Econ 3229 Ch 17, 18,19
WSJ: Could the ECB Start Buying Stocks?
3. a) According to the first WSJ article, both ECB and the Fed have been purchasing massive amounts of public and private bonds as part of its quantitative easing. Please discuss the reasons for buying billions of debt by these central banks. Answer: Reasons for QE included alleviating credit crunch, resuming bank lending and putting downward pressure on long-term interest rates. b) ECB has been entertaining an idea of adding purchases of stocks to the bond buying program. As such, this move would be even more controversial than bond buying program. Please explain why is ECB thinking about making this move and do you see any potential risks with central banks purchasing stocks? Answer: ECB is running out of government bonds to buy. Stock market is larger than bond market. However, purchasing stocks may not be good idea, since they are risker plus there is a risk of political favors. c) Briefly research the current status of ECB bond purchase program. Answer: ECB is intending to completely end QE in December 2018. 4. a) According to the second WSJ, how exactly is the Fed planning to shrink its asset holdings? Answer: The Fed is going to let securities mature without reinvesting the principal amount. b) Given the massive amounts of excessive reserves in the banking system, open market operations are no longer primary tool of changing federal funds rate. Instead, how does the Fed affect federal funds rate today? Answer: The Fed now uses interest rate on reserves as a primary tool for changing federal funds rates. This is because supply of reserves has increased to the point where it crosses the demand at its horizontal portion.
WSJ
4. According to the first WSJ article, what contributed to euro plunge in 2015? Answer: ECB announced quantitative easing in eurozone, depressing interest rates there and thus lowering demand for euros. Also, Fed ended QE in US and indicated higher interest rates were to come. This increased demand for US assets. Combination of lower demand for euro assets and increased demand for US assets led to depreciation of euro. 5. According to the second WSJ article, what explains dollar's sudden appreciation after Donald Trump's surprise victory in the US presidential elections in 2016? Answer: Market suddenly reversed expectations about future path of US interest rates. Since candidate Trump promised much higher government spending and fiscal expansion, this would put upward pressure both on interest rates and inflation. Consequently, higher interest rates pushed up demand for dollars in anticipation of higher returns on US assets.
A decrease in the expected future domestic exchange rate causes the demand for domestic assets to ________ and the domestic currency to ________, everything else held constant. A) increase; appreciate B) increase; depreciate C) decrease; appreciate D) decrease; depreciate
A decrease in the expected future domestic exchange rate causes the demand for domestic assets to ________ and the domestic currency to ________, everything else held constant. D) decrease; depreciate
________ in the expected future domestic exchange rate causes the demand for domestic assets to increase and the domestic currency to ________, everything else held constant. A) An increase; appreciate B) An increase; depreciate C) A decrease; appreciate D) A decrease; depreciate
A) An increase; appreciate
As the relative expected return on dollar assets increases, foreigners will want to hold more ________ assets and less ________ assets, everything else held constant. Correct! A) dollar; foreign B) foreign; foreign C) dollar; dollar D) foreign; dollar
A) dollar; foreign
According to the law of one price, if the price of Colombian coffee is 100 Colombian pesos per pound and the price of Brazilian coffee is 4 Brazilian reals per pound, then the exchange rate between the Colombian peso and the Brazilian real is A) 40 pesos per real. B) 100 pesos per real. C) 25 pesos per real. D) 0.4 pesos per real.
According to the law of one price, if the price of Colombian coffee is 100 Colombian pesos per pound and the price of Brazilian coffee is 4 Brazilian reals per pound, then the exchange rate between the Colombian peso and the Brazilian real is C) 25 pesos per real.
Although open market operations and discount loans both change the monetary base, the Fed has A) greater control over open market operations than over discount loans. B) greater control over discount loans than over open market operations. C) very little control over either discount loans or open market operations. D) complete control over both discount loans and open market operations.
Although open market operations and discount loans both change the monetary base, the Fed has A) greater control over open market operations than over discount loans.
