Question 1

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 2

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 3

Inflation targeting makes the central bank less accountable.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

The answer of Distinguish between the three types of Fed...

Question 5

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 6

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 7

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 8

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.

Question 9

Which of the following is a potential operating target for the Fed?

Accepted Answer

A) The monetary base 
B) The M1 money supply 
C) Nominal GDP 
D) The discount rate 
A) The monetary base 
B) The M1 money supply 
C) Nominal GDP 
D) The discount rate

Question 10

Holding everything else constant, if the federal funds rate rises, then the demand for

Accepted Answer

A) excess reserves rises because they have a higher return. 
B) excess reserves falls because they have a higher cost. 
C) required reserves falls because the cost of borrowing from the Fed is relatively higher. 
D) required reserves rises because the cost of borrowing from the Fed is relatively lower. 
E) reserves will not change because the Fed sets the level of required reserves. 
A) excess reserves rises because they have a higher return. 
B) excess reserves falls because they have a higher cost. 
C) required reserves falls because the cost of borrowing from the Fed is relatively higher. 
D) required reserves rises because the cost of borrowing from the Fed is relatively lower. 
E) reserves will not change because the Fed sets the level of required reserves.

Question 11

When workers voluntarily leave work while they look for better jobs, the resulting unemployment is called frictional unemployment.

Accepted Answer

A) True 
 B)False

Question 12

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 and people to save. 
B) encouraging firms to limit their price increases. 
C) encouraging people to consume. 
D) all of the above. 
E) only A and C of the above. 
A) encouraging firms to invest and people to save. 
B) encouraging firms to limit their price increases. 
C) encouraging people to consume. 
D) all of the above. 
E) only A and C of the above.

Question 13

Under usual circumstances, an increase in the discount rate causes

Accepted Answer

A) the federal funds rate to fall. 
B) the federal funds rate to rise. 
C) no change in the federal funds rate. 
D) the supply of reserves to increase. 
E) the supply of reserves to decrease. 
A) the federal funds rate to fall. 
B) the federal funds rate to rise. 
C) no change in the federal funds rate. 
D) the supply of reserves to increase. 
E) the supply of reserves to decrease.

Question 14

What are the arguments for and against central bank intervention during asset-price bubbles?

Accepted Answer

The answer of What are the arguments for and against...

Question 15

If the desired intermediate target is a monetary aggregate, then the preferred operating target will be a(n)________ variable like the ________.

Accepted Answer

A) interest rate; three-month Treasury bill rate 
B) interest rate; federal funds rate 
C) reserve aggregate; monetary base 
D) reserve aggregate; nonborrowed reserves 
A) interest rate; three-month Treasury bill rate 
B) interest rate; federal funds rate 
C) reserve aggregate; monetary base 
D) reserve aggregate; nonborrowed reserves

Question 16

Discuss the role of the Fed as a lender of last resort during the 2007-2009 financial crisis.

Accepted Answer

The answer of Discuss the role of the Fed as...

Question 17

What is the argument for the Fed paying interest to banks on required reserves? Are there good arguments for not doing this?

Accepted Answer

The answer of What is the argument for the Fed...

Question 18

Inflation targeting involves

Accepted Answer

A) a public announcement of medium-term numerical targets for inflation. 
B) increased accountability of the central bank for attaining its inflation objectives. 
C) an information-inclusive approach in which many variables are used in making decisions about monetary policy. 
D) all of the above. 
A) a public announcement of medium-term numerical targets for inflation. 
B) increased accountability of the central bank for attaining its inflation objectives. 
C) an information-inclusive approach in which many variables are used in making decisions about monetary policy. 
D) all of the above.

Question 19

The Federal Open Market Committee makes the Fed's decisions on the purchase or sale of government securities, but these purchases or sales are executed by the Federal Reserve Bank of

Accepted Answer

A) Chicago. 
B) Boston. 
C) New York. 
D) San Francisco. 
A) Chicago. 
B) Boston. 
C) New York. 
D) San Francisco.

Question 20

The Fed is reluctant to use reserve requirements to control the money supply because

Accepted Answer

A) of their overly-powerful impact on the money supply. 
B) they have the potential to create liquidity problems for banks with low excess reserves. 
C) frequent changes in reserve requirements complicate liquidity management for banks. 
D) of all of the above. 
E) of only A and B of the above. 
A) of their overly-powerful impact on the money supply. 
B) they have the potential to create liquidity problems for banks with low excess reserves. 
C) frequent changes in reserve requirements complicate liquidity management for banks. 
D) of all of the above. 
E) of only A and B of the above.

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

Discount loans to banks experiencing severe liquidity problems are called

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

Inflation targeting makes the central bank less accountable.

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

At its inception, the Federal Reserve was intended to be

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.

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

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:

Which of the following is a potential operating target for the Fed?

Holding everything else constant, if the federal funds rate rises, then the demand for

When workers voluntarily leave work while they look for better jobs, the resulting unemployment is called frictional unemployment.

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

Under usual circumstances, an increase in the discount rate causes

What are the arguments for and against central bank intervention during asset-price bubbles?

If the desired intermediate target is a monetary aggregate, then the preferred operating target will be a(n)________ variable like the ________.

Discuss the role of the Fed as a lender of last resort during the 2007-2009 financial crisis.

What is the argument for the Fed paying interest to banks on required reserves? Are there good arguments for not doing this?

Inflation targeting involves

The Federal Open Market Committee makes the Fed's decisions on the purchase or sale of government securities, but these purchases or sales are executed by the Federal Reserve Bank of

The Fed is reluctant to use reserve requirements to control the money supply because

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 Why Are They so Damaging to the Economy

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

Savings Associations and Credit Unions

Finance Companies

Filters

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.

If the desired intermediate target is a monetary aggregate, then the preferred operating target will be a(n) variable like the .