Chapter 15
D) the Fed.
Reserve requirements are set by A) the Secretary of Treasury. B) the president. C) Congress. D) the Fed.
A) frictionally unemployed.
John Smith leaves his job in New York to go to California in hopes of finding a better one. If John Smith is unemployed while searching for a job in California, economists would consider him to be A) frictionally unemployed. B) structurally unemployed. C) cyclically unemployed. D) naturally unemployed.
C) is inconsistent with a well-functioning economy.
Most economists believe that a zero rate of unemployment A) is obtainable with the correct monetary policy. B) would result in a better functioning economy. C) is inconsistent with a well-functioning economy. D) is obtainable only if the inflation rate is also zero.
B) it would conduct an open market purchase, increasing reserve supply.
) If the Fed desired to reduce the federal funds rate A) it would conduct an open market sale, reducing reserve supply. B) it would conduct an open market purchase, increasing reserve supply. C) it would conduct an open market sale, increasing reserve demand. D) it would conduct an open market purchase, reducing reserve demand.
D) more expensive abroad and decreases the volume of U.S. exports.
A rising dollar makes U.S. goods A) more expensive abroad and increases the volume of U.S. exports. B) less expensive abroad and increases the volume of U.S. exports. C) less expensive abroad and decreases the volume of U.S. exports. D) more expensive abroad and decreases the volume of U.S. exports.
B) a steady decrease in interest rates.
All of the following are associated with rising inflation EXCEPT A) income redistribution. B) a steady decrease in interest rates. C) firms hesitating to enter into long-term contracts with suppliers. D) families having trouble deciding how much to save for retirement.
D) decreases the price of Treasury securities and increases their yield
An open market sale A) decreases the price of Treasury securities and also decreases their yield. B) increases the price of Treasury securities and decreases their yield. C) increases the price of Treasury securities and also increases their yield. D) decreases the price of Treasury securities and increases their yield.
A) rise and interest rates fall
As a result of an open market purchase, bank reserves A) rise and interest rates fall. B) fall and interest rates rise. C) and interest rates both rise. D) and interest rates both fall
B) receive interest; do not receive interest
Depository institutions such as savings and loans have deposits with the Fed that ________, and financial institutions such as Fannie Mae have deposits with the fed that ________. A) receive interest; also receive interest B) receive interest; do not receive interest C) do not receive interest; receive interest D) do not receive interest; also do not receive interest
C) no change
How did Operation Twist affect the monetary base? A) reduced B) increased C) no change D) indeterminate
C) the Fed.
Increases in interest rates are often blamed on A) Congress. B) the President. C) the Fed. D) the U.S. Treasury
B) makes prices less useful as signals for resource allocation.
Inflation is an economic problem because it A) leads inevitably to unemployment. B) makes prices less useful as signals for resource allocation. C) leads to recession. D) results in rapid increases in the money supply.
C) make it difficult for households and firms to plan for the future
Interest rate fluctuations A) are usually not considered to be of much importance and are largely ignored by the Fed. B) have the paradoxical effect of increasing the rate of economic growth. C) make it difficult for households and firms to plan for the future. D) have largely been eliminated by the Fed during the past two decades
B) a policy directive.
The FOMC states its overall objectives for interest rates in A) the Governors' Order. B) a policy directive. C) the Federal Reserve Bulletin. D) the Chairman's Order
A) after financial panics in the late 1800s and early 1900s.
The Fed was created A) after financial panics in the late 1800s and early 1900s. B) after the stock market crash of 1929. C) to help finance government expenditures during World War II. D) to help channel funds to the residential mortgage market.
B) is motivated by political pressure as well as by a desire for a stable saving and investment environment.
The Fed's goal of interest rate stability A) was formally abandoned in 1998. B) is motivated by political pressure as well as by a desire for a stable saving and investment environment. C) is undermined by actions the Fed takes to further its goal of stability in financial markets and institutions. D) is undermined by actions the Fed takes to further its goal of price stability
B) the means by which the Fed makes discount loans to banks.