An increase in the domestic interest rate causes the demand for domestic assets to shift to the ________ and the domestic currency to ________, everything else held constant. A) right; appreciate B) right; depreciate C) left; appreciate D) left; depreciate
An increase in the domestic interest rate causes the demand for domestic assets to shift to the ________ and the domestic currency to ________, everything else held constant. A) right; appreciate
As the relative expected return on dollar assets increases, foreigners will want to hold more ________ assets and less ________ assets, everything else held constant. A) foreign; foreign B) foreign; dollar C) dollar; foreign D) dollar; dollar
As the relative expected return on dollar assets increases, foreigners will want to hold more ________ assets and less ________ assets, everything else held constant. C) dollar; foreign
According to the law of one price, if a pound of strawberries costsr $4 per pound in the US and 80 pesos in Mexico, then the exchange rate between dollar and peso should be A) $20 per peso. B) $0.05 per peso. C) 0.05 pesos per dollar D) 80 pesos per dollar
B) $0.05 per peso.
On January 25, 2009, one U.S. dollar traded on the foreign exchange market for about 1.15 Swiss francs. Therefore, one Swiss franc would have purchased about ________ U.S. dollars. A) 0.30 B) 0.87 C)1.15 D)3.10
B) 0.87
Suppose that the Federal Reserve conducts an open market sale. Everything else held constant, this will cause the demand for U.S. assets to ________ and the U.S. dollar will ________. A) increase; depreciate B) increase; appreciate C) decrease; appreciate D)decrease; depreciate
B) increase; appreciate
If Ford Mustang costs $30,000 in the US and 40,000 pounds in the UK and the current exchange rate between pound and dollar is $1.2 per pound, then according to PPP pound is ______ and should ________. A) overvalued; appreciate B) overvalued; depreciate C) undervalued; appreciate D) undervalued; depreciate
B) overvalued; depreciate
According to the purchasing power parity theory, a rise in the United States price level of 5 percent, and a rise in the Mexican price level of 6 percent cause A) the dollar to appreciate 5 percent relative to the peso. B) the dollar to appreciate 1 percent relative to the peso. C) the dollar to depreciate 1 percent relative to the peso. D) the dollar to depreciate 5 percent relative to the peso.
B) the dollar to appreciate 1 percent relative to the peso.
Both ________ and ________ are Federal Reserve assets. A) currency in circulation; reserves B) currency in circulation; securities C) securities; loans to financial institutions D) securities; reserves
Both ________ and ________ are Federal Reserve assets. C) securities; loans to financial institutions
Both ________ and ________ are Federal Reserve assets. A) securities; reserves B) currency in circulation; securities C) securities; loans to financial institutions D) currency in circulation; reserves
Both ________ and ________ are Federal Reserve assets. C) securities; loans to financial institutions
When the value of the dollar changes from £0.75 to £0.5, then the British pound has ________ and the U.S. dollar has ________. A) appreciated; appreciated B) depreciated; appreciated C) appreciated; depreciated D)depreciated; depreciated
C) appreciated; depreciated
An increase in the domestic interest rate causes the demand for domestic assets to ________ and the domestic currency to ________, everything else held constant. A) decrease; depreciate B) decrease; appreciate C) increase; appreciate D) increase; depreciate
C) increase; appreciate
________ in the domestic interest rate causes the demand for domestic assets to decrease and the domestic currency to ________, everything else held constant. A) An increase; depreciate B) An increase; appreciate C) A decrease; appreciate D) A decrease; depreciate
D) A decrease; depreciate
Decisions by depositors to increase their holdings of ________, or of banks to hold ________ will result in a smaller expansion of deposits than the simple model predicts. A) deposits; required reserves B) deposits; excess reserves C) currency; required reserves D) currency; excess reserves
Decisions by depositors to increase their holdings of ________, or of banks to hold ________ will result in a smaller expansion of deposits than the simple model predicts. B) deposits; excess reserves
During the 2007-2009 financial crisis the excess reserve ratio A) increased sharply. B) decreased sharply. C) increased slightly. D) decreased slightly.
During the 2007-2009 financial crisis the excess reserve ratio A) increased sharply.
Everything else held constant, a decrease in the required reserve ratio on checkable deposits causes the M1 money multiplier to ________ and the money supply to ________. A) decrease; increase B) decrease; decrease C) increase; increase D) increase; decrease
Everything else held constant, a decrease in the required reserve ratio on checkable deposits causes the M1 money multiplier to ________ and the money supply to ________. C) increase; increase
Everything else held constant, an increase in currency holdings will cause A) the money supply to rise. B) the money supply to remain constant. C) the money supply to fall. D) checkable deposits to rise
Everything else held constant, an increase in currency holdings will cause C) the money supply to fall.
