Question 1

The discount rate is an operating target.

Accepted Answer

A) True 
 B)False

Question 2

Flexibility is a requirement in selecting an intermediate target.

Accepted Answer

A) True 
 B)False

Question 3

If the Fed uses the federal funds rate as an interest rate target,an increase in the demand for reserves will result in a(n)________ in ________.

Accepted Answer

A)  increase; nonborrowed reserves 
B)  decrease; nonborrowed reserves 
C)  increase; the federal funds interest rate 
D)  decrease; the federal funds interest rate 
A)  increase; nonborrowed reserves 
B)  decrease; nonborrowed reserves 
C)  increase; the federal funds interest rate 
D)  decrease; the federal funds interest rate

Question 4

Discount loans to healthy banks,who may borrow as much as they wish from the Fed,are called

Accepted Answer

A)  primary credit. 
B)  secondary credit. 
C)  seasonal credit. 
D)  lender-of-last-resort credit. 
A)  primary credit. 
B)  secondary credit. 
C)  seasonal credit. 
D)  lender-of-last-resort credit.

Question 5

The demand curve for reserves shifts to the left and the federal funds rate falls when the Fed

Accepted Answer

A)  decreases reserve requirements or does an open market purchase. 
B)  lowers the discount rate. 
C)  lowers the discount rate or does an open market purchase. 
D)  decreases reserves requirements. 
E)  does an open market sale. 
A)  decreases reserve requirements or does an open market purchase. 
B)  lowers the discount rate. 
C)  lowers the discount rate or does an open market purchase. 
D)  decreases reserves requirements. 
E)  does an open market sale.

Question 6

Banks' holding of deposits in accounts with the Fed,plus currency that is physically held in banks are called

Accepted Answer

A)  the monetary base. 
B)  government securities. 
C)  open market operations. 
D)  reserves. 
A)  the monetary base. 
B)  government securities. 
C)  open market operations. 
D)  reserves.

Question 7

At its inception,the Federal Reserve was intended to be

Accepted Answer

A)  the Treasury's banker. 
B)  the issuer of government debt. 
C)  a lender of last resort. 
D)  a regulator of bank holding companies. 
A)  the Treasury's banker. 
B)  the issuer of government debt. 
C)  a lender of last resort. 
D)  a regulator of bank holding companies.

Question 8

Although the goals of high employment and economic growth are closely related,policies can be specifically aimed at encouraging economic growth by

Accepted Answer

A)  encouraging firms to invest. 
B)  encouraging people to save. 
C)  both A and B of the above. 
D)  neither A nor B of the above. 
A)  encouraging firms to invest. 
B)  encouraging people to save. 
C)  both A and B of the above. 
D)  neither A nor B of the above.

Question 9

The Bank of England,as well as the ECB,put price stability first among all goals. This is known as a ________.

Accepted Answer

A)  hierarchical mandate 
B)  dual mandate 
C)  singular mandate 
D)  ubiquitous mandate 
A)  hierarchical mandate 
B)  dual mandate 
C)  singular mandate 
D)  ubiquitous mandate

Question 10

Distinguish between the three types of Fed discount loans: primary credit,secondary credit,and seasonal credit.

Accepted Answer

Primary Credit:

This lending program is

Question 11

During the 2007-2009 financial crisis,what actions did the Fed take to limit the scope of the crisis?

Accepted Answer

A)  The Fed lowered the spread on the discount rate to 50 basis points, and then to 25. 
B)  The Fed set up the Term Auction Facility to provide further liquidity to banks. 
C)  The Fed purchased assets of Bear Stearns to facilitate the purchase of Bear Stearns by J.P. Morgan. 
D)  all of the above. 
A)  The Fed lowered the spread on the discount rate to 50 basis points, and then to 25. 
B)  The Fed set up the Term Auction Facility to provide further liquidity to banks. 
C)  The Fed purchased assets of Bear Stearns to facilitate the purchase of Bear Stearns by J.P. Morgan. 
D)  all of the above.

Question 12

The discount rate is

Accepted Answer

A)  the interest rate on loans from the Fed to a bank. 
B)  the price the Fed pays for government securities. 
C)  the interest rate on loans of reserves from one bank to another. 
D)  the price banks pay the Fed for government securities. 
E)  the interest rate on loans from a bank to the federal government. 
A)  the interest rate on loans from the Fed to a bank. 
B)  the price the Fed pays for government securities. 
C)  the interest rate on loans of reserves from one bank to another. 
D)  the price banks pay the Fed for government securities. 
E)  the interest rate on loans from a bank to the federal government.

Question 13

What goals are continually mentioned by central bank officials when discussing the objectives of monetary policy?

Accepted Answer

A)  High unemployment 
B)  Instability in foreign exchange markets 
C)  Interest-rate stability 
D)  All of the above 
A)  High unemployment 
B)  Instability in foreign exchange markets 
C)  Interest-rate stability 
D)  All of the above

Question 14

A discount loan by the Fed to a bank causes a(n)________ in reserves in the banking system and a(n)________ in the monetary base.

Accepted Answer

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

Question 15

The supply curve for reserves shifts to the left and the federal funds rate rises when the Fed

Accepted Answer

A)  raises reserves requirements. 
B)  does an open market purchase. 
C)  does an open market sale. 
D)  raises the discount rate. 
A)  raises reserves requirements. 
B)  does an open market purchase. 
C)  does an open market sale. 
D)  raises the discount rate.

Question 16

Regulations making it obligatory for depository institutions to keep a certain fraction of their deposits in accounts with the Fed are

Accepted Answer

A)  open market operations. 
B)  federal funds rate. 
C)  required reserve ratio. 
D)  reserve requirements. 
A)  open market operations. 
B)  federal funds rate. 
C)  required reserve ratio. 
D)  reserve requirements.

