Econ 311 Ch. 18

Given the following formula for the Taylor rule: Target federal funds rate = natural rate of interest + current inflation + ½(inflation gap) +½(output gap) If output in the economy were to fall by an additional one percent below potential, the target federal funds rate would:

Decrease by 0.5%.

One key difference between the Fed and the European Central Bank (ECB) in their reserve requirements is that the:

ECB reserve requirement is based on all of a bank's liabilities. Correct

Which of the following statements is most correct?

The ECB is more successful at keeping the market rate closer to the target rate than the FOMC until the Fed began paying interest on reserves .

Which of the following statements is most correct?

The FOMC sets the target federal funds rate range.

Which of the following statements is most correct?

The Fed can control either the size of the monetary base or the price of its components

Which of the following features would characterize a good monetary policy instrument?

Tightly linked to monetary policy objectives.

The Taylor rule is:

an approximation that seeks to explain how the FOMC sets their target.

The ways the Fed can inject reserves into the banking system include:

an increase in the size of the Fed's balance sheet through purchasing securities.

Targeted asset purchases are:

asset purchases that shift the composition of the Fed's balance sheet.

The fact that, for most of its history, the Fed was reluctant to make discount loans actually:

at times was a destabilizing force for financial markets.

Reserve demand becomes horizontal at the IOER rate because:

banks will not make loans at less than the IOER rate.

An increase in the federal funds rate should:

cause mortgage rates to increase by less than the increase in the federal funds rate.

The Fed can _____ in the economy.

change both interest rates and the supply of money

The types of loans the Fed makes consist of each of the following, except:

conditional credit.

If banks switch from holding reserves to holding cash, the policy impact of a negative deposit rate would be:

contractionary.

The market for reserves derives from the fact that:

desired reserves don't always equal actual reserves.

During the height of the euro-are crisis, deposits at the ECB's deposit facility surged above €800 billion because:

euro area commercial banks preferred the safety of deposits at the central bank.

The Taylor rule allows the real long-term interest rate to

fluctuate with the natural rate of interest.

Central banks that have a hierarchical mandate with inflation targeting basically are saying:

hitting the inflation target comes first, everything else comes second.

The fact that there is a market for federal funds enables banks to:

hold a lower level of excess reserves than they would otherwise hold.

From 1979 to 1982, the Fed targeted bank reserves as the monetary policy tool. One side effect of this strategy was:

interest rates rose very high.

If the market federal funds rate were above the target rate, the response from the Fed would likely be to:

lower the IOER.

Unconventional policy tools are useful when:

lowering the target interest rate to zero is not sufficient to stimulate the economy.

Seasonal credit provided by the Fed is not as common as it used to be because:

other sources for long-term loans have developed for banks in seasonal areas.

One of the reasons primary credit exists is to

provide additional reserves when the open market staff's forecasts are off.

Today, reserve requirements are:

really not a direct tool of monetary policy.

Unconventional monetary policy tools include all but:

reserve requirement.

For the European Central Bank (ECB), the equivalent of the FOMC's target federal funds rate is the:

target refinancing rate.

The components of the formula for the Taylor rule includes each of the following, except

the 30-year U.S. Treasury bond rate.

The principle tool the Fed uses to keep the federal funds rate close to the target is:

the IOER rate.

The conventional tools of monetary policy include:

the target federal funds rate range.

The interest on excess reserves is:

the upper bound of the federal funds target rate range.

Federal funds loans are

unsecured loans.

The daily reserve supply curve is

vertical.