Everything else held constant, in the market for reserves, when the federal funds rate equals the interest rate paid on reserves, raising the interest rate paid excess reserves A) increases the federal funds B) lowers the federal funds rate. C) has no effect on the federal funds rate. D) has an indeterminate effect of the federal funds rate.
Everything else held constant, in the market for reserves, when the federal funds rate equals the interest rate paid on reserves, raising the interest rate paid excess reserves A) increases the federal funds
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.
Everything else held constant, in the market for reserves, when the federal funds rate is 3%, lowering the discount rate from 5% to 4% C) has no effect on the federal funds rate.
Everything else held constant, in the market for reserves, when the federal funds rate is 3%, lowering the interest rate paid on reserves rate 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.
Everything else held constant, in the market for reserves, when the federal funds rate is 3%, lowering the interest rate paid on reserves rate from 2% to 1% C) has no effect on the federal funds rate.
Everything else held constant, when a country's currency appreciates, the country's goods abroad become ________ expensive and foreign goods in that country become ________ expensive. A) more; less B) more; more C) less; less D) less; more
Everything else held constant, when a country's currency appreciates, the country's goods abroad become ________ expensive and foreign goods in that country become ________ expensive. A) more; less
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.
Expansionary monetary policy consists of all of the following EXCEPT A) open market sales.
From before the financial crisis began in September of 2007 to when the crisis was over at the end of 2009, the huge expansion in the Fed's balance sheet and the monetary base did not result in a large increase in monetary supply because A) the Fed also increased the required reserve ratio. B) most of it just flowed into holdings of excess reserve. C) the Fed also conducted open market sales. D) the discount loan decreased.
From before the financial crisis began in September of 2007 to when the crisis was over at the end of 2009, the huge expansion in the Fed's balance sheet and the monetary base did not result in a large increase in monetary supply because B) most of it just flowed into holdings of excess reserve.
WSJ
IOER in interest on excess reserves, a small interest rate the Fed started to pay in 2008 to banks for any excess reserves that hold. Before the Fed didn't pay the interest, so any money banks held in reserve account represented a big opportunity cost for them. Now banks earn money just by parking cash in reserve account. Professor Blinder recommends setting IOER negative because positive levels of IOER encourages banks just to park reserves the Fed injected in the system. Massive amounts of excess reserves in the banking system goes against the Fed's wishes to encourage banks to lend those reserves. IOER is partly to blame for that. Making it negative would penalize the banks for parking reserves and encourage them to lend them. Downside would be that banks, not wanting to keep any excess reserves and already lending to creditworthy borrowers, would start making risky loans to get rid of the reserves. This is exactly what got into trouble in 2007.
If a bank has excess reserves of $4,000 and demand deposit liabilities of $100,000, and if the reserve requirement is 10 percent, then the bank has actual reserves of A) $14,000. B) $19,000. C) $24,000. D) $29,000.
If a bank has excess reserves of $4,000 and demand deposit liabilities of $100,000, and if the reserve requirement is 10 percent, then the bank has actual reserves of A) $14,000.
If a good weather temporarily decreases demand for reserves, then Federal Reserve, in order to keep the market federal funds rate at its target, will conduct ________ open market ________. (2) A) defensive; sale B) dynamic; sale C) defensive; purchase D) dynamic; purchase
If a good weather temporarily decreases demand for reserves, then Federal Reserve, in order to keep the market federal funds rate at its target, will conduct ________ open market ________. A) defensive; sale D) dynamic; purchase
If reserves in the banking system increase by $100, then checkable deposits will increase by $500 in the simple model of deposit creation when the required reserve ratio is A) 0.01. B) 0.10. C) 0.05. D) 0.20
If reserves in the banking system increase by $100, then checkable deposits will increase by $500 in the simple model of deposit creation when the required reserve ratio is D) 0.20
If the 2005 inflation rate in Canada is 4 percent, and the inflation rate in Mexico is 2 percent, then the theory of purchasing power parity predicts that, during 2005, the value of the Canadian dollar in terms of Mexican pesos will A) rise by 6 percent. B) rise by 2 percent. C) fall by 6 percent. D) fall by 2 percent.
If the 2005 inflation rate in Canada is 4 percent, and the inflation rate in Mexico is 2 percent, then the theory of purchasing power parity predicts that, during 2005, the value of the Canadian dollar in terms of Mexican pesos will D) fall by 2 percent.
