Question 1

From before the financial crisis began in September of 2007 to when the crisis was over at the end of 2009,the huge expansion in the Fed's balance sheet and the monetary base did not result in a large increase in monetary supply because

Accepted Answer

A)  most of it just flowed into holdings of excess reserve.
B)  the Fed also increased the required reserve ratio.
C)  the Fed also conducted open market sales.
D)  the discount loan decreased.E) B) and D)
F) B) and C)

Question 2

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;drainE) A) and D)
F) B) and C)

Question 3

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)  seasonalE) A) and C)
F) B) and D)

Question 4

The quantity of reserves demanded equals

Accepted Answer

A)  required reserves plus borrowed reserves.
B)  excess reserves plus borrowed reserves.
C)  required reserves plus excess reserves.
D)  total reserves minus excess reserves.E) None of the above
F) All of the above

Question 5

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.E) A) and C)
F) A) and D)

Question 6

State whether the following statement is true or false AND explain why: "A decrease in the discount rate will always cause a decrease in the federal reserve funds rate."

Accepted Answer

A) True 
 B)False

Question 7

Everything else held constant,in the market for reserves,when the federal funds rate is 3%,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.E) A) and D)
F) All of the above

Question 8

In the market for reserves,a lower discount rate

Accepted Answer

A)  decreases the supply of reserves.
B)  increases the supply of reserves.
C)  lengthens the vertical section of the supply curve of reserves.
D)  shortens the vertical section of the supply curve of reserves.E) C) and D)
F) A) and B)

Question 9

Everything else held constant,in the market for reserves,when the federal funds rate equals the discount rate,lowering 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 of the federal funds rate.E) B) and D)
F) A) and C)

Question 10

Everything else held constant,in the market for reserves,when the federal funds rate is 1%,increasing the interest rate paid on excess reserves from 1% to 2%

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.E) B) and D)
F) A) and B)

Question 11

From before the financial crisis began in September of 2007 to when the crisis was over at the end of 2009,amount of Federal Reserve assets rose,leading to

Accepted Answer

A)  a huge increase in the monetary base.
B)  a huge expansion of the money supply.
C)  an economic expansion.
D)  a high inflation.E) A) and B)
F) C) and D)

Question 12

The interest rate on secondary credit is set ________ basis points ________ the primary credit rate.

Accepted Answer

A)  100;above
B)  100;below
C)  50;above
D)  50;belowE) A) and B)
F) A) and C)

Question 13

The opportunity cost of holding excess reserves is the federal funds rate

Accepted Answer

A)  minus the discount rate.
B)  plus the discount rate.
C)  plus the interest rate paid on excess reserves.
D)  minus the interest rate paid on excess reserves.E) A) and B)
F) All of the above

Question 14

After 2003,The Federal Reserve usually keeps the discount rate

Accepted Answer

A)  above the target federal funds rate.
B)  equal to the target federal funds rate.
C)  below the target federal funds rate.
D)  equal to zero.E) A) and B)
F) B) and C)

Question 15

In the market for reserves,a lower interest rate paid on excess reserves

Accepted Answer

A)  decreases the supply of reserves.
B)  increases the supply of reserves.
C)  decreases the effective floor for the federal funds rate.
D)  increases the effective floor for the federal funds rate.E) None of the above
F) All of the above

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,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;raisingE) A) and D)
F) A) and B)

Question 17

When the European System of Central Banks uses long-term refinancing operations,it is similar to the Federal Reserve using

Accepted Answer

A)  dynamic open market operations.
B)  defensive open market operations.
C)  discount policy.
D)  reserve requirements.E) A) and D)
F) None of the above

Question 18

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.E) A) and D)
F) None of the above

Question 19

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.E) None of the above
F) A) and D)

Question 20

The Federal Reserve will engage in a repurchase agreement when it wants to ________ reserves ________ in the banking system.

Accepted Answer

A)  increase;permanently
B)  increase;temporarily
C)  decrease;temporarily
D)  decrease;permanentlyE) B) and D)
F) None of the above

Exam 18: Tools of Monetary Policy

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

Correct AnswerverifiedShow Answer

Everything else held constant,in the market for reserves,when the federal funds rate equals the discount rate,lowering the discount rate

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

From before the financial crisis began in September of 2007 to when the crisis was over at the end of 2009,amount of Federal Reserve assets rose,leading to

Correct AnswerverifiedShow Answer

The interest rate on secondary credit is set ________ basis points ________ the primary credit rate.

Correct AnswerverifiedShow Answer

After 2003,The Federal Reserve usually keeps the discount rate

Correct AnswerverifiedShow Answer

The opportunity cost of holding excess reserves is the federal funds rate

Correct AnswerverifiedShow Answer

From before the financial crisis began in September of 2007 to when the crisis was over at the end of 2009,the huge expansion in the Fed's balance sheet and the monetary base did not result in a large increase in monetary supply because

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Everything else held constant,in the market for reserves,when the federal funds rate is 3%,lowering the discount rate from 5% to 4%

Correct AnswerverifiedShow Answer

When the European System of Central Banks uses long-term refinancing operations,it is similar to the Federal Reserve using

Correct AnswerverifiedShow Answer

In the market for reserves,a lower discount rate

Correct AnswerverifiedShow Answer

State whether the following statement is true or false AND explain why: "A decrease in the discount rate will always cause a decrease in the federal reserve funds rate."

Correct AnswerverifiedShow Answer

In the market for reserves,a lower interest rate paid on excess reserves

Correct AnswerverifiedShow Answer

The quantity of reserves demanded equals

Correct AnswerverifiedShow Answer

Everything else held constant,in the market for reserves,when the federal funds rate is 1%,increasing the interest rate paid on excess reserves from 1% to 2%

Correct AnswerverifiedShow Answer

The Federal Reserve will engage in a repurchase agreement when it wants to ________ reserves ________ in the banking system.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

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.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The interest rate on secondary credit is set basis points the primary credit rate.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The Federal Reserve will engage in a repurchase agreement when it wants to reserves in the banking system.

Correct Answer
verified

Correct Answer
verified