The discount window is A) another name for the discount rate. B) the means by which the Fed makes discount loans to banks. C) the spread between the discount rate and the T-bill rate. D) the period each month during which banks are allowed to apply for discount loans
D) $1 trillion
What was the approximate peak amount of borrowing from the Fed during the Financial Crisis of 2007-2009? A) $2 billion B) $100 billion C) $270 billion D) $1 trillion
A) the 1920s
When did the Fed first begin to use open market operations as a policy tool? A) the 1920s B) the 1930s C) the 1960s D) the 1980s
C) price stability
Which of the following is considered to be a goal of monetary policy? A) a low federal budget deficit B) fair wages C) price stability D) an end to poverty
D) The volume of open market operations is determined solely by the Fed.
Which of the following statements is correct? A) The volume of open market operations is determined jointly by the actions of the public, banks, and the Fed. B) The volume of open market operations is determined jointly by the actions of banks and the Fed. C) The volume of open market operations is determined jointly by the actions of the public and the Fed. D) The volume of open market operations is determined solely by the Fed.
C) Germany
Which of the following countries experienced hyperinflation during the 1920s? A) The United States B) Canada C) Germany D) England
B) an agreement by a dealer to buy back securities she has sold to the Fed.
A Federal Reserve repurchase agreement involves A) an agreement by a bank to repay a discount loan on a specific day. B) an agreement by a dealer to buy back securities she has sold to the Fed. C) an agreement between the Fed and the Treasury for the Fed to purchase a specified amount of Treasury securities. D) an agreement by a commercial bank to make a loan to another bank in the federal funds market.
B) less expensive abroad and increases the volume of U.S. exports.
A falling dollar makes U.S. goods A) more expensive abroad and increases the volume of U.S. exports. B) less expensive abroad and increases the volume of U.S. exports. C) less expensive abroad and decreases the volume of U.S. exports. D) more expensive abroad and decreases the volume of U.S. exports
A) reverse repo.
A matched sale-purchase transaction is also known as a A) reverse repo. B) discount loan. C) put option. D) federal funds loan
A) they are temporary, short-term loans to satisfy seasonal requirements.
All of the following statements about secondary credit are true EXCEPT A) they are temporary, short-term loans to satisfy seasonal requirements. B) the secondary credit interest rate is set above the primary credit rate. C) it is intended for banks not eligible for primary credit. D) borrowers of secondary credit are less financially healthy.
A) the goals for economic growth and price stability may conflict in the short run.
An important problem facing the Fed is that A) the goals for economic growth and price stability may conflict in the short run. B) it lost effective control over the monetary base. C) it has been given responsibility for meeting policy goals, but true control over monetary policy remains with Congress. D) it has been given responsibility for meeting policy goals, but true control over monetary policy remains with the president.
B) increases the price of Treasury securities and decreases their yield
An open market purchase A) decreases the price of Treasury securities and also decreases their yield. B) increases the price of Treasury securities and decreases their yield. C) increases the price of Treasury securities and also increases their yield. D) decreases the price of Treasury securities and increases their yield.
A) increases the monetary base
An open market purchase A) increases the monetary base. B) decreases the monetary base. C) increases the federal funds rate. D) is another name for a discount loan
A) the monetary base and the Fed's balance sheet remained very large, and the target for the federal funds rate had only slightly risen.
By the time of the annual monetary policy conference in Jackson Hole, Wyoming in 2016, A) the monetary base and the Fed's balance sheet remained very large, and the target for the federal funds rate had only slightly risen. B) the monetary base and the Fed's balance sheet decreased dramatically, but the target for the federal funds rate had only slightly risen. C) the monetary base and the Fed's balance sheet remained very large, but the target for the federal funds rate had returned to its pre-financial-crisis level. D) the monetary base and the Fed's balance sheet, as well as the target for the federal funds rate, had returned to pre-financial-crisis levels.
B) of a lack of coordination among district banks in carrying out open market operations.
Congress established the FOMC because A) a group was needed to set reserve requirements for member banks. B) of a lack of coordination among district banks in carrying out open market operations. C) Congress was attempting to expand its influence within the Federal Reserve System. D) a group was needed to coordinate the setting of discount rates by the district banks
C) are used to offset disturbances to the supply or demand for reserves.
Defensive open market transactions A) are aimed at achieving changes in monetary policy. B) are used much less frequently than dynamic open market transactions. C) are used to offset disturbances to the supply or demand for reserves. D) make it easy to deduce the Fed's intentions for monetary policy.
