HW5

A liability of the central bank in functioning as the bankers' bank is A. accoutns of commercial banks B. securities C. loans D. currency

A

Harry gets $1,000 in currency from his grandfather when he graduates from college. He deposits these funds into his checking account. What is the impact of Harry's deposit on the monetary base? The monetary base A. did not change B. increased by $1,000 C. decreased by $1,000 D. increased by more than $1,000

A

If people increase their currency holdings, all else the same, the monetary base A. does not change but the quantity of M2 will decrease B. increases as does the quantity of M2 C. decreases as does the quantity of M2 D. does noth change and neither does M2

A

If we assume a 10 percent required reserve rate, banks hold no excess reserves, and there is no change in currency holdings, an open market sale of $5 million of U.S. Treasury securities by the Fed will result in deposits A. decreasing by $50 million B. increasing by $5 million C. increasing by $50 million D. not changing

A

One way the Fed can inject reserves into the banking system is to increase A. the size of the Fed's balance sheet through purchasing securities B. the discount rate C. loans to nonbank corporations D. the size of the Fed's balance sheet through selling securities

A

The interest rate that the FOMC currently chooses to control is the A. federal funds rate B. 30-year Treasury bond rate C. discount rate D. prime rate

A

To make sure the U.S. President cannot unduly influence the Board of Governors A. the terms of the governors are staggered B. the law prevents a president from appointing more than one governor C. the terms of the governors are ten years long D. only three governors can be replaced in any one year

A

In the united states, loans made by Federal Reserve to banks are A. Discount loans B. reserves C. discount loans and reserves D. discount loans and foreign exchange reserves

A.

The interest rate the Fed charges for secondary credit is A. above the primary discount rate B. below the market federal funds rate C. below the primary discount rate D. equal to the market federal funds rate.

A.

A central bank holds foreign exchange reserves for A. diversification purposes B. foreign exchange interventions C. safekeeping D. diversification and safekeeping

B

In its role as bank for the U.S. government, the Federal Reserve performs all of the following services except which one? A. issuing new currency B making discount loans C maintaining the U.S. Treasury's bank account D managing U.S. Treasury borrowings

B

Quantitative easing is A. statements today about policy targets in the future B. expansion of the supply of aggregate reserves beyond the amount needed to maintain the policy rate target C. asset purchases that shift the composition of the feds balance sheet D. expansion of the demand for aggregate reserves to drive down the IORB

B

The objectives set for the Fed by Congress are A. very specific, which adds to the Fed's accountability B. by design, quite vague, allowing the fed to really set its own goals C. specific regarding inflation, but vague on all other goals D. Specific on the growth rate for the economy, but vague on all other objectives

B

The three branches of the Federal Reserve System include each of the following, except which one? A. The board of governors B. the Federal deposit insurance corporation C. the federal open market committee D. the twelve regional federal reserve banks

B

The types of loans the Fed makes consist of each of the following, except which one? A. primary credit B. conditional credit C. seasonal credit D. secondary credit

B

The market for reserves derives from the fact that A. reserves pay a relatively high return B. desired reserves do not always equal actual reserves C. the Fed refuses to lend to banks D. banks do not want excess reserves

B.

Bonds issued by a foreign government in its own currency would A. not be held by the Fed B. be held by the Fed as part of its securities C. be held by the Fed as part of its foreign exchange reserves. D. Be held by the Fed as part of its loans

C

Buying and selling U.S. Treasury Securities for the Fed's own portfolio is called A. managing the float B. discount buying C. open market operations D. reserve adjustment

C

Criteria used to judge a central bank's independence include each of the following except which one? A. budgetary independence B. long terms for members C. cabinet or ministry level of authority D. irreversible decisions

C

Discount lending by the Fed A. is the key component of monetary policy B. is more important today than in years past. C. is usually small except in times of crisis D. amounts to five billion dollars in volume during an average week

C

From 1979 to 1982, the Fed targeted bank reserves as the monetary policy tool. One side effect of this strategy was that A. the inflation rate increased to over 18 percent in 1983 B. Many banks failed that otherwise may not have C. interest rates rose very high D. inflation remained high for most of the 1980s

C

If the market federal funds rate were above the target rate, the response from the Fed would likely be to A. Purchase U.S. Treasury securities B. Sell U.S. Treasury securities C. Lower the IORB D. Lower the discount rate

