very similar to the Fed's OMO in that they are highly centralized. 
B) dissimilar to the Fed's OMO in that the operations are conducted at all 18 of the National Central Banks simultaneously. 
C) similar to the Fed's OMO in that they accept only U.S.Treasury securities in their refinancing operations. 
D) dissimilar to the Fed's OMO because fewer banks participate in the auctions of the securities. 
A) very similar to the Fed's OMO in that they are highly centralized. 
B) dissimilar to the Fed's OMO in that the operations are conducted at all 18 of the National Central Banks simultaneously. 
C) similar to the Fed's OMO in that they accept only U.S.Treasury securities in their refinancing operations. 
D) dissimilar to the Fed's OMO because fewer banks participate in the auctions of the securities. B

Question 3

The central banks of Australia, Canada and New Zealand have eliminated reserve requirements and conduct monetary policy through a "channel" or "corridor" system.The "channel" or "corridor" refers to the spread between the central bank's:

Accepted Answer

A) target interest rate and its deposit rate. 
B) target interest rate and its lending rate. 
C) lending rate and its deposit rate. 
D) target interest rate and the current interest rate. 
A) target interest rate and its deposit rate. 
B) target interest rate and its lending rate. 
C) lending rate and its deposit rate. 
D) target interest rate and the current interest rate. C

Question 4

The interest rate on primary credit extended by the Fed is:

Accepted Answer

A) the average of the prime interest rate charged by the ten largest banks in the nation. 
B) below the target federal funds rate. 
C) equal to the target federal funds rate. 
D) above the target federal funds rate. 
A) the average of the prime interest rate charged by the ten largest banks in the nation. 
B) below the target federal funds rate. 
C) equal to the target federal funds rate. 
D) above the target federal funds rate.

Question 5

To minimize the cost of holding reserves for small banks, the:

Accepted Answer

A) required reserve rate decreases as the amount of deposits increases. 
B) required reserve rate is constant. 
C) required reserve rate is not applied for transaction deposits less than $100 million. 
D) first few million of transactions deposits are exempt from reserve requirements. 
A) required reserve rate decreases as the amount of deposits increases. 
B) required reserve rate is constant. 
C) required reserve rate is not applied for transaction deposits less than $100 million. 
D) first few million of transactions deposits are exempt from reserve requirements.

Question 6

Primary credit extended by the Fed is:

Accepted Answer

A) for banks needing long-term loans to work out financial problems. 
B) the highest interest rate loans offered by the Fed. 
C) short-term, usually overnight loans. 
D) loans offered at the prime interest rate for periods exceeding thirty days but less than one year. 
A) for banks needing long-term loans to work out financial problems. 
B) the highest interest rate loans offered by the Fed. 
C) short-term, usually overnight loans. 
D) loans offered at the prime interest rate for periods exceeding thirty days but less than one year.

Question 7

Most central banks, including the Fed and the ECB, provide discount loans at a rate:

Accepted Answer

A) equal to the target interest rate. 
B) below the target interest rate. 
C) above the target interest rate. 
D) that is equal to the overnight interbank lending rate. 
A) equal to the target interest rate. 
B) below the target interest rate. 
C) above the target interest rate. 
D) that is equal to the overnight interbank lending rate.

Question 8

The reserve requirement is applied to two-week balances on:

Accepted Answer

A) transactions deposits. 
B) savings deposits. 
C) both transactions deposits and savings deposits. 
D) savings deposits and one-week balances on transactions deposits. 
A) transactions deposits. 
B) savings deposits. 
C) both transactions deposits and savings deposits. 
D) savings deposits and one-week balances on transactions deposits.

Question 9

The Fed will make a discount loan to a bank during a crisis:

Accepted Answer

A) no matter what condition the bank is in. 
B) only if the bank is sound financially and can provide collateral for the loan. 
C) but if the bank doesn't have collateral the interest rate is higher. 
D) only if the bank would fail without the loan. 
A) no matter what condition the bank is in. 
B) only if the bank is sound financially and can provide collateral for the loan. 
C) but if the bank doesn't have collateral the interest rate is higher. 
D) only if the bank would fail without the loan.

Question 10

Imagine the inflation rate begins to rise rapidly, the FOMC meets and it is believed that the target interest rate needed to stem the inflation could easily exceed 20 percent.Many members of the committee believe the Fed cannot announce this high of a target for political reasons.Discuss what the FOMC could do in terms of targets and what change occurred in 2002 that is going to make their job a bit more difficult.

Accepted Answer

One thing the FOMC could do is instead o

Question 11

What is your response to the following: "The Taylor rule shows a strong correlation between the target rate actually set by the FOMC and the one predicted by the rule.Since the Taylor rule would provide accountability, credibility, and transparency, the FOMC committee should be dissolved and replaced by a form of the Taylor rule."

Accepted Answer

While the correlation might be high ther

Question 12

Over the last few decades, central bankers have:

Accepted Answer

A) mostly abandoned intermediate targets. 
B) greatly increased their focus on intermediate targets. 
C) found that the links between the operating instruments and intermediate targets have become more stable. 
D) developed more intermediate targets. 
A) mostly abandoned intermediate targets. 
B) greatly increased their focus on intermediate targets. 
C) found that the links between the operating instruments and intermediate targets have become more stable. 
D) developed more intermediate targets.