A) primary credit.
Discount loans available to healthy banks which can be used for any purpose are called A) primary credit. B) secondary credit. C) seasonal credit. D) repo loans.
B) secondary credit.
Discount loans intended for banks that are NOT financially healthy are called A) primary credit. B) secondary credit. C) seasonal credit. D) repo loans.
C) purchases of both long-term Treasury securities and mortgage-backed securities.
During and after the financial crisis of 2007-2009, the Fed greatly increased the supply of reserves through three rounds of quantitative easing by A) sales of both long-term Treasury securities and mortgage-backed securities. B) sales of long-term Treasury securities and purchases of mortgage-backed securities. C) purchases of both long-term Treasury securities and mortgage-backed securities. D) purchases of long-term Treasury securities and sales of mortgage-backed securities
B) open market operations
During the financial crisis, the Fed introduced three new policy tools connected with bank reserve accounts. Which of the following is NOT one of those three new tools? A) interest on reserve balances B) open market operations C) overnight reserve repurchase agreement facility D) term deposit facility
A) are aimed at achieving changes in monetary policy.
Dynamic open market operations A) are aimed at achieving changes in monetary policy. B) are used much more frequently than defensive open market transactions. C) are used to offset disturbances to the monetary base. D) make it easy to deduce the Fed's intentions for monetary policy.
A) open market sales.
Expansionary monetary policy consists of all of the following EXCEPT A) open market sales. B) lower interest rates. C) increased monetary base. D) increased money supply.
D) often leads to high rates of investment.
High employment spurs economic growth because high employment A) usually reduces inflation. B) discourages foreign imports. C) often leads to a high birth rate. D) often leads to high rates of investment.
B) paying interest on reserves
How can the Fed reduce the implicit tax on banks resulting from reserve requirements? A) lowering the discount rate B) paying interest on reserves C) reducing the federal funds rate D) increasing the federal funds rate
C) over-the-counter electronically with private securities dealers
How does the Open Market Trading Desk conduct its operations? A) directly with private securities dealers on the floor of the New York Stock Exchange B) directly with private securities dealers on the floor of the Federal Reserve Bank of New York C) over-the-counter electronically with private securities dealers D) by sending its buy and sell orders to the U.S. Treasury for execution
A) never
How many times has the Fed changed reserve requirements since 1993? A) never B) about once a year C) only once D) only twice
C) They were carried out by the district Federal Reserve banks.
How were open market operations conducted prior to 1935? A) They were carried out by the Federal Open Market Committee. B) They were carried out under the direction of the Secretary of the Treasury. C) They were carried out by the district Federal Reserve banks. D) They were carried out by the Banking Committee of the House of Representatives.
D) raise the interest rate it pays on reserves.
If the Fed wished to decrease the money supply, it could A) lower the interest rate on term deposits. B) lower the interest rate on reverse repurchase agreements. C) lower the required reserve ratio. D) raise the interest rate it pays on reserves.
A) an outright purchase or sale.
If the account manager does NOT use a Federal Reserve reverse repurchase agreement or a matched sale-purchase transaction in carrying out open market operations, he will use A) an outright purchase or sale. B) a limited-duration purchase or sale. C) an indirect purchase or sale. D) a reverse duration purchase or sale.
D) conduct an open market sale
If the account manager finds that the current level of bank reserves is greater than the desired level indicated in the most recent directive from the FOMC, he will A) order banks to reduce their reserves. B) order banks to raise their interest rates in an attempt to get them to loan out more of their reserves. C) conduct an open market purchase. D) conduct an open market sale.
D) 7 years.
In December 2008, the FOMC cut its target for the federal funds rate from 1% to a range from 0% to 0.25%, and it remained at this level for A) 2 years. B) 3 years. C) 5 1/2 years. D) 7 years.
B) sells securities to a dealer and the dealer agrees to sell them back.
In a matched sale-purchase transaction, the Fed A) buys securities from a dealer and the dealer agrees to buy them back. B) sells securities to a dealer and the dealer agrees to sell them back. C) buys securities from one dealer and sells the same dollar amount of securities to another dealer. D) sells securities to one dealer and buys the same dollar amount of securities from another dealer.
