Monetary policy

The tools of conducting monetary policy include:

changes in the required reserve requirement.

If the Fed conducts a $10 million open-market sale and the reserve requirement is 20%, the monetary base will:

decrease by $10 million.

When the short-term interest rate _____, the opportunity cost of holding money _____, and the quantity of money individuals want to hold _____.

falls; falls; rises

When banks borrow and lend reserves from each other, they are participating in the ______ market.

federal funds

The amount of money that people demand is:

negatively related to the interest rate.

The tool of monetary policy that involves the Fed's buying and selling of government bonds is:

open-market operations.

If it looks like a bank won't meet the Federal Reserve Bank's reserve requirement, normally it will first turn to the:

other member banks and borrow at the federal funds rate.

The FOMC does NOT control the:

prime rate.

If the reserve ratio is 25%, and the money supply increases by $100,000. The initial reserve injection by Federal Reserve was:

$25,000.

Suppose that the money supply increases by $150 million after the Federal Reserve has engaged in an open market purchase of $50 million. Then the reserve ratio is:

0.33.

The Federal Reserve System was created in

1913.

Open-market operations occur when the Fed:

buys or sells existing U.S. Treasury bills.

Which of the following is NOT one of the reasons that the Japanese tend to keep large amount of cash?

Banks have invested heavily in credit card technology.

What is not a responsibility of the FED?

Mint bills and coins

Suppose the Federal Reserve were to engage in open-market operations by buying $100 million of U.S. Treasury bills. Which of the following would be the end result of such an action?

The money supply would increase by more than $100 million.

In the income-expenditure model, expansionary monetary policy causes:

a decrease in interest rates, an increase in planned investment spending, and an increase in equilibrium GDP.

Which of the following actions would allow banks to lend out more money?

a decrease in the discount rate

Expansionary monetary policy causes _______ in interest rates in the short run and ______ in interest rates in the long run.

a decrease; no change

The discount rate is the interest rate the Fed charges on loans to:

banks.

Given a recessionary gap, the Fed will use monetary policy to _______ interest rates and _______ aggregate demand.

decrease; increase

The federal funds rate is:

determined in the money market by the supply and demand for money.

The money demand curve is _________ because a lower interest rate ___________.

downward-slopping; decreases the opportunity cost of holding money

If the economy is suffering from a recessionary gap, the Fed should conduct _______ monetary policy by _________ the money supply.

expansionary; increasing

16. (Figure: A Money Market) The accompanying graph shows the money market. In this market, if the current interest rate is r3, we would expect to see the interest rate _____ because there is a ______ of money in the market.

fall; surplus

If the Federal Reserve wants to discourage banks from borrowing directly from the Fed and thus decrease the monetary base, the Fed would likely:

increase the discount rate.

To _______ the money supply, the Fed could ________. (2)

increase; conduct open-market purchases (2)

To close a recessionary gap using monetary policy, the Fed should ________ the money supply to ________ investment and consumer spending, and shift the aggregate demand curve to the ________.

increase; increase; right

To _______ the money supply, the Fed could ________. (1)

increase; lower the reserve requirements (1)

The Federal Reserve Bank of the United States is:

is not exactly part of the U.S. government but not really a private institution either.

The major tools of monetary policy available to the Federal Reserve System include:

reserve requirements, open-market operations, and the discount rate.

The three main monetary policy tools are:

reserve requirements, the discount rate, and open-market purchases.

Banks decide to do away with fees charged to noncustomers when they use another bank's ATM. (Scenario: Money and Interest Rates) If the Fed wants to maintain the same federal funds rate, it should:

sell Treasury bills.

According to the loanable funds model, contractionary monetary policy:

shifts the supply curve for loanable funds to the left.

An increase in interest rates causes the demand for money to:

stay the same.

Decisions about monetary policy are made by:

the Federal Open Market Committee.

In a graph of a money demand curve, which of the following variables is plotted on the vertical axis?

the interest rate on liquid assets, like short-term CDs

Every year more and more purchases are made with credit cards on the Internet. Given this trend, all else equal, we would expect:

the money demand curve to shift inward.

If the Fed increases the discount rate:

the money supply is likely to decrease.

The money supply curve is:

vertical

Contractionary monetary policy:

works by discouraging investment spending.