If the Fed injects reserves into the banking system and they are held as excess reserves, then the money supply A) does not change. B) increases by only one-half the initial increase in reserves. C) increases by a multiple of the initial increase in reserves. D) increases by only the initial increase in reserves.
If the Fed injects reserves into the banking system and they are held as excess reserves, then the money supply A) does not change.
If the Fed injects reserves into the banking system and they are held as excess reserves, then the money supply A) increases by only the initial increase in reserves. B) increases by only one-half the initial increase in reserves. C) increases by a multiple of the initial increase in reserves. D) does not change.
If the Fed injects reserves into the banking system and they are held as excess reserves, then the money supply D) does not change.
If the Fed purchases securities worth $10 million from a commercial bank, the banking system's balance sheet will show A) an increase in securities held of $10 million and an increase in bank reserves of $10 million. B) an increase in securities held of $10 million and a decrease in bank reserves of $10 million. C) a decrease in securities held of $10 million and an increase in bank reserves of $10 million. D) a decrease in securities held of $10 million and a decrease in bank reserves of $10 million.
If the Fed purchases securities worth $10 million from a commercial bank, the banking system's balance sheet will show C) a decrease in securities held of $10 million and an increase in bank reserves of $10 million.
If the Japanese yen appreciates from $0.01 per yen to $0.02 per yen, the U.S. dollar depreciates from ________ per dollar to ________ per dollar. A) 100¥; 50¥ B) 10¥; 5¥ C) 5¥; 10¥ D) 50¥; 100¥
If the Japanese yen appreciates from $0.01 per yen to $0.02 per yen, the U.S. dollar depreciates from ________ per dollar to ________ per dollar. A) 100¥; 50¥
If the demand for reserves is supposed to increase temporarily, 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
If the demand for reserves is supposed to increase temporarily, the manager of the trading desk at the Federal Reserve Bank of New York will likely conduct a ________ open market ________ of securities. B) defensive; purchase
If the dollar depreciates relative to the Swiss franc A) Swiss computers will become cheaper in the United States. B) Swiss chocolate will become more expensive in the United States. C) American-made computers will become more expensive in Switzerland. D) Swiss chocolate will become cheaper in the United States.
If the dollar depreciates relative to the Swiss franc B) Swiss chocolate will become more expensive in the United States.
If the required reserve ratio is 10 percent, currency in circulation is $1,200 billion, checkable deposits are $1,600 billion, and excess reserves total $2,500 billion, then the M1 money multiplier is A) 2.5. B) 0.73. C) 1.7. D) 7.3.
If the required reserve ratio is 10 percent, currency in circulation is $1,200 billion, checkable deposits are $1,600 billion, and excess reserves total $2,500 billion, then the M1 money multiplier is B) 0.73.
If the required reserve ratio is 10 percent, currency in circulation is $1,200 billion, checkable deposits are $1,600 billion, and excess reserves total $2,500 billion, then the M1 money multiplier is A) 2.5. B) 1.7. C) 7.3. D) 0.73.
If the required reserve ratio is 10 percent, currency in circulation is $1,200 billion, checkable deposits are $1,600 billion, and excess reserves total $2,500 billion, then the M1 money multiplier is . D) 0.73.
If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the money supply is ________ billion. A) $8000 B) $1200 C) $1200.8 D) $8400
If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the money supply is ________ billion. B) $1200
If the required reserve ratio is equal to 10 percent, a single bank can increase its loans up to a maximum amount equal to A) its excess reserves. B) 10 times its excess reserves. C) 10 percent of its excess reserves. D) its total reserves.
If the required reserve ratio is equal to 10 percent, a single bank can increase its loans up to a maximum amount equal to B) 10 times its excess reserves.
If the required reserve ratio is one-third, currency in circulation is $300 billion, checkable deposits are $900 billion, and there is no excess reserve, then the monetary base is A) $333 billion. B) $667 billion. C) $300 billion. D) $600 billion.
If the required reserve ratio is one-third, currency in circulation is $300 billion, checkable deposits are $900 billion, and there is no excess reserve, then the monetary base is D) $600 billion.
In the market for reserves given the normal conditions, an open market purchase ________ the supply of reserves and causes the federal funds interest rate to ________, everything else held constant. A) increases; rise B) decreases; rise C) increases; fall D) decreases; fall
In the market for reserves given the normal conditions, an open market purchase ________ the supply of reserves and causes the federal funds interest rate to ________, everything else held constant. C) increases; fall
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.
