Question 1

Much of the credit for prevention of a financial market meltdown after "Black Monday" (October 19,1987)must be given to the Federal Reserve System and then-chairman

Accepted Answer

A) Paul Volcker. 
B) Alan Blinder. 
C) Arthur Burns. 
D) Alan Greenspan.

Question 2

When bad storms slow the check-clearing process,float tends to ________ causing the Fed to initiate defensive open market ________.

Accepted Answer

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

Question 3

The Fed prefers that ________ so that ________.

Accepted Answer

A) banks borrow reserves from each other;banks can monitor each other for credit risk 
B) banks borrow reserves from each other;the Fed can monitor banks for credit risk 
C) banks borrow reserves from the Fed;banks can monitor each other for credit risk 
D) banks borrow reserves from the Fed;the Fed can monitor banks for credit risk

Question 4

In the market for reserves,when the federal funds rate is above the interest rate paid on excess reserves,the demand curve for reserves is

Accepted Answer

A) vertical. 
B) horizontal. 
C) positively sloped. 
D) negatively sloped.

Question 5

If the Fed wants to temporarily inject reserves into the banking system,it will engage in

Accepted Answer

A) a repurchase agreement. 
B) a matched sale-purchase transaction. 
C) a reverse repurchase agreement. 
D) an open market sale.

Question 6

If float is predicted to decrease because of unseasonably good weather,the manager of the trading desk at the Federal Reserve Bank of New York will likely conduct a ________ open market ________ of securities.

Accepted Answer

A) defensive;sale 
B) defensive;purchase 
C) dynamic;sale 
D) dynamic;purchase

Question 7

Explain the Fed's three tools of monetary policy and how each is used to change the money supply. Does each tool affect the monetary base or the money multiplier?

Accepted Answer

The answer of Explain the Fed's three tools of monetary...

Question 8

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 decreases the demand for reserves,________ the federal funds interest rate,everything else held constant.

Accepted Answer

A) rise;lowering 
B) decline;raising 
C) decline;lowering 
D) rise;raising

Question 9

When the Fed wants to raise interest rates after banks have accumulated large amounts of excess reserves,it would

Accepted Answer

A) increase the interest rate paid on excess reserves. 
B) increase discount rate. 
C) increase the required reserve ratio. 
D) conduct massive open market purchase.

Question 10

The Fed can offset the effects of an increase in float by engaging in

Accepted Answer

A) a repurchase agreement. 
B) a matched sale-purchase transaction. 
C) an interest rate swap. 
D) an open market purchase.

Question 11

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.

Question 12

In the market for reserves,if the federal funds rate is above the interest rate paid on excess reserves,then an open market ________ the supply of reserves,raising the federal funds interest rate,everything else held constant.

Accepted Answer

A) sale decreases 
B) sale increases 
C) purchase increases 
D) purchase decreases

Question 13

Which of the following statements is an example of the Fed's conditional commitment policy?

Accepted Answer

A) "In these circumstances,the Committee believes that policy accommodation can be maintained for a considerable period." 
B) "The Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time." 
C) "Policy accommodation can be removed at a pace that is likely to be measured." 
D) "The exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent,and inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal."

Question 14

Suppose,at a given federal funds rate,there is an excess demand for reserves in the federal funds market. If the Fed wants the federal funds rate to stay at that level,then it should undertake an open market ________ of bonds,everything else held constant. If the Fed does nothing,however,the federal funds rate will ________.

Accepted Answer

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

Question 15

Suppose on any given day the prevailing equilibrium federal funds rate is below the Federal Reserve's federal funds target rate. If the Federal Reserve wishes for the federal funds rate to be at their target level,then the appropriate action for the Federal Reserve to take is a ________ open market ________,everything else held constant.

Accepted Answer

A) defensive;sale 
B) defensive;purchase 
C) dynamic;sale 
D) dynamic;purchase

Question 16

The Federal Reserve will engage in a matched sale-purchase transaction when it wants to ________ reserves ________ in the banking system.

Accepted Answer

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

Question 17

Suppose,at a given federal funds rate,there is an excess supply of reserves in the federal funds market. If the Fed wants the federal funds rate to stay at that level,then it should undertake an open market ________ of bonds,everything else held constant. If the Fed does nothing,however,the federal funds rate will ________.

Accepted Answer

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

Question 18

In the market for reserves,if the federal funds rate is between the discount rate and the interest rate paid on excess reserves,a decline in the reserve requirement ________ the ________ curve of reserves and causes the federal funds interest rate to fall,everything else held constant.

Accepted Answer

A) decreases;demand 
B) increases;demand 
C) increases;supply 
D) decreases;supply

Question 19

In the market for reserves,if the federal funds rate is above the interest rate paid on excess reserves,an open market sale ________ the ________ of reserves,causing the federal funds rate to increase,everything else held constant.

Accepted Answer

A) increases;supply 
B) increases;demand 
C) decreases;supply 
D) decreases;demand

Question 20

The discount rate refers to the interest rate on

Accepted Answer

A) primary credit. 
B) secondary credit. 
C) seasonal credit. 
D) federal funds.

Exam 15: Tools of Monetary Policy

Much of the credit for prevention of a financial market meltdown after "Black Monday" (October 19,1987) must be given to the Federal Reserve System and then-chairman

When bad storms slow the check-clearing process,float tends to causing the Fed to initiate defensive open market .

The Fed prefers that so that .

In the market for reserves,when the federal funds rate is above the interest rate paid on excess reserves,the demand curve for reserves is

If the Fed wants to temporarily inject reserves into the banking system,it will engage in

If float is predicted to decrease because of unseasonably good weather,the manager of the trading desk at the Federal Reserve Bank of New York will likely conduct a open market of securities.

Explain the Fed's three tools of monetary policy and how each is used to change the money supply. Does each tool affect the monetary base or the money multiplier?

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 decreases the demand for reserves, the federal funds interest rate,everything else held constant.

When the Fed wants to raise interest rates after banks have accumulated large amounts of excess reserves,it would

The Fed can offset the effects of an increase in float by engaging in

At its inception,the Federal Reserve was intended to be

In the market for reserves,if the federal funds rate is above the interest rate paid on excess reserves,then an open market ________ the supply of reserves,raising the federal funds interest rate,everything else held constant.

Which of the following statements is an example of the Fed's conditional commitment policy?

The Federal Reserve will engage in a matched sale-purchase transaction when it wants to reserves in the banking system.

In the market for reserves,if the federal funds rate is between the discount rate and the interest rate paid on excess reserves,a decline in the reserve requirement the curve of reserves and causes the federal funds interest rate to fall,everything else held constant.

In the market for reserves,if the federal funds rate is above the interest rate paid on excess reserves,an open market sale the of reserves,causing the federal funds rate to increase,everything else held constant.

The discount rate refers to the interest rate on