A) conduct open market sales.
In order to increase its target for the federal funds rate, the Fed would normally A) conduct open market sales. B) conduct open market purchases. C) increase the discount rate. D) increase reserve requirements.
A) shifts the demand curve for reserves to the left.
In the federal funds market diagram, a decrease in the required reserve ratio A) shifts the demand curve for reserves to the left. B) increases the federal funds rate. C) results in a multiple expansion of deposits, which increases the equilibrium level of reserves held by banks. D) shifts the supply curve for reserves to the right
B) shifts the reserve supply curve to the left.
In the federal funds market diagram, an open market sale by the Fed A) shifts the reserve supply curve to the right. B) shifts the reserve supply curve to the left. C) decreases the federal funds rate. D) increases the volume of federal funds traded
C) the federal funds rate.
One of the extraordinary policy actions taken by the Fed in response to the financial crisis of 2007-2009 was making huge asset purchases. These asset purchases greatly increased all of the following EXCEPT A) bank reserves. B) the size of the Feds balance sheet. C) the federal funds rate. D) the monetary base
C) are more flexible than other traditional policy tools.
Open market operations A) lack flexibility because only very small purchases or sales may be carried out in any given month. B) lack flexibility because open market purchases cannot easily be offset by subsequent open market sales. C) are more flexible than other traditional policy tools. D) may be carried out only on the third Friday of each month
A) the primary credit rate is set above the federal funds rate.
Primary credit is only a backup source of funds for healthy banks since A) the primary credit rate is set above the federal funds rate. B) restrictions as to its use limit its benefits. C) the secondary credit rate pays 0.5% more. D) banks must seek funds from other sources prior to requesting a discount loan.
A) permitted to trade directly with the Fed.
Primary dealers are those A) permitted to trade directly with the Fed. B) who work under the account manager at the Federal Reserve Bank of New York. C) who specialize in selling bonds to small private investors. D) responsible for assuring that interest rates do not decline unless the FOMC has given specific instructions that they decline
C) hyperinflation.
Rates of inflation in the hundreds or thousands of percent per year are known as A) super inflation. B) megainflation. C) hyperinflation. D) overinflation.
D) less frequently than open market operations are conducted and less frequently than the discount rate is changed.
Reserve requirements are changed A) more frequently than the discount rate is changed, but less frequently than open market operations are conducted. B) more frequently than the discount rate is changed and more frequently than open market operations are conducted. C) more frequently than open market operations are conducted, but less frequently than the discount rate is changed. D) less frequently than open market operations are conducted and less frequently than the discount rate is changed.
C) structurally unemployed
Sally Jones lost her job at a steel company because of a permanent decline in the demand for steel. Sally Jones is considered by economists to be A) naturally unemployed. B) cyclically unemployed. C) structurally unemployed. D) frictionally unemployed.
D) to all depository institutions
Since 1980, discount loans have been available A) only to member banks of the Federal Reserve System. B) only to national banks. C) only to state banks. D) to all depository institutions.
C) seasonal credit.
Temporary, short-term discount loans to banks in areas in which agriculture and tourism are important are known as A) primary credit. B) secondary credit. C) seasonal credit. D) repo loans.
A) promote high employment consistent with price stability.
The Employment Act of 1946 codified the federal government's commitment to A) promote high employment consistent with price stability. B) promote high employment irrespective of the effects on price stability. C) guarantee a job to every unemployed person. D) fine companies that engage in excessive layoffs during recessions.
D) more rapidly than either changes in the discount rate or changes in reserve requirements.
The Fed can implement open market operations A) more rapidly than changes in reserve requirements, but less rapidly than changes in the discount rate. B) more rapidly than changes in the discount rate, but less rapidly than changes in reserve requirements. C) less rapidly than either changes in the discount rate or changes in reserve requirements. D) more rapidly than either changes in the discount rate or changes in reserve requirements.
B) October 2014.
The Fed ended QE3 in A) January 2103. B) October 2014. C) February 2016. D) QE3 had not ended as of January 2017
B) it does not have as much control over discount loans as it has on open market operations
The Fed tends not to use discount policy as its principal tool in influencing the money supply since A) discount loans do not affect the money supply. B) it does not have as much control over discount loans as it has on open market operations. C) it is prohibited from doing so by an act of Congress. D) it prefers to use reserve requirements
A) information lag.
The Fed's inability to instantaneously observe changes in inflation and economic growth result in A) information lag. B) impact lag. C) policy lag. D) jet lag.
C) have allowed the Fed to achieve its monetary policy goals indirectly
The Fed's monetary policy tools A) have proven to be of little value in helping the Fed to achieve its monetary policy goals. B) have allowed the Fed to achieve its monetary policy goals directly. C) have allowed the Fed to achieve its monetary policy goals indirectly. D) are no longer as effective in achieving its monetary policy goals, due to restrictive legislation passed by Congress in the 1990s.
D) linked electronically to a group of private securities firms that the Fed has selected to participate in open market operations.
The Open Market Trading Desk is A) another name for the Federal Open Market Committee. B) an organization of private traders in government securities. C) the area on the floor of the New York Stock Exchange set aside for bond trading. D) linked electronically to a group of private securities firms that the Fed has selected to participate in open market operations.
A) was accurate prior to the financial crisis of 2007-2009 but not following the crisis.
The assumption that reserves are scarce A) was accurate prior to the financial crisis of 2007-2009 but not following the crisis. B) was accurate following the financial crisis of 2007-2009 but not prior to the crisis. C) was accurate prior to and following the financial crisis of 2007-2009. D) was not accurate prior to or following the financial crisis of 2007-2009.
B) the interest rate on the 10-year Treasury note
The benchmark default-free interest rate of the financial system is generally considered to be A) the federal funds rate. B) the interest rate on the 10-year Treasury note. C) the discount rate. D) the 30-year fixed rate mortgage.
C) recession of 2001.
The bursting of the dot-com bubble contributed to the A) Great Depression. B) inflation of the late 1970s. C) recession of 2001. D) financial crisis of 2007-2009.
D) financial crisis of 2007-2009
The bursting of the housing bubble was a key factor in causing the severity of the A) Great Depression. B) inflation of the late 1970s. C) recession of 2001. D) financial crisis of 2007-2009
B) term deposit facility
Which of the Fed's three new policy tools connected with bank reserve accounts is the least important? A) interest on reserve balances B) term deposit facility C) overnight reverse repurchase agreement facility D) reserve requirements
C) the time required for monetary policy changes to affect output, employment, and prices.
The impact lag facing the Fed is A) the delay before open market operations are able to affect the monetary base. B) the delay before the Fed's announcement of a new policy has an impact on the decisions of the public. C) the time required for monetary policy changes to affect output, employment, and prices. D) the delay before the impact of a recession on output and prices becomes clear to the Fed.
B) the delay in receiving accurate information about the state of the economy.
The information lag facing the Fed is A) the difficulty of becoming informed quickly of changes in public opinion about which policy goal is most important. B) the delay in receiving accurate information about the state of the economy. C) the delay in Congress and the president communicating their policy goals for the Fed to act on. D) the time required for monetary policy changes to affect output, employment, and prices
D) did not specifically mention open market operations
The original Federal Reserve Act A) specified open market operations as the Fed's main policy tool. B) specified open market operations as one of several Fed policy tools. C) specified that open market operations be employed by the Fed only in circumstances where discount loans were ineffective. D) did not specifically mention open market operations
C) the account manager at the Federal Reserve Bank of New York.
The policy directive from the FOMC is carried out by A) the presidents of the district banks. B) the presidents of commercial banks that are members of the Federal Reserve System. C) the account manager at the Federal Reserve Bank of New York. D) private dealers in the bond market
D) mortgage-backed securities
The third round of quantitative easing, announced in September 2012, was focused on purchases of A) short-term Treasury bills. B) long-term Treasury notes. C) long-term Treasury notes and sales of short-term Treasury bills. D) mortgage-backed securities
B) structural unemployment.
The unemployment that is caused by changes in the economy, such as shifts in manufacturing techniques, increased use of computers and electronic machines, and increases in the production of services instead of goods, is called A) frictional unemployment. B) structural unemployment. C) cyclical unemployment. D) natural unemployment.