C

Member banks of the Federal Reserve System include A. only nationally chartered banks B. all state chartered banks with assets exceeding $100 million C. nationally chartered banks and state chartered banks that decide to join D. nationally chartered banks and all state chartered banks

C

Monetary policy operations for central banks are run through changes in which liability category? A. governments accounts B. currency C. reserves D. gold

C

One trait a central bank has over other businesses, including banks, is that it A. receives all of its funding from the government B. Can control the size of its balance sheet C. Doesnt have stockholders D. doesnt have a board of directors

C

The FOMC A sets the federal funds rate. B uses the discount rate is its primary policy tool. C sets the target federal funds rate range. D sets the dealer's spread as the difference between the target and actual federal funds rate.

C

The Federal Reserve Bank of New York is unique from other Reserve banks because it is A. the only regional bank that serves just one state B. the only regional bank located in a financial center C. where the federal reserve systems portfolio is managed. D. the oldest and therefore the largest

C

The components of the formula for the Taylor rule include each of the following, except which one? A. target federal funds rate B. current inflation rate C. 30 year U.S. treasury bond rate D. inflation gap

C

The real power in the FOMC lies with A. The president of the New York Fed Bank B. the system open market manager C. the chairman of the board of governors D. no single individual; all participants have an equal share of the power

C

The services that the Federal Reserve provides to foreign central banks and other international organizations are handled A. Directly by the Board of Governors in Washingon, D.C. B. By any of the reserve banks C. only by the reserve bank in new york D. only by the reserve bank in San Francisco

C

When the Fed makes a discount loan, the impact on the Fed's balance sheet will reflect A. no change in liabilities but an increase in assets B. a decrease in assets and liabilities C. an increase in assets and liabilities D. an increase in assets and a decrease in liabilities

C

Comparing the European and the U.S. central bank systems, the National Central Banks that make up part of the European System of Central Banks resembles the A. U.S. Treasury B. Board of Governors C. FOMC D. regional federal reserve banks

D

Each of the following items would appear as assets on the central bank's balance sheet except which one? A. loans B. securities C. foreign exchange reserves D. currency

D

Inflation targeting does all of the following, except which one? A. increase policymakers credibility B. increase policymakers accountability C. communicate policymakers objectives clearly and openly D. hinder economic growth

D

Mary decides to withdraw $500 out of her checking account. The impact of this transaction on the banking system's balance sheet will be to A. only reduce demand deposits by $500 B. increase reserves and reduce demand deposits by $500, respectively C. only reduce reserves by the required reserve ration times $500 D. decrease reserves and demand deposits by $500, respectively

D

Over the years, most monetary policy experts would agree with each of the following statements, except which one? A. the reserve requirement is not useful as an operational instruyment B. Central bank lending is necessary to ensure financial stability C. Short-term interest rates are the best tool to use to stabilize short-term fluctuations in prices and output D. Transparency in policy making hinders accountability

D

Reserves are A. assets of the central bank and liabilities of the U.S. treasury B. assets of the central bank and liabilities of commercial banks C. liabilities of commercial banks and assets of the U.S. Treasury D. assets of commercial banks and liabilities of the central bank

D

Suppose the Federal Reserve purchases a U.S. Treasury bond for $1 million by issuing new money. When the check returns, the Fed's balance sheet will show A. an increase in assets and a decrease in liabilities of $1 million B. only an increase in assets of $1million C. only an increase in liabilities of $1million D. an increase in assets and liabilities of $1 million

D

The Board of Governors of the Fed performs each of the following functions except which one? A analyzing financial and economic conditions B approving changes to the interest rate paid on reserve balances C approving bank merger applications D making discount loans

D

The Fed can control A the amount of reserves, but cannot control the monetary base. B the composition of the monetary base, but cannot affect the market interest rate. C the size of the monetary base but not the price of its components. D either the size of the monetary base or the price of its components.

D

The Reserve Banks of the Federal Reserve System are owned by A. the taxpayers in their districts B. the U.S. Treasury C. The board of Governors D. the commercial banks in their districts

D

The monetary base is the sum of A reserves and M2. B M1 and reserves. C currency in the hands of the public, reserves, and M1. D currency in the hands of the public and reserves in the banking system.

D

The principal tool the Fed uses to keep the federal funds rate close to the target is A. the required reserve rate B. discount lending C. open market operations D. the IORB (interest rate on reserve balance

D.