Monetary policy

All other factors equal, as nominal interest rates decrease, checking account balances should 1. increase. 2. remain constant. 3. decrease. 4. be converted to cash.

1

Discount lending by the Fed 1. is usually small except in times of crisis. 2. is more important today than in years past. 3. amounts to five billion dollars in volume during an average week. 4. is the key component of monetary policy.

1

If the demand for reserves remains constant and the market federal funds rate is below the target rate, the Fed would 1. increase the IOER (interest on excess reserves). 2. increase the supply of reserves. 3. decrease the IOER (interest on excess reserves). 4. do nothing and let the market work.

1

If the nominal interest rate increases, then the 1. cost of holding money increases. 2. velocity of money should decrease. 3. cost of holding money decreases. 4. cost of holding money increases and the velocity of money should decrease.

1

In response to problems in financial markets and a slowing​ economy, the Federal Open Market Committee​ (FOMC) began lowering its target for the federal funds rate from 5.25 percent in September 2007. Over the next​ year, the FOMC cut its federal funds rate target in a series of steps. Writing in the New York Times​, economist Steven Levitt​ observed, ​"The Fed has been pouring more money into the banking system by cutting the target federal funds rate to 0 to 0.25 percent in December​ 2008." ​Source: Steven D.​ Levitt, "The Financial Meltdown Now and​ Then," New York Times​, May​ 12, 2009. How does lowering the target for the federal funds rate​ "pour money" into the banking​ system? 1. To increase the money​ supply, the Fed buys bonds on the open​ market, which increases bank reserves. 2. To increase the money​ supply, the Fed increases government​ spending, which increases aggregate demand. 3. To increase the money​ supply, the Fed decreases​ taxes, which increases consumer spending. 4. To increase the money​ supply, the Fed sells bonds on the open​ market, which increases bank reserves.

1

Increases in the real interest rate in the United States will cause net exports to 1. decrease because the dollar appreciates. 2. increase because the dollar depreciates. 3. decrease because the dollar depreciates. 4. increase because the dollar appreciates.

1

Reserves are 1. assets of commercial banks and liabilities of the central bank. 2. liabilities of commercial banks and assets of the U.S. Treasury. 3. assets of the central bank and liabilities of commercial banks. 4. assets of the central bank and liabilities of the U.S. Treasury.

1

The conventional policy tools available to the Fed include each of the following, except which one? 1. currency-to-deposit ratio 2. target federal funds rate range 3. reserve requirement 4. discount rate

1

The interest rate that the FOMC currently chooses to control is the 1. federal funds rate. 2. 30-year Treasury bond rate. 3. prime rate. 4. discount rate.

1

The primary monetary policy tool most used by central banks today is(are) 1. interest rates. 2. the quantity of M1. 3. the size of the money multiplier. 4. the quantity of M2.

1

To decrease the interest rates (or increase the money supply) the Fed _________________. 1. lowers the discount rate 2. increases the required reserve ratio 3. conducts an open market sale 4. sells securities

1

When the Fed wants to tighten monetary policy, the staff of the Fed is likely to 1. increase IOER (interest rate on excess reserves). 2. purchase U.S. Treasury Securities. 3. increase discount loans. 4. decrease IOER (interest rate on excess reserves).

1

Which one of the following would be categorized as an unconventional monetary policy tool? 1. targeted asset purchases 2. federal funds rate target range 3. the interest rate on excess reserves (IOER) 4. deposit rate

1

Changes in interest rates affect aggregate demand. Which of the following is affected by changes in interest rates​ and, as a​ result, impacts aggregate​ demand? ​(Mark all that​ apply) 1. Consumption of durable goods 2. Business investment projects 3. Government spending 4. The value of the dollar

1,2,4

On the Federal Reserve's balance sheet, securities would include 1. U.S. Treasury securities. 2. mainly U.S. Treasury and municipal bonds. 3. bonds issued by commercial banks. 4. private and public debt.

1. U.S. Treasury securities.

If the required reserve rate is 10 percent and banks do not hold any excess reserves and there are no changes in currency holdings, a $1 million open market purchase by the Fed will result in deposit creation of $10 million. $9 million. $900,000. $90 million.

10 million

Which of the following events is most likely to cause a shift in the money demand​ (MD) curve to the right​? 1. Decrease in real GDP or increase in the price level 2. Increase in real GDP or increase in the price level 3. Decrease in real GDP or decrease in the price level 4. Increase in real GDP or decrease in the price level

2

In response to problems in financial markets and a slowing​ economy, the Federal Open Market Committee​ (FOMC) began lowering its target for the federal funds rate from 5.25 percent in September 2007. Over the next​ year, the FOMC cut its federal funds rate target in a series of steps. Writing in the New York Times​, economist Steven Levitt​ observed, ​"The Fed has been pouring more money into the banking system by cutting the target federal funds rate to 0 to 0.25 percent in December​ 2008." ​Source: Steven D.​ Levitt, "The Financial Meltdown Now and​ Then," New York Times​, May​ 12, 2009. What is the relationship between the federal funds rate falling and the money supply​ increasing? 1. Cutting the federal funds rate increases​ saving, which increases the money supply. 2. Cutting the federal funds rate increases the money supply. 3. Cutting the federal funds rate increases bank​ reserves, which increases the money supply. 4. To decrease the federal funds​ rate, the Fed must increase the money supply.

4

When the Fed takes action to lower the interest rates, increasing the real GDP and employment in the economy, the Fed conducts _________________________. 1. a contractionary monetary policy 2. a contractionary fiscal policy 3. an expansionary fiscal policy 4. an expansionary monetary policy

4

When the Federal Open Market Committee​ (FOMC) decides to increase the money​ supply, it ---- U.S. Treasury securities. If the FOMC wishes to decrease the money​ supply, it ---- U.S. Treasury securities.

Buys, Sells

Each of the following items would appear as assets on the central bank's balance sheet except which one? 1. currency 2. loans 3. foreign exchange reserves 4. securities

Currency

In the United States, loans made by Federal Reserve to banks are 1. discount loans. 2. discount loans and foreign exchange reserves. 3. discount loans and reserves. 4. reserves.

Discount loans

The Fed can affect both the money supply and interest rates.​ However, in recent​ years, the Fed targets interest rates in monetary policy more often than it does the money supply. Which interest rate does the Fed​ target? The federal funds rate The​ short-term real interest rate The discount rate The​ long-term nominal interest rate

FFR

The interest rate that banks charge each other for overnight loans is called the--- 1. prime lending rate. 2. discount rate. 3. FFR 4. Treasury bills rate

FFR

Which of the following is NOT a monetary policy goal of the Federal Reserve bank​ (the Fed)? 1. Stable financial markets 2. Higher living standards 3. Low prices 4. Low unemployment

Low prices

The is considered the most relevant interest rate when conducting monetary policy.

short-term nominal interest rate