Exam 18: Monetary Policy: Stabilizing the Domestic Economy

Suppose a European bank has excess reserves.It can either lend them or deposit them overnight in the ECB's Deposit Facility.Ignoring any question of risk, if the bank deposits the funds instead of lending them it must be true that the rate on the loan was less than the:

State and briefly define the tools of monetary policy available to the Federal Reserve.

Discuss what experience concerning required reserves occurred during the Great Depression that contributes to the decision today not to use required reserves as an active tool of monetary policy.

Given the following Taylor rule: Target federal funds rate = 2 + current inflation + ½(inflation gap) +½(output gap); Explain what happens to the real interest rate and why it happens, each time inflation increases by 1 percent.

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 use of lagged reserve accounting makes the demand for reserves:

Could the Fed impact the amount of borrowing in the federal funds market without changing their target for the federal funds rate? Explain.

Which of the following statements is not correct?

The European equivalent of the U.S.market federal funds rate and target federal funds rate are the overnight interbank rate and the target refinancing rate.Explain why the overnight interbank rate would always be within a 200-basis-points band of the target refinancing rate.

Which of the following statement is most true regarding monetary policy tools?

If reserve demand is volatile, in order for the central bank to keep interest rates from being volatile, it must:

Which of the following statements is most correct?

The tools of monetary policy include:

If the Taylor rule is expressed as: Target federal funds rate = 2 + current inflation + ½(inflation gap) +½(output gap); and the current rate of inflation is 4 percent while the target rate is 2 percent and the economy is producing 1 percent above its full potential level, what should be the target federal funds rate?

If the market federal funds rate were above the target rate, the response from the Fed would likely be to:

An increase in the federal funds rate should:

Which of the following statements is most correct?

If the Fed entered the federal funds market as a borrower or a lender to make sure the market rate always equals the target rate, they would be doing all of the following except:

If the current market federal funds rate equals the target rate and the demand for reserves increases, the likely response in the federal funds market will be:

Discount lending ties into the Fed's function of: