ECON 2035 - CHP 13 EXAM 3
After 2003, The Federal Reserve usually keeps the discount rate A) above the target federal funds rate B) equal to the target federal funds rate C) below the target federal funds rate D) equal to zero
A
Everything else held constant, in the market for reserves, when the demand for federal funds intersects the reserve supply curve along the horizontal section, increasing the discoun trate A) increases the federal funds rate B) lowers the federal funds rate C) has no effect on the federal funds rate D) has an indeterminate effect on the federal funds rate
A
Everything else held constant, in the market for reserves, when the federal funds rate equals the interest rate paid on excess reserves, raising the interest rate paid on excess reserves A) increases the federal funds rate B) lowers the federal funds rate C) has no effect on the federal funds rate D) has an indeterminate effect on the federal funds rate
A
Everything else held constant, the vertical section of the supply curve of reserves is lengthened when the A) discount rate increases B) discount rate decreases C) federal funds rate rises D) federal funds rate falls
A
Everything else held constant, when the federal funds rate is 5%, lowering the discount rate from 5% to 4% A) lowers the federal funds rate B) raises the federal funds rate C) has no effect on the federal funds rate D) has an indeterminate effect on the federal funds rate
A
If Treasury deposits at the Fed are predicted to ______, the manager of the trading desk at the NY bank will likely conduct _____ open market operations to ____ reserves. A) increase; defensive; inject B) decrease; defensive; inject C) increase; dynamic; inject D) decrease; dynamic; drain
A
If Treasury deposits at the Fed are predicted to increase, the manager of the trading desk at the NY bank will likely conduct _____ open market operations to ____ reserves A) defensive; inject B) defensive; drain C) dynamic; inject D) dynamic; drain
A
If float is predicted to decrease because of good weather, the manager of the trading desk at the NY Fed bank will likely conduct _____ open market operations to _____ reserves. A) defensive; inject B) defensive; drain C) dynamic; inject D) dynamic; drain
A
If the Fed wants to temporarily inject reserves into the banking system, it will engage in A) a repurchase agreement B) a matched sale-purchase transaction C) a reverse repurchase agreement D) an open market sale
A
In the market for reserves, if the federal funds rate is above the interest rate paid on excess reserves, an open market purchase ______ the _____ of reserves which causes the federal funds rate to fall, everything else held constant A) increases; supply B) increases; demand C) decreases; supply D) decreases; demand
A
In the market for reserves, if the federal funds rate is above the interest rate paid on excess reserves, then an open market ______ the supply of reserves, raising the federal funds interest rate, everything else held constant. A) sale decreases B) sale increases C) purchase increases D) purchase decreases
A
In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, a decline in the reserve requirement ______ the ______ for reserves and causes the federal funds interest rate to fall, everything else held constant. A) decreases; demand B) increases; demand C) increases; supply D) decreases; supply
A
In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, a decline in the reserve requirement ______ the demand of reserves, the federal funds rate, everything else held constant. A) decreases; lowering B) increases; lowering C) increases; raising D) decreases; raising
A
In the market for reserves, when the federal funds interest rate is below the discount rate, the supply curve of reserves is A) vertical B) horizontal C) positively sloped D) negatively sloped
A
Open market operations intended to offset movements in noncontrollable factors (such as float)that affect reserves and the monetary base are called A) defensive open market operations B) dynamic open market operations C) offensive open market operations D) reactionary open market operations
A
Suppose on any given day there is an excess supply of reserves in the federal funds market. If the Federal Reserve wishes to keep the federal funds rate at its current level, then the appropriate action for the Federal Reserve to take is a _____ open market _____, everything else held constant A) defensive; sale B) defensive; purchase C) dynamic; sale D) dynamic; purchase
A
The Feds prefer that _____________ so that _______________ A) banks borrow reserves from each other; banks can monitor each other for credit risk B) banks borrow reserves from each other; the Fed can monitor banks for credit risk C) banks borrow reserves from the Fed; banks can monitor each other for credit risk D) banks borrow reserves from the Fed; the Fed can monitor banks for credit risk
A
The discount rate is A) the interest rate the Fed charges on loans to banks B) the price the Fed pays for government securities C) the interest rate that banks charge their most preferred customers D) the price banks pay the Fed for government securities
A
The discount rate refers to the interest rate on A) primary credit B) secondary credit C) seasonal credit D) federal funds
A
When the Federal Reserve engages in a repurchase agreement to offset a withdrawal of Treasury funds from the Federal Reserve, the open market operation is said to be A) defensive B) offensive C) dynamic D) reactionary
A
______ are the most important monetary policy tool because they are the primary determinant of changes in the ______, the main source of fluctuations in the money supply. A) Open market operations; monetary base B) Open market operations; money multiplier C) Changes in reserve requirements; monetary base D) Changes in reserve requirements; money multiplier
A
A decrease in _______ increases the money supply since it causes the ______ to rise. A) reserve requirements; monetary base B) reserve requirements; money multiplier C) margin requirements; monetary base D) margin requirements; money multiplier
B
A financial panic was averted in October 1987 following "Black Monday" when the Fed announced that A) it was lowering the discount rate B) it would provide discount loans to any bank that would make loans to the security industry C) it stood ready to purchase common stocks to prevent further slide in stock prices D) it was raising the discount rate
B
An increase in _______ reduces the money supply since it causes the ______ to fall. A) reserve requirements; monetary base B) reserve requirements; money multiplier C) margin requirements; monetary base D) margin requirements; money multiplier
B
Discount policy affects the money supply by affection the volume of ____ and the ______. A) excess reserves; monetary base B) borrowed reserves; monetary base C) excess reserves; money multiplier D) borrowed reserves; money multiplier
B
Everything else held constant, in the market for reserves, decreases in the interest rate paid on excess reserves affect the federal funds rate A) when the funds rate is below the interest rate paid on excess reserves B) when the funds rate equals the interest rate paid on excess reserves C) when the funds rate is below the discount rate D) when the funds rate equals the discount rate
B
Everything else held constant, in the market for reserves, increases in the discount rate affect the federal funds rate A) when the funds rate is below the discount rate B) when the funds rate equals the discount rate C) when the demand for federal funds intersects the vertical section of the reserve supply curve D) when the demand for federal funds equals zero
B
Everything else held constant, in the market for reserves, when the federal funds rate equals the discount rate, lowering the discount rate A) increases the federal funds rate B) lowers the federal funds rate C) has no effect on the federal funds rate D) has an indeterminate effect on the federal funds rate
B
Everything else held constant, in the market for reserves, when the federal funds rate is 1%, increasing the interest rate paid on excess reserves from 1% to 2% A) lowers the federal funds rate B) raises the federal funds rate C) has no effect on the federal funds rate D) has an indeterminate effect on the federal funds rate
B
Everything else held constant, in the market for reserves, when the supply for federal funds intersects the reserve demand curve along the horizontal section of the demand curve, lowering the interest rate paid on excess reserves A) increases the federal funds rate B) lowers the federal funds rate C) has no effect on the federal funds rate D) has an indeterminate effect on the federal funds rate
B
Everything else held constant, the vertical section of the supply curve of reserves is shortened when the A) discount rate increases B) discount rate decreases C) federal funds rate rises D) federal funds rate falls
B
Everything else held constant, when the federal fund rate is ____ the interest rate paid on reserves, the quantity of reserves demanded rises when the federal funds rate _____. A) above, rises B) above, falls C) below, rises D) below, falls
B
If Treasury deposits at the Fed are predicted to ______, the manager of the trading desk at the NY bank will likely conduct _____ open market operations to ____ reserves. A) rise; defensive; inject B) fall; defensive; inject C) rise; dynamic; inject D) fall; dynamic; drain
B
If Treasury deposits at the Fed are predicted to fall, the manager of the trading desk at the NY bank will likely conduct _____ open market operations to ____ reserves A) defensive; inject B) defensive; drain C) dynamic; inject D) dynamic; drain
B
If float is predicted to decrease because of unseasonably good weather, the manager of the trading desk at the Federal Reserve Bank of New York will likely conduct a _____ open market _____ of securities. A) defensive; sale B) defensive; purchase C) dynamic; sale D) dynamic; purchase
B
If float is predicted to increase because of bad weather, the manager of the trading desk at the NY Fed bank will likely conduct _____ open market operations to _____ reserves. A) defensive; inject B) defensive; drain C) dynamic; inject D) dynamic; drain
B
If the Fed expects currency holdings to rise, it conducts open market _____ to offset the expected ______ in reserves. A) purchases; increase B) purchases; decrease C) sales; increase D) sales; decrease
B
If the banking system has a large amount of reserves, many banks will have excess reserves to lend and the federal funds rate will probably _____; if the level of reserves is low, few banks will have reserves to lend and the federal funds rate will probably ____. A) fall; fall B) fall; rise C); rise; fall D) rise; rise