In the market for reserves, a lower interest rate paid on excess reserves C) decreases the effective floor for the federal funds rate.
In the market for reserves, if the federal funds rate is above the interest rate paid on excess reserves and below discount rate, 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
In the market for reserves, if the federal funds rate is above the interest rate paid on excess reserves and below discount rate, then an open market ________ the supply of reserves, raising the federal funds interest rate, everything else held constant. A) sale decreases
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
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. C) increases; raising
In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on reserves, a ________ in the reserve requirement ________ the demand for reserves, lowering the federal funds interest rate, everything else held constant. A) rise; increases B) decline; decreases C) rise; decreases D) decline; increases
In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on reserves, a ________ in the reserve requirement ________ the demand for reserves, lowering the federal funds interest rate, everything else held constant. B) decline; decreases
In the simple deposit expansion model, if the Fed purchases $100 worth of bonds from a bank that previously had no excess reserves, deposits in the banking system can potentially increase by A) $10. B) $100. C) $100 times the reciprocal of the required reserve ratio. D) $100 times the required reserve ratio.
In the simple deposit expansion model, if the Fed purchases $100 worth of bonds from a bank that previously had no excess reserves, deposits in the banking system can potentially increase by C) $100 times the reciprocal of the required reserve ratio.
On January 25, 2009, one U.S. dollar traded on the foreign exchange market for about 0.75 euros. Therefore, one euro would have purchased about ________ U.S. dollars. A) 0.75 B) 1.00 C) 1.33 D) 1.75
On January 25, 2009, one U.S. dollar traded on the foreign exchange market for about 0.75 euros. Therefore, one euro would have purchased about ________ U.S. dollars. C) 1.33
On January 25, 2009, one U.S. dollar traded on the foreign exchange market for about 0.75 euros. Therefore, one euro would have purchased about ________ U.S. dollars. A) 0.75 B) 1.00 C) 1.33 D) 1.75
On January 25, 2009, one U.S. dollar traded on the foreign exchange market for about 0.75 euros. Therefore, one euro would have purchased about ________ U.S. dollars. C) 1.33
Reserves are equal to the sum of A) required reserves and excess reserves. B) required reserves and vault cash reserves. C) excess reserves and vault cash reserves. D) vault cash reserves and total reserves.
Reserves are equal to the sum of A) required reserves and excess reserves.
Suppose Big Mac costs $4.8 in US and 6.5 Swiss francs in Switzerland. If the current exchange rate is 0.8 Swiss francs per dollar, then Swiss franc is _______ against US dollar and should___________ in the long run. A) undervalued; depreciate B) undervalued; appreciate C) overvalued; depreciate D) overvalued; appreciate
Suppose Big Mac costs $4.8 in US and 6.5 Swiss francs in Switzerland. If the current exchange rate is 0.8 Swiss francs per dollar, then Swiss franc is _______ against US dollar and should___________ in the long run. C) overvalued; depreciate
Suppose FOMC increased its target federal funds rate. Assuming that demand for reserves has not changed, if the New York Fed wishes to keep the effective federal funds rate close to the target level, then the appropriate action to take is a ________ open market ________, everything else held constant. A) defensive; sale B) defensive; purchase C) dynamic; sale D) dynamic; purchase
Suppose FOMC increased its target federal funds rate. Assuming that demand for reserves has not changed, if the New York Fed wishes to keep the effective federal funds rate close to the target level, then the appropriate action to take is a ________ open market ________, everything else held constant. C) dynamic; sale
Suppose a person cashes his payroll check and holds all the funds in the form of currency. Everything else held constant, total reserves in the banking system ________ and the monetary base ________. A) remain unchanged; increases B) decrease; increases C) decrease; remains unchanged D) decrease; decreases
Suppose a person cashes his payroll check and holds all the funds in the form of currency. Everything else held constant, total reserves in the banking system ________ and the monetary base ________. C) decrease; remains unchanged
Suppose after FOMC meetings the Federal Reserve increases target interest rate. If the New York Federal Reserve bank wishes for the federal funds rate to be at the new target level, then the appropriate action is a ________ open market ________, everything else held constant. A) defensive; purchase B) dynamic; purchase C) dynamic; sale D) defensive; sale
Suppose after FOMC meetings the Federal Reserve increases target interest rate. If the New York Federal Reserve bank wishes for the federal funds rate to be at the new target level, then the appropriate action is a ________ open market ________, everything else held constant. C) dynamic; sale
Suppose that the Federal Reserve enacts expansionary policy. Everything else held constant, this will cause the demand for U.S. assets to ________ and the U.S. dollar to ________. A) increase; appreciate B) decrease; appreciate C) increase; depreciate D) decrease; depreciate
Suppose that the Federal Reserve enacts expansionary policy. Everything else held constant, this will cause the demand for U.S. assets to ________ and the U.S. dollar to ________. D) decrease; depreciate
WSJ: Raise Rates Today to Fight a Recession Tomorrow
The Fed gradually increased target federal funds rate several times in 2018 with 1 or 2 more increases penciled in this year. This would be referred as monetary tightening, even though the Fed itself calls it monetary policy normalization, implying that it's trying to push federal funds rate to its "normal" level. Commonly believed reason why the Fed continues to increase federal funds rate is because to bring inflation under control. However, inflation is already at its target level (2%) and unemployment is at its natural rate. Professor Feldstein argues that the Fed keeps pushing federal funds rate up so it has lots of room for cutting whenever the next recessions hits. If the Fed stopped at 3.0% federal funds rate, cutting it to near zero would not be enough to give a jolt to economy.
