economics final

If the effective federal funds rate is 3.89 percent, which of the following is most likely to be the Fed's target range for the federal funds rate?

3.75 to 4.00

Which of the following best describes the cause-effect chain of a restrictive monetary policy?

A decrease in the money supply will raise the interest rate, decrease investment spending, decrease aggregate demand, and decrease inflation.

Which of the following best describes the cause-effect chain of expansionary monetary policy?

An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and real GDP.

Which of the following will happen when the Federal Reserve lowers the interest rate paid on reserve balances?

Banks will choose to lend into the money market instead of lending to the Fed.

If the Federal Reserve authorities were attempting to reduce inflation, the proper policies would be to

Decrease the money supply with negative forward guidance, a higher federal funds target range, increases in the IORB and ON RRP, and/or quantitative tightening.

The banks increase their lending when the

Fed buys bonds in the open market.

The Federal Reserve System's three administered rates are the

IORB rate, ON RRP rate, and discount rate.

Why doesn't the Fed want to drive nominal interest rates below zero in response to a financial crisis and recession?

Negative nominal interest rates would cause people to withdraw their money from banks, reducing the ability of banks to extend loans.

When the Fed transacts reverse repo agreements with nonbank financial firms, the collateral used is usually

Treasury bonds.

If the demand for money increases and the Fed wants interest rates to remain unchanged, which of the following would be appropriate policy?

buy bonds in the open market

One of the strengths of monetary policy relative to fiscal policy is that monetary policy

can be implemented more quickly.

Assume the economy is operating at less than full employment. An expansionary monetary policy will cause interest rates to _______, which will ______ investment spending.

decrease; increase

Projecting that it temporarily may not be able to fulfill every request from depositors wanting to withdraw funds in the coming days, the Bank of Beano decides to borrow money from the Federal Reserve Bank in its district. The interest rate on the loan is called the

discount rate.

All else equal, when the Federal Reserve Banks engage in a restrictive monetary policy, the prices of government bonds usually

fall.

The interest rate that banks charge one another on overnight loans of currency held on deposit at the Fed is called the

federal funds rate.

Big Bucks Bank currently holds $20 million in reserve balances. If the Fed increases the rate of interest on reserve balances held at the Fed, we would expect Big Bucks Bank to

hold even more reserves in its reserve account at the Fed, thereby reducing the amount it is willing to lend.

Other things equal, an improvement in business confidence would

increase investment spending, real GDP, and the price level.

If the Fed wants to discourage bank lending, it will

increase the interest paid on reserve balances held at the Fed.

The Fed can induce banks to increase their reserve balances by

increasing the interest on reserve balances.

In economics, the expression "You can lead a horse to water, but you can't make it drink" illustrates the

liquidity trap.

Monetary policy is thought to be

more effective in controlling inflation than in moving the economy out of a recession.

The three main tools of monetary policy are

open-market operations, forward guidance, and changing the administered interest rates.

Which of the following Fed actions will decrease the money supply?

raising the overnight reverse repo rate

The purpose of expansionary monetary policy is to increase

real GDP.

A newspaper headline reads, "Fed Raises Discount Rate for Third Time This Year." This headline indicates that the Federal Reserve is most likely trying to

reduce inflation in the economy.

Suppose the economy is at full employment with a high inflation rate. Which combination of government policies is most likely to reduce the inflation rate?

sell government securities in the open market, do reverse repos, and cut government spending

A television report states: "The Federal Reserve will lower the federal funds rate for the fourth time this year." This report indicates that the Federal Reserve is most likely trying to

stimulate the economy.

In a reverse repo transaction,

the Fed borrows money from nonbank financial firms.

Which of the following is least likely to be a problem for monetary policy?

the administrative lag

When the Federal Reserve acts to tighten money and credit in the economy, it is trying to reduce

the inflation rate.

The extremely large increase in the inflation rate in 2021 was in large part due to

the massive fiscal stimulus enacted by Congress to fight the pandemic and supply chain problems caused by the pandemic.

A neutral monetary policy is a Fed policy in which

the money supply and interest rates are left as they are.

If the Federal Reserve System buys government securities,

the money supply will increase.

Assume the economy faces high unemployment but stable prices. Which combination of government policies is most likely to reduce unemployment?

the purchase of government bonds in the open market and an increase in government spending

Open-market operations refer to

the purchases and sales of U.S. government securities by the Fed.