B
In the market for reserves, if the federal funds rate is above the interest rate paid on excess reserves, an open market purchase ______ the supply of reserves and causes the federal funds interest rate to _____, everything else held constant. A) decreases; fall B) increases; fall C) increases; rise D) decreases; rise
B
In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, a _____ in the reserve requirement _____ the demand for reserves, raising the federal funds interest rate, everything else held constant. A) rise; decreases B) rise; increases C) decline; increases D) decline; decreases
B
In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, an increase in the reserve requirement ______ the ______for reserves and causes the federal funds interest rate to rise, everything else held constant A) decreases; demand B) increases; demand C) increases; supply D) decreases; supply
B
Open market purchases _____ reserves and the monetary base thereby _____ the money supply. A) raise; lowering B) raise: raising C) lower; lowering D) lower; raising
B
Suppose on any given day there is an excess demand of reserves in the federal funds market. If the Federal Reserve wishes to keep the federal funds rate at its current level, then the appropriate action for the Federal Reserve to take is a _____ open market _____, everything else held constant A) defensive; sale B) defensive; purchase C) dynamic; sale D) dynamic; purchase
B
Suppose, at a given federal funds rate, there is an excess demand for reserves in the federal funds market. If the Fed wants the federal funds rate to stay at that level, then it should undertake an open market _____ of bonds, everything else held constant. If the Fed does nothing, however, the federal funds rate will _____. A) sale; increase B) purchase; increase C) sale; decrease D) purchase; decrease
B
The Fed can offset the effects of an increase in float by engaging in A) a repurchase agreement B) a matched sale-purchase transaction C) an interest rate swamp D) an open market purchase
B
The Federal Reserve has had the authority to vary reserve requirements since the A) 1920s B) 1930s C) 1940s D 1950s
B
The Federal Reserve will engage in a repurchase agreement when it wants to ____ reserves ____ in the banking system. A) increase; permanently B) increase; temporarily C) decrease; temporarily D) decrease; permanently
B
The actual execution of open market operations is done at A) the Board of Governors in Washington, D.C. B) the Federal Reserve Bank of New York C) the federal Reserve Bank of Philadelphia D) the Federal Reserve Bank of Boston
B
The facility that was created in December of 2007 that banks can use to borrow from the Fed that has less of a stigma for banks compared to borrowing from the discount window is the A) Term Securities Lending Facility B) Term Auction Facility C) Primary Dealer Credit Facility D) Commercial Paper Funding Facility
B
The interest rate for primary credit is usually set _____basis points _____ the federal funds rate. In March 2008, this gap was changed to ______ basis points. A) 50; below; 100 B) 100; above; 25 C) 100; below; 50 D) 50; above; 25
B
The most common type of discount lending, _____ credit loans, are intended to help healthy banks with short-term liquidity problems that often result from temporary deposit outflows A) secondary B) primary C) temporary D) seasonal
B
The most important advantage of discount policy is that the Fed can use it to A) precisely control the monetary base B) perform its role as lender of last resort C) control the money supply D) punish banks that have deficient reserves
B
The primary indicator of the Fed's stance on monetary policy is A) the discount rate B) the federal funds rate C) the growth rate of the monetary base D) the growth rate of M2
B
The quantity of reserves supplied equals A) nonborrowed reserves minus borrowed reserves B) nonborrowed reserves plus borrowed reserves C) required reserves plus borrowed reserves D) total reserves minus required reserves
B
When good weather speeds the check-clearing process, float tends to ____ causing the Fed to initiate defensive open market ____. A) decreases; sales B) decrease; purchases C) increase; sales D) increase; purchases
B
When the federal funds rate equals the discount rate A) the supply curve of reserves is vertical B) the supply curve of reserves is horizontal C) the demand curve for reserves is vertical D) the demand curve for reserves is horizontal
B
At its inception, the Federal Reserve was intended to be A) the Treasury's banker B) the issuer of government debt C) a lender-of-last-resort D) a regulator of bank holding companies
C
Everything else held constant, in the market for reserves, when the demand for federal funds intersects the reserve supply curve on the vertical section, increasing the discount rate A) increases the federal funds rate B) lowers the federal funds rate C) has no effect on the federal funds rate D) has an indeterminate effect on the federal funds rate
C
Everything else held constant, in the market for reserves, when the federal funds rate is 3%, increasing the interest rate paid on excess reserves from 1% to 2% A) lowers the federal funds rate B) raises the federal funds rate C) has no effect on the federal funds rate D) has an indeterminate effect on the federal funds rate
C