The demand for U.S. dollars represents: A) the demand for U.S. goods and financial assets by households and firms within the United States. B) the demand for U.S. goods and financial assets by households and firms outside the United States. C) the willingness of households and firms that own dollars to exchange them for foreign currency. D) the demand for foreign goods and financial assets by households and firms within the United States.
The demand for U.S. dollars represents: B) the demand for U.S. goods and financial assets by households and firms outside the United States.
The discount rate is kept ________ the federal funds rate because the Fed prefers that ________. A) above; banks borrow reserves from each other B) below; banks borrow reserves from the Fed C) above; banks borrow reserves from the Fed D) below; banks borrow reserves from each other
The discount rate is kept ________ the federal funds rate because the Fed prefers that ________. A) above; banks borrow reserves from each other
The excess reserves ratio is ________ related to expected deposit outflows, and is ________ related to the market interest rate. A) negatively; negatively B) negatively; positively C) positively; negatively D) positively; positively
The excess reserves ratio is ________ related to expected deposit outflows, and is ________ related to the market interest rate. C) positively; negatively
The monetary base minus reserves equals A) currency in circulation. B) the borrowed base. C) the nonborrowed base. D) discount loans.
The monetary base minus reserves equals A) currency in circulation
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.
The opportunity cost of holding excess reserves is the federal funds rate D) minus the interest rate paid on excess reserves.
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.
The policy directive from the FOMC is carried out by C) the account manager at the Federal Reserve Bank of New York.
The starting point for understanding how exchange rates are determined is a simple idea called ________, which states: if two countries produce an identical good, the price of the good should be the same throughout the world no matter which country produces it. A) arbitrage B) the law of one price C) Gresham's law D) purchasing power parity
The starting point for understanding how exchange rates are determined is a simple idea called ________, which states: if two countries produce an identical good, the price of the good should be the same throughout the world no matter which country produces it. B) the law of one price
The theory of PPP suggests that if one country's price level rises relative to another's, its currency should A) depreciate. B) appreciate. C) float. D) do none of the above.
The theory of PPP suggests that if one country's price level rises relative to another's, its currency should A) depreciate.
The theory of purchasing power parity cannot fully explain exchange rate movements in the short run because A) all goods are identical even if produced in different countries. B) monetary policy differs across countries. C) some goods are not traded between countries. D) fiscal policy differs across countries.
The theory of purchasing power parity cannot fully explain exchange rate movements in the short run because C) some goods are not traded between countries.