A) hesitant; because it may cause a slowdown in the economy
Traditionally, Fed policymakers have been ________ to use higher interest rates to head off potential asset bubbles ________. A) hesitant; because it may cause a slowdown in the economy B) hesitant; because it would most likely result in rapid increases in inflation C) eager; even though it may cause a slowdown in the economy D) eager; because it would most likely result in sustained deflation
B) if a snowstorm results in a delay in check clearing, resulting in an increase in the Federal Reserve float
Under which circumstance is the Fed most likely to carry out a defensive open market operation? A) to prevent an increase in inflation B) if a snowstorm results in a delay in check clearing, resulting in an increase in the Federal Reserve float C) to defend the value of the U.S. dollar on the foreign exchange market D) to prevent the negative impact of a demand shock
A) to reduce long-term interest rates and increase short-term interest rates
What was the goal of Operation Twist? A) to reduce long-term interest rates and increase short-term interest rates B) to reduce short-term interest rates and increase long-term interest rates C) to reduce both short-term and long-term interest rates D) to increase both short-term and long-term interest rates
B) Operation Twist
What was the name of the plan, enacted in 2011, in which the Fed bought $400 billion worth of long-term securities while selling $400 billion worth of short-term securities? A) Operation Go Long B) Operation Twist C) QE2 D) QE3
B) unemployment is at its natural rate.
When all workers who want jobs have them and the demand for and supply of labor are in equilibrium A) the unemployment rate will be zero. B) unemployment is at its natural rate. C) the economy will be experiencing high rates of inflation. D) frictional unemployment will be zero.
B) price stability and maximum employment.
When economists and policymakers refer to the Fed's dual mandate, they are referring to A) price and exchange rate stability. B) price stability and maximum employment. C) moderate long-term interest rates and maximum employment. D) price stability and moderate long-term interest rates.
C) resources are lost.
When financial markets and institutions are NOT efficient in matching savers and borrowers A) interest rates fall, which discourages saving even further. B) interest rates fall, which discourages investment even further. C) resources are lost. D) investment rises
C) While the Fed may eventually return to normal monetary policy procedures, it is unlikely to do so in the near future.
When is the Fed likely to return to to using normal monetary policy procedures? A) The Fed will never return to normal monetary policy procedures. B) The Fed is mandated to return to normal monetary policy procedures by the end of 2018. C) While the Fed may eventually return to normal monetary policy procedures, it is unlikely to do so in the near future. D) The Fed has already returned to using normal monetary policy procedures
C) 0.50%.
When the Fed raised its target for the federal funds rate in 2015, it set the interest rate it pays on excess reserves at A) 0%. B) 0.25%. C) 0.50%. D) 1.25%.
B) 0.25%.
When the Fed raised its target for the federal funds rate in 2015, it set the interest rate it pays on overnight reverse repurchase agreements at A) 0%. B) 0.25%. C) 0.50%. D) 1.25%.
D) federal funds rate
Which of the following interest rates tends to fluctuate the most? A) interest rate on corporate bonds B) interest rate on 10-year Treasury bonds C) mortgage interest rate D) federal funds rate
D) It involved buying and selling long-term securities
Which of the following is NOT an accurate description of open market operations prior to 2008? A) It was used to affect the market for bank reserves. B) It was used to control the federal funds rate. C) It involved buying and selling short-term Treasury securities. D) It involved buying and selling long-term securities
A) fair wages
Which of the following is NOT considered to be a goal of monetary policy? A) fair wages B) high employment C) economic growth D) price stability
A) IOER is increased → this affects depository institutions that can borrow and lend in the federal funds market AND are paid interest on their deposits with the Fed → this pushes the federal funds rate to the top of the target range → federal funds rate rises into this new range.
Which of the following is an accurate description of the steps by which the FOMC causes the actual federal funds rate to rise into its target range when it votes to raise the federal funds rate target? A) IOER is increased → this affects depository institutions that can borrow and lend in the federal funds market AND are paid interest on their deposits with the Fed → this pushes the federal funds rate to the top of the target range → federal funds rate rises into this new range. B) IOER is decreased → this affects depository institutions that can borrow and lend in the federal funds market AND are paid interest on their deposits with the Fed → this keeps the federal funds rate above the bottom of the target range → federal funds rate rises into this new range. C) IOER is increased → this affects depository institutions that can borrow and lend in the federal funds market BUT ARE NOT paid interest on their deposits with the Fed → this pushes the federal funds rate to the top of the target range → federal funds rate rises into this new range. D) IOER is decreased → this affects depository institutions that can borrow and lend in the federal funds market BUT ARE NOT paid interest on their deposits with the Fed → this keeps the federal funds rate above the bottom of the target range → federal funds rate rises into this new range.