Everything else held constant, in the market for reserves, when the federal funds rate is 3%, lowering the discount rate from 5% to 4% A) lowers the federal funds rate B) raises the federal funds rate C) has no effect on the federal funds rate D) has an indeterminate effect on the federal funds rate
C
Everything else held constant, in the market for reserves, when the federal funds rate is 3%, lowering the interest rate paid on excess reserves from 2% to 1% A) lowers the federal funds rate B) raises the federal funds rate C) has no effect on the federal funds rate D) has an indeterminate effect on the federal funds rate
C
Everything else held constant, in the market for reserves, when the supply for federal funds intersects the reserve demand curve on the downward sloping section, decreasing the interest rate paid on excess reserves A) increases the federal funds rate B) lowers the federal funds rate C) has no effect on the federal funds rate D) has an indeterminate effect on the federal funds rate
C
Everything else held constant, when the federal funds rate is 3%, raising the discount rate from 5% to 6% A) lowers the federal funds rate B) raises the federal funds rate C) has no effect on the federal funds rate D) has an indeterminate effect on the federal funds rate
C
If the Fed expects currency holdings to fall, it conducts open market _____ to offset the expected ______ in reserves. A) purchases; increase B) purchases; decrease C) sales; increase D) sales; decrease
C
In the market for reserves, a lower interest rate paid on excess reserves A) decreases the supply of reserves B) increases the supply of reserves C) decreases the effective floor for the federal funds rate D) increases the effective floor for the federal funds rate
C
In the market for reserves, if the federal funds is above the interest rate paid on excess reserves, an open market sale _____ the ______ of reserves, causing the federal funds rate to increase, everything else held constant. A) increases; supply B) increases; demand C) decreases; supply D) decreases; demand
C
In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, a _______ in the reserve requirement decreases the demand for reserves, ______the federal funds interest rate, everything else held constant. A) rise; lowering B) rise; raising C) decline; lowering D) decline; rising
C
In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, an increase in the reserve requirement ______ the demand for reserves and causes the federal funds interest rate to _____, everything else held constant. A) decreases; fall B) increases; fall C) increases; rise D) decreases; rise
C
In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, an increase in the reserve requirement ______ the demand for reserves, _____ the federal funds rate, everything else held constant. A) decreases; lowering B) increases; lowering C) increases; raising D) decreases; raising
C
Open market purchases raise the _____ thereby raising the _____ A) money multiplier; money supply B) money multiplier; monetary base C) monetary base; money supply D) monetary base; money mulitplier
C
Open market sales ____ reserves and the monetary base thereby ____ the money supply A) raise; lowering B) raise: raising C) lower; lowering D) lower; raising
C
Open market sales shrink _____ thereby lowering _____. A) the money multiplier; the money supply B) the money multiplier; reserves and the monetary base C) reserves and the monetary base; the money supply D) the money base; the money multiplier
C
Suppose on any given day the prevailing equilibrium federal funds rate is below the Federal Reserve's federal funds target rate. If the Federal Reserve wishes for the federal funds rate to be at their targe level, then the appropriate action for the Federal Reserve to take is a _____ open market _____, everything else held constant A) defensive; sale B) defensive; purchase C) dynamic; sale D) dynamic; purchase
C
Suppose, at a given federal funds rate, there is an excess supply of reserves in the federal funds market. If the Fed wants the federal funds rate to stay at that level, then it should undertake an open market _____ of bonds, everything else held constant. If the Fed does nothing, however, the federal funds rate will _____. A) sale; increase B) purchase; increase C) sale; decrease D) purchase; decrease
C
The Fed is considering eliminating A) primary credit lending B) secondary credit lending C) seasonal credit lending D) its lender of last resort function
C
The Fed's discount lending is of three types: _____ is the most common category; _____ is given to a limited number of banks in vacation and agricultural areas; _____ is given to banks that have experienced severe liquidity problems A) seasonal credit; secondary credit; primary credit B) secondary credit; seasonal credit; primary credit C) primary credit; seasonal credit; secondary credit D) seasonal credit; primary credit; secondary credit
C
The Federal Open Market Committe makes the Fed's decision on the purchase or sale of government securities, but these purchases or sales executed by the Federal Reserve Bank of A) Chicago B) Boston C) New York D) San Francisco
C
The Federal Reserve will engage in a matched sale-purchase transaction when it wants to _____ reserves _____ in the banking system A) increase; permanently B) increase; temporarily C) decrease; temporarily D) decrease; permanently
C
