Question 1

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 2

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

Accepted Answer

A)  decreases; lowering 
B)  increases; lowering 
C)  increases; raising 
D)  decreases; raising

Question 3

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 4

Everything else held constant,in the market for reserves,when the federal funds rate is 5%,lowering the discount rate from 5% to 4%

Accepted Answer

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

Question 5

The Fed is considering eliminating

Accepted Answer

A)  primary credit lending. 
B)  secondary credit lending. 
C)  seasonal credit lending. 
D)  its lender of last resort function.

Question 6

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 7

The discount rate is kept ________ the federal funds rate because the Fed prefers that

Accepted Answer

A)  below ; banks can monitor each other for credit risk. 
B)  below; the Fed can monitor banks for credit risk. 
C)  above ; banks can monitor each other for credit risk. 
D)  above; the Fed can monitor banks for credit risk.

Question 8

Everything else held constant,in the market for reserves,when the federal funds rate is 3%,raising the discount rate from 5% to 6%

Accepted Answer

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

Question 9

If float is predicted to increase because of bad 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 10

The most common type of discount lending,________ credit loans,are intended to help healthy banks with short-term liquidity problems that often result from temporary deposit outflows.

Accepted Answer

A)  secondary 
B)  primary 
C)  temporary 
D)  seasonal

Question 11

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,raising the federal funds interest rate,everything else held constant.

Accepted Answer

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

Question 12

Everything else held constant,in the market for reserves,when the demand for federal funds intersects the reserve supply curve on the vertical section,increasing the discount rate

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.

Question 13

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 14

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 15

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 16

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 demand of reserves,________ the federal funds rate,everything else held constant.

Accepted Answer

A)  decreases; lowering 
B)  increases; lowering 
C)  increases; raising 
D)  decreases; raising

Question 17

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 18

A financial panic was averted in October 1987 following "Black Monday" when the Fed announced that

Accepted Answer

A)  it was lowering the discount rate. 
B)  it would provide discount loans to any bank that would make loans to the security industry. 
C)  it stood ready to purchase common stocks to prevent a further slide in stock prices. 
D)  it was raising the discount rate.

Question 19

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 20

The purpose of the commitment by the Fed to keep the federal funds rate at zero for a long period of time is to

Accepted Answer

A)  lower the long term interest rates. 
B)  lower the short term interest rates. 
C)  increase the long term interest rates. 
D)  increase the short term interest rates.

Exam 15: Tools of Monetary Policy

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.

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

Open market purchases raise the thereby raising the .

Everything else held constant,in the market for reserves,when the federal funds rate is 5%,lowering the discount rate from 5% to 4%

The Fed is considering eliminating

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.

The discount rate is kept ________ the federal funds rate because the Fed prefers that

Everything else held constant,in the market for reserves,when the federal funds rate is 3%,raising the discount rate from 5% to 6%

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