C) ON RRP is increased → this affects certain nonbank financial institutions that can borrow and lend in the federal funds market BUT ARE NOT paid interest on their deposits with the Fed → this keeps the federal funds rate above the bottom of the target range → federal funds rate rises into this new range.
Which of the following is an accurate description of the steps by which the FOMC causes the actual federal funds rate to rise into its target range when it votes to raise the federal funds rate target? A) ON RRP is increased → this affects certain nonbank financial institutions that can borrow and lend in the federal funds market AND are paid interest on their deposits with the Fed → this pushes the federal funds rate to the top of the target range → federal funds rate rises into this new range. B) ON RRP is decreased → this affects certain nonbank financial institutions that can borrow and lend in the federal funds market AND are paid interest on their deposits with the Fed → this pushes the federal funds rate to the top of the target range → federal funds rate rises into this new range. C) ON RRP is increased → this affects certain nonbank financial institutions that can borrow and lend in the federal funds market BUT ARE NOT paid interest on their deposits with the Fed → this keeps the federal funds rate above the bottom of the target range → federal funds rate rises into this new range. D) ON RRP is decreased → this affects certain nonbank financial institutions that can borrow and lend in the federal funds market BUT ARE NOT paid interest on their deposits with the Fed → this keeps the federal funds rate above the bottom of the target range → federal funds rate rises into this new range.
A) Currently, most economists think that the natural rate is about 5%.
Which of the following statements about the natural rate of unemployment is correct? A) Currently, most economists think that the natural rate is about 5%. B) Currently, most economists believe the natural rate is zero. C) When unemployment is at its natural rate, then only frictional unemployment remains. D) When unemployment is at its natural rate, then only structural unemployment remain
C) It controls discount policy less completely than it controls open market operations.
Which of the following statements accurately describes the Fed's control of discount policy? A) It controls discount policy more completely than it controls open market operations. B) It must abide by discount rates set by Congress. C) It controls discount policy less completely than it controls open market operations. D) It controls discount policy completely, just as it controls open market operations.
D) Improvements in credit markets have reduced the need for a seasonal credit facility
Which of the following statements concerning seasonal credit is TRUE? A) It tends to have a lower interest rate than federal funds. B) It has become increasingly more important in recent years. C) Only firms receiving secondary credit are eligible to receive seasonal credit. D) Improvements in credit markets have reduced the need for a seasonal credit facility
D) Each Federal District Bank can charge a different discount rate.
Which of the following statements is NOT true? A) Each Federal Reserve Bank maintains its own discount window. B) Before 1980, the Fed rarely made loans to banks which were not members of the Federal Reserve System. C) Since 1980, all depository institutions have had access to the discount window. D) Each Federal District Bank can charge a different discount rate.
C) The volume of defensive open market operations is much greater than the volume of dynamic open market operations.
Which of the following statements is correct? A) Dynamic open market operations are carried out to offset fluctuations in the monetary base. B) Defensive open market operations are carried out to change monetary policy. C) The volume of defensive open market operations is much greater than the volume of dynamic open market operations. D) Defensive open market operations are usually carried out through outright purchases or sales.
A) Open market purchases are expansionary and open market sales are contractionary.
Which of the following statements is correct? A) Open market purchases are expansionary and open market sales are contractionary. B) Open market purchases are contractionary and open market sales are expansionary. C) Both open market purchases and open market sales are expansionary. D) Both open market purchases and open market sales are contractionary.
A) The discount rate is generally above the federal funds rate.
Which of the following statements is correct? A) The discount rate is generally above the federal funds rate. B) The discount rate is generally below the federal funds rate. C) The discount rate is generally equal to the federal funds rate. D) There is no general pattern to the relation between the discount rate and the federal funds rate.
