Econ chapter 15 hw study guide
Using the concept of arbitrage, when the interest on reserve balances rate is lower than the federal funds rate, how will bank likely responds?
Banks will withdraw from their account at their Federal Reserve Bank and lend the funds in the federal funds market.
Which best describes how interest on reserve balances serves as a reservation rate?
Because interest on reserve balances is a risk-free option, banks should not be willing to lend their funds for less than they can earn on their reserve balances.
Which monetary policy tool serves as a ceiling for the federal funds rate?
Discount rate
Which monetary policy implementation tool is the primary tool the Fed uses to steer the federal funds rate into the FOMC's target range?
Interest on reserve balances
Which best describes how the FOMC conducts monetary policy during an inflationary period to achieve its price stability objective?
It increases the target rate range for the federal funds rate.
Which best describes how the FOMC conducts monetary policy to increase employment during a recession to achieve its maximum employment objective?
Lower the target range for the federal funds rate and simultaneously decrease the interest on reserve balances rate, overnight reverse repurchase agreement offering rate, and discount rate.
Which monetary policy tool is a supplementary tool that sets a floor for the federal funds rate?
Overnight reverse repurchase agreement facility
What role do open market operations play in monetary policy?
The Fed uses open market operations to ensure that the level of reserves remains ample.
Compared to fiscal policy, monetary policy has a much shorter
administrative lag.
A contractionary monetary policy is designed to shift the
aggregate demand curve leftward.
Which of the following is a monetary policy intended to combat a recession?
decrease the federal funds target range to shift the aggregate demand curve rightward
Other things equal, a contractionary monetary policy during a period of demand pull inflation will
increase interest rates, reduce investment, and reduce aggregate demand
Which of the following is a tool of monetary policy?
overnight reverse repurchase agreement facility
What are the Fed's dual mandate goals?
price stability and maximum employment
The discount rate is the rate that banks pay for loans from
the Fed
The interest rate that banks charge other banks for loans
the federal funds rate.
When the FOMC conducts monetary policy, it sets the target range for
the federal funds rate.
What is not one of the advantages of monetary policy over fiscal policy?
the lack of any timing lags