There are two ways in which the Fed can provide additional reserves to the banking system: it can ________ government bonds or it can ________ discount loans to commercial banks. A) sell; extend B) sell; call in C) purchase; extend D) purchase; call in
There are two ways in which the Fed can provide additional reserves to the banking system: it can ________ government bonds or it can ________ discount loans to commercial banks. C) purchase; extend
There are two ways in which the Fed can provide additional reserves to the banking system: it can ________ government bonds or it can ________ discount loans to commercial banks. A) sell; call in B) purchase; call in C) sell; extend D) purchase; extend
There are two ways in which the Fed can provide additional reserves to the banking system: it can ________ government bonds or it can ________ discount loans to commercial banks. D) purchase; extend
When Americans or foreigners expect the return on dollar assets to be high relative to the return on foreign assets, there is a ________ demand for dollar assets and a correspondingly ________ demand for foreign assets. A) higher; higher B) higher; lower C) lower; higher D) lower; lower
When Americans or foreigners expect the return on dollar assets to be high relative to the return on foreign assets, there is a ________ demand for dollar assets and a correspondingly ________ demand for foreign assets. B) higher; lower
When a primary dealer sells a government bond to the Federal Reserve, reserves in the banking system ________ and the monetary base ________, everything else held constant. A) increase; increases B) increase; decreases C) decrease; increases D) decrease; decreases
When a primary dealer sells a government bond to the Federal Reserve, reserves in the banking system ________ and the monetary base ________, everything else held constant. A) increase; increases
When the Fed buys $100 worth of bonds from a primary dealer, reserves in the banking system A) increase by $100. B) increase by more than $100. C) decrease by $100. D) decrease by more than $100.
When the Fed buys $100 worth of bonds from a primary dealer, reserves in the banking system A) increase by $100.
When the Fed extends a $100 discount loan to the First National Bank, reserves in the banking system A) increase by $100. B) increase by more than $100. C) decrease by $100. D) decrease by more than $100.
When the Fed extends a $100 discount loan to the First National Bank, reserves in the banking system A) increase by $100.
When the Fed sells $100 worth of bonds to a primary dealer, reserves in the banking system A) increase by $100. B) increase by more than $100. C) decrease by $100. D) decrease by more than $100.
When the Fed sells $100 worth of bonds to a primary dealer, reserves in the banking system C) decrease by $100.
When the Fed supplies the banking system with an extra dollar of reserves, deposits ________ by ________ than one dollar—a process called multiple deposit creation. A) increase; less B) increase; more C) decrease; less D) decrease; more
When the Fed supplies the banking system with an extra dollar of reserves, deposits ________ by ________ than one dollar—a process called multiple deposit creation. B) increase; more
When the exchange rate for the British pound changes from $1.80 per pound to $1.60 per pound, then, holding everything else constant, the pound has ________ and ________ expensive. A) appreciated; British cars sold in the United States become more B) appreciated; British cars sold in the United States become less C) depreciated; American wheat sold in Britain becomes more D) depreciated; American wheat sold in Britain becomes less
When the exchange rate for the British pound changes from $1.80 per pound to $1.60 per pound, then, holding everything else constant, the pound has ________ and ________ expensive. C) depreciated; American wheat sold in Britain becomes more
When the exchange rate for the Mexican peso changes from 9 pesos to the U.S. dollar to 10 pesos to the U.S. dollar, then the Mexican peso has ________ and the U.S. dollar has ________. A) appreciated; appreciated B) depreciated; appreciated C) appreciated; depreciated D) depreciated; depreciated
When the exchange rate for the Mexican peso changes from 9 pesos to the U.S. dollar to 10 pesos to the U.S. dollar, then the Mexican peso has ________ and the U.S. dollar has ________. B) depreciated; appreciated
When the value of the British pound changes from $1.25 to $1.50, the pound has ________ and the U.S. dollar has ________. A) appreciated; appreciated B) depreciated; appreciated C) appreciated; depreciated D) depreciated; depreciated
When the value of the British pound changes from $1.25 to $1.50, the pound has ________ and the U.S. dollar has ________. C) appreciated; depreciated
When the value of the British pound changes from $1.50 to $1.25, then the pound has ________ and the U.S. dollar has ________. A) appreciated; appreciated B) depreciated; appreciated C) appreciated; depreciated D) depreciated; depreciated
When the value of the British pound changes from $1.50 to $1.25, then the pound has ________ and the U.S. dollar has ________. B) depreciated; appreciated
Which of the following is a potential operating instrument for the central bank? A) nominal GDP B) the discount rate C) the M1 money supply D) short-term interest rates
Which of the following is a potential operating instrument for the central bank? D) short-term interest rates
________ in the foreign interest rate causes the demand for domestic assets to shift to the right and the domestic currency to ________, everything else held constant. A) An increase; appreciate B) An increase; depreciate C) A decrease; appreciate D) A decrease; depreciate
________ in the foreign interest rate causes the demand for domestic assets to shift to the right and the domestic currency to ________, everything