Question 1

In the market for reserves,if the federal funds rate is between the discount rate and the interest rate paid on excess reserves,a ________ in the reserve requirement ________ the demand for reserves,lowering the federal funds interest rate,everything else held constant.

Accepted Answer

A) rise;decreases 
B) rise;increases 
C) decline;increases 
D) decline;decreases

Question 2

A decrease in ________ increases the money supply since it causes the ________ to rise.

Accepted Answer

A) reserve requirements;monetary base 
B) reserve requirements;money multiplier 
C) margin requirements;monetary base 
D) margin requirements;money multiplier

Question 3

________ are the most important monetary policy tool because they are the primary determinant of changes in the ________,the main source of fluctuations in the money supply.

Accepted Answer

A) Open market operations;monetary base 
B) Open market operations;money multiplier 
C) Changes in reserve requirements;monetary base 
D) Changes in reserve requirements;money multiplier

Question 4

If float is predicted to decrease because of good weather,the manager of the trading desk at the New York Fed bank will likely conduct ________ open market operations to ________ reserves.

Accepted Answer

A) defensive;inject 
B) defensive;drain 
C) dynamic;inject 
D) dynamic;drain

Question 5

If the Fed expects currency holdings to fall,it conducts open market ________ to offset the expected ________ in reserves.

Accepted Answer

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

Question 6

Everything else held constant,in the market for reserves,when the federal funds rate equals the interest rate paid on excess reserves,raising the interest rate paid on excess reserves

Accepted Answer

A) increases the federal funds rate. 
B) lowers the federal funds rate. 
C) has no effect on the federal funds rate. 
D) has an indeterminate effect of the federal funds rate.

Question 7

The purpose for a central bank to set negative interest rates on bank's deposit is to

Accepted Answer

A) stimulate the economy by encouraging banks to lend out the deposits they were keeping at the central bank. 
B) increase bank's cost to holding cash. 
C) prevent banks from paying positive interest rates to their depositors. 
D) make banks less likely to lend.

Question 8

Discount policy affects the money supply by affecting the volume of ________ and the ________.

Accepted Answer

A) excess reserves;monetary base 
B) borrowed reserves;monetary base 
C) excess reserves;money multiplier 
D) borrowed reserves;money multiplier

Question 9

Open market purchases raise the ________ thereby raising the ________.

Accepted Answer

A) money multiplier;money supply 
B) money multiplier;monetary base 
C) monetary base;money supply 
D) monetary base;money multiplier

Question 10

The discount rate is

Accepted Answer

A) the interest rate the Fed charges on loans to banks. 
B) the price the Fed pays for government securities. 
C) the interest rate that banks charge their most preferred customers. 
D) the price banks pay the Fed for government securities.

Question 11

The interest rate charged on overnight loans of reserves between banks is the

Accepted Answer

A) prime rate. 
B) discount rate. 
C) federal funds rate. 
D) Treasury bill rate.

Question 12

Everything else held constant,in the market for reserves,when the supply for federal funds intersects the reserve demand curve along the horizontal section of the demand curve,lowering the interest rate paid on excess reserves

Accepted Answer

A) increases the federal funds rate. 
B) lowers the federal funds rate. 
C) has no effect on the federal funds rate. 
D) has an indeterminate effect of the federal funds rate.

Question 13

The facility that was created in December of 2007 that banks can use to borrow from the Fed that has less of a stigma for banks compared to borrowing from the discount window is the

Accepted Answer

A) Term Securities Lending Facility. 
B) Term Auction Facility. 
C) Primary Dealer Credit Facility. 
D) Commercial Paper Funding Facility.

Question 14

If Treasury deposits at the Fed are predicted to increase,the manager of the trading desk at the New York Fed bank will likely conduct ________ open market operations to ________ reserves.

Accepted Answer

A) defensive;inject 
B) defensive;drain 
C) dynamic;inject 
D) dynamic;drain

Question 15

Open market purchases ________ reserves and the monetary base thereby ________ the money supply.

Accepted Answer

A) raise;lowering 
B) raise;raising 
C) lower;lowering 
D) lower;raising

Question 16

Everything else held constant,in the market for reserves,decreases in the interest rate paid on excess reserves affect the federal funds rate

Accepted Answer

A) when the funds rate is below the interest rate paid on excess reserves. 
B) when the funds rate equals the interest rate paid on excess reserves. 
C) when the funds rate is below the discount rate. 
D) when the funds rate equals the discount rate.

Question 17

Everything else held constant,the vertical section of the supply curve of reserves is shortened when the

Accepted Answer

A) discount rate increases. 
B) discount rate decreases. 
C) federal funds rate rises. 
D) federal funds rate falls.

Question 18

When the Federal Reserve engages in a repurchase agreement to offset a withdrawal of Treasury funds from the Federal Reserve,the open market operation is said to be

Accepted Answer

A) defensive. 
B) offensive. 
C) dynamic. 
D) reactionary.

Question 19

Open market operations intended to offset movements in noncontrollable factors (such as float)that affect reserves and the monetary base are called

Accepted Answer

A) defensive open market operations. 
B) dynamic open market operations. 
C) offensive open market operations. 
D) reactionary open market operations.

Question 20

Everything else held constant,in the market for reserves,when the supply for federal funds intersects the reserve demand curve on the downward sloping section,decreasing the interest rate paid on excess reserves

Accepted Answer

A) increases the federal funds rate. 
B) lowers the federal funds rate. 
C) has no effect on the federal funds rate. 
D) has an indeterminate effect on the federal funds rate.

Exam 15: Tools of Monetary Policy

In the market for reserves,if the federal funds rate is between the discount rate and the interest rate paid on excess reserves,a in the reserve requirement the demand for reserves,lowering the federal funds interest rate,everything else held constant.

A decrease in increases the money supply since it causes the to rise.

are the most important monetary policy tool because they are the primary determinant of changes in the ,the main source of fluctuations in the money supply.

If float is predicted to decrease because of good weather,the manager of the trading desk at the New York Fed bank will likely conduct open market operations to reserves.

If the Fed expects currency holdings to fall,it conducts open market to offset the expected in reserves.

Everything else held constant,in the market for reserves,when the federal funds rate equals the interest rate paid on excess reserves,raising the interest rate paid on excess reserves

The purpose for a central bank to set negative interest rates on bank's deposit is to

Discount policy affects the money supply by affecting the volume of and the .

Open market purchases raise the thereby raising the .