The discount rate is kept ____ the federal funds rate because the Fed prefers that _______ A) below; banks borrow reserves from each other B) below; banks borrow reserves from the Fed C) above; banks borrow reserves from each other D) above; banks borrow reserves from the Fed
C
The discount rate is kept _____ the federal funds rate because the Fed prefers that ______ A) below; banks can monitor each other for credit risk B) below; the Fed can monitor banks for credit risk C) above; banks can monitor each other for credit risk D) above; the Fed can monitor banks for credit risk
C
The interest rate charged on overnight loans of reserves between banks is the A) prime rate B) discount rate C) federal funds rate D) Treasury bill rate
C
The interest rate on secondary credit is set _____ basis points _____the primary credit rate. A) 100; above B) 100; below C) 50; above D) 50 below
C
The most common type of discount lending that the Fed extends to banks is called A) seasonal credit B) secondary credit C) primary credit D) installment credit
C
The quantity of reserves demanded equals A) required reserves plus borrowed reserves B) excess reserves plus borrowed reserves C) required reserves plus excess reserves D) total reserves minus excess reserves
C
When bad storms slow the check-clearing process, float tends to ____ causing the Fed to initiate ______ open market ____. A) decreases; defensive; sales B) decrease; dynamic; purchases C) increase; defensive; sales D) increase; dynamic; purchases
C
When bad storms slow the check-clearing process, float tends to _____ causing the Fed to initiate defensive open market _____. A) decreases; sales B) decrease; purchases C) increase; sales D) increase; purchases
C
When good weather speeds the check-clearing process, float tends to ____ causing the Fed to initiate _____open market ____. A) decrease; defensive; sales B) decrease; dynamic; sales C) decrease; defensive; purchases D) increase; dynamic; purhcases
C
Which of the following is NOT an argument for the Federal Reserve paying interest on excess reserve holdings? A) Paying interest reduces the effective tax on deposits B) Paying interest will help in the implementation of monetary policy. C) Paying interest will help the Federal Reserve have more control of the amount of discount loans D) Paying interest increases the capacity of the Fed's balance sheet which will make it easier to address financial crises
C
In the market for reserves, a lower discount rate A) decreases the supply of reserves B) increases the supply of reserves C) lengthens the vertical section of the supply curve of reserves D) shortens the vertical section of the supply curve of reserves
D
In the market for reserves, if the federal funds rate is above the interest rate paid on excess reserves, an open market sale ______ the supply of reserves causing the federal funds rate to _____, everything else held constant. A) decreases; decrease B) increases; decrease C) increases; increase D) decreases; increase
D
In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, a _____ in the reserve requirement increases the demand for reserves, ______ the federal funds interest rate, everything else held constant. A) rise; lowering B) decline; raising C) decline; lowering D) rise; raising
D
In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, a _______ in the reserve requirement ______ the demand for reserves, lowering the federal funds interest rate, everything else held constant. A) rise; decreases B) rise; increases C) decline; increases D) decline; decreases
D
In the market for reserves, when the federal funds rate is above the interest rate paid on excess reserves, the demand curve for reserves is A) vertical B) horizontal C) positively sloped D) negatively sloped
D
Much of the credit for prevention of a financial market meltdown after "Black Monday" must be given to the Federal Reserve System and its chairman A) Paul Volker B) Alan Blinder C) Arthur Burns D) Alan Greenspan
D
Suppose on any given day the prevailing equilibrium federal funds rate is above the Federal Reserve's federal funds target rate.. If the Federal Reserve wishes for the federal funds rate to be at their targe level, then the appropriate action for the Federal Reserve to take is a _____ open market _____, everything else held constant A) defensive; sale B) defensive; purchase C) dynamic; sale D) dynamic; purchase
D
The Fed's lender-of-last-resort function A) has proven to be ineffective B) cannot prevent runs by large depositors C) is no longer necessary due to FDIC insurance D) creates a moral hazard problem
D
The interest rate on seasonal credit equals A) the federal funds rate B) the primary credit rate C) the secondary credit rate D) an average of the federal funds rate and rates on certificates of deposits
D
The opportunity cost of holding excess reserves is the federal funds rate A) minus the discount rate B) plus the discount rate C) plus the interest rate paid on excess reserves D) minus the interest rate paid on excess reserves
D
The two types of open market operations are A) offensive and defensive B) dynamic and reactionary C) active and passive D) dynamic and defensive
D
When the federal funds rate equals the interest rate paid on excess reserves A) the supply curve of reserves is vertical B) the supply curve of reserves is horizontal C) the demand curve for reserves is vertical D) the demand curve for reserves is horizontal
D