Question 13

Discuss why the discount rate may be considered a penalty rate of interest charged to banks.

Accepted Answer

The discount rate could be considered a

Question 14

Given the following Taylor rule:
Target federal funds rate = 2 + current inflation + ½(inflation gap) +½(output gap);
Since the coefficients on the inflation and output gaps are equal, does this mean the central bank will respond to a one percent increase in inflation with the same change in the target rate as they would initiate from a one percent increase in the output gap? Explain.

Accepted Answer

The coefficient on the gaps are the same

Question 15

Discount lending by the Fed:

Accepted Answer

A) is the key component of monetary policy. 
B) is more important today than in years past. 
C) is not as important today as it was in the past. 
D) amounts to five billion dollars in volume during an average week. 
A) is the key component of monetary policy. 
B) is more important today than in years past. 
C) is not as important today as it was in the past. 
D) amounts to five billion dollars in volume during an average week.

Question 16

One outcome that would result if the Fed paid interest on reserves would be:

Accepted Answer

A) banks would hold less excess reserves. 
B) the federal government's deficit would be larger (or surplus smaller). 
C) banks would no longer hold excess reserves. 
D) the target federal funds rate would have to be fixed at a constant rate. 
A) banks would hold less excess reserves. 
B) the federal government's deficit would be larger (or surplus smaller). 
C) banks would no longer hold excess reserves. 
D) the target federal funds rate would have to be fixed at a constant rate.

Question 17

What are the advantages from the 2002 change in the Fed's lending policy?

Accepted Answer

Prior to 2002 the Fed set a discount rat

Question 18

Since 2002, the Fed has set the primary discount rate at 100 basis points above the target federal funds rate.Why is this likely to prevent the spikes in the market federal funds similar to the ones that occurred in previous years?

Accepted Answer

Prior to 2002 the Fed discouraged banks

Question 19

Discuss the key criteria for success and the advantages of a central bank adopting the framework of inflation targeting.

Accepted Answer

Inflation targeting is a framework where

Question 20

If the demand for reserves remains constant and the market federal funds rate is below the target rate, the Fed would:

Accepted Answer

A) increase the supply of reserves. 
B) decrease the supply of reserves. 
C) do nothing; the Fed will let the market work. 
D) alter the demand for reserves. 
A) increase the supply of reserves. 
B) decrease the supply of reserves. 
C) do nothing; the Fed will let the market work. 
D) alter the demand for reserves.

Seasonal credit provided by the Fed is not as common as it used to be because:

The European Central Bank's equivalent of the Fed's open market operations (OMO) is:

The central banks of Australia, Canada and New Zealand have eliminated reserve requirements and conduct monetary policy through a "channel" or "corridor" system.The "channel" or "corridor" refers to the spread between the central bank's:

The interest rate on primary credit extended by the Fed is:

To minimize the cost of holding reserves for small banks, the:

Primary credit extended by the Fed is:

Most central banks, including the Fed and the ECB, provide discount loans at a rate:

The reserve requirement is applied to two-week balances on:

The Fed will make a discount loan to a bank during a crisis:

Over the last few decades, central bankers have:

Discuss why the discount rate may be considered a penalty rate of interest charged to banks.

Discount lending by the Fed:

One outcome that would result if the Fed paid interest on reserves would be:

What are the advantages from the 2002 change in the Fed's lending policy?

Since 2002, the Fed has set the primary discount rate at 100 basis points above the target federal funds rate.Why is this likely to prevent the spikes in the market federal funds similar to the ones that occurred in previous years?

Discuss the key criteria for success and the advantages of a central bank adopting the framework of inflation targeting.

If the demand for reserves remains constant and the market federal funds rate is below the target rate, the Fed would:

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value, and Interest Rates

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets, and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: The Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Exchange-Rate Policy and the Central Bank

Money Growth, Money Demand, and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

Filters

Exam 18: Monetary Policy: Stabilizing the Domestic Economy

Seasonal credit provided by the Fed is not as common as it used to be because:

The European Central Bank's equivalent of the Fed's open market operations (OMO) is:

The central banks of Australia, Canada and New Zealand have eliminated reserve requirements and conduct monetary policy through a "channel" or "corridor" system.The "channel" or "corridor" refers to the spread between the central bank's:

The interest rate on primary credit extended by the Fed is:

To minimize the cost of holding reserves for small banks, the:

Primary credit extended by the Fed is:

Most central banks, including the Fed and the ECB, provide discount loans at a rate:

The reserve requirement is applied to two-week balances on:

The Fed will make a discount loan to a bank during a crisis:

Over the last few decades, central bankers have:

Discuss why the discount rate may be considered a penalty rate of interest charged to banks.

Discount lending by the Fed:

One outcome that would result if the Fed paid interest on reserves would be:

What are the advantages from the 2002 change in the Fed's lending policy?

Since 2002, the Fed has set the primary discount rate at 100 basis points above the target federal funds rate.Why is this likely to prevent the spikes in the market federal funds similar to the ones that occurred in previous years?

Discuss the key criteria for success and the advantages of a central bank adopting the framework of inflation targeting.

If the demand for reserves remains constant and the market federal funds rate is below the target rate, the Fed would:

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value, and Interest Rates

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets, and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: The Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Exchange-Rate Policy and the Central Bank

Money Growth, Money Demand, and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

Filters