Question 17

Discount loans to banks experiencing severe liquidity problems are called

Accepted Answer

A)  primary credit. 
B)  secondary credit. 
C)  seasonal credit. 
D)  lender-of-last-resort credit. 
A)  primary credit. 
B)  secondary credit. 
C)  seasonal credit. 
D)  lender-of-last-resort credit.

Question 18

The federal funds rate is

Accepted Answer

A)  the interest rate on loans from the Fed to a bank. 
B)  the price the Fed pays for government securities. 
C)  the interest rate on loans of reserves from one bank to another. 
D)  the price banks pay the Fed for government securities. 
E)  the interest rate on loans from a bank to the federal government. 
A)  the interest rate on loans from the Fed to a bank. 
B)  the price the Fed pays for government securities. 
C)  the interest rate on loans of reserves from one bank to another. 
D)  the price banks pay the Fed for government securities. 
E)  the interest rate on loans from a bank to the federal government.

Question 19

The Fed puts price stability along with maximum employment as its primary goals. This is known as a ________.

Accepted Answer

A)  hierarchical mandate 
B)  dual mandate 
C)  singular mandate 
D)  ubiquitous mandate 
A)  hierarchical mandate 
B)  dual mandate 
C)  singular mandate 
D)  ubiquitous mandate

Question 20

If the Fed's strategy for conducting monetary policy is thought of as a game plan that proceeds in stages,then the game plan can be summarized as follows:

Accepted Answer

A)  The Fed selects its policy goals, then the intermediate targets consistent with achieving its policy goals, then the operating targets consistent with its intermediate targets. Finally, it adjusts its policy tools to effect the desired targets and goals. 
B)  The Fed selects its policy goals, then the operating targets consistent with achieving its policy goals, then the intermediate targets consistent with its operating targets. Finally, it adjusts its policy tools to effect the desired targets and goals. 
C)  The Fed selects its policy goals, then the intermediate targets consistent with achieving its policy goals, then the policy tools consistent with its intermediate targets. Finally, it adjusts its operating targets to effect the desired targets and tools. 
D)  The Fed selects its policy tools, then the operating targets consistent with achieving its policy tools, then the intermediate targets consistent with its operating targets. Finally, it adjusts its policy goals to effect the desired targets and tools. 
E)  None of the above. 
A)  The Fed selects its policy goals, then the intermediate targets consistent with achieving its policy goals, then the operating targets consistent with its intermediate targets. Finally, it adjusts its policy tools to effect the desired targets and goals. 
B)  The Fed selects its policy goals, then the operating targets consistent with achieving its policy goals, then the intermediate targets consistent with its operating targets. Finally, it adjusts its policy tools to effect the desired targets and goals. 
C)  The Fed selects its policy goals, then the intermediate targets consistent with achieving its policy goals, then the policy tools consistent with its intermediate targets. Finally, it adjusts its operating targets to effect the desired targets and tools. 
D)  The Fed selects its policy tools, then the operating targets consistent with achieving its policy tools, then the intermediate targets consistent with its operating targets. Finally, it adjusts its policy goals to effect the desired targets and tools. 
E)  None of the above.

Exam 10: Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The discount rate is an operating target.

Flexibility is a requirement in selecting an intermediate target.

If the Fed uses the federal funds rate as an interest rate target,an increase in the demand for reserves will result in a(n)________ in ________.

Discount loans to healthy banks,who may borrow as much as they wish from the Fed,are called

The demand curve for reserves shifts to the left and the federal funds rate falls when the Fed

Banks' holding of deposits in accounts with the Fed,plus currency that is physically held in banks are called

At its inception,the Federal Reserve was intended to be

Although the goals of high employment and economic growth are closely related,policies can be specifically aimed at encouraging economic growth by

The Bank of England,as well as the ECB,put price stability first among all goals. This is known as a ________.

Distinguish between the three types of Fed discount loans: primary credit,secondary credit,and seasonal credit.

During the 2007-2009 financial crisis,what actions did the Fed take to limit the scope of the crisis?

The discount rate is

What goals are continually mentioned by central bank officials when discussing the objectives of monetary policy?

A discount loan by the Fed to a bank causes a(n)________ in reserves in the banking system and a(n)________ in the monetary base.

The supply curve for reserves shifts to the left and the federal funds rate rises when the Fed

Regulations making it obligatory for depository institutions to keep a certain fraction of their deposits in accounts with the Fed are

Discount loans to banks experiencing severe liquidity problems are called

The federal funds rate is

The Fed puts price stability along with maximum employment as its primary goals. This is known as a ________.

If the Fed's strategy for conducting monetary policy is thought of as a game plan that proceeds in stages,then the game plan can be summarized as follows:

Why Study Financial Markets and Institutions?

Overview of the Financial System

What Do Interest Rates Mean and What Is Their Role in Valuation?

Why Do Interest Rates Change?

How Do Risk and Term Structure Affect Interest Rates?

Are Financial Markets Efficient?

Why Do Financial Institutions Exist?

Why Do Financial Crises Occur and

Central Banks and the Federal Reserve System

The Money Markets

The Bond Market

The Stock Market

The Mortgage Markets

The Foreign Exchange Market

The International Financial System

Banking and the Management of Financial Institutions

Financial Regulation

Banking Industry: Structure and Competition

The Mutual Fund Industry

Insurance Companies and Pension Funds

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging with Financial Derivatives

Financial Crises In Emerging Market Economies

Savings Associations and Credit Unions

Finance Companies

Filters

If the Fed uses the federal funds rate as an interest rate target,an increase in the demand for reserves will result in a(n) in .

A discount loan by the Fed to a bank causes a(n) in reserves in the banking system and a(n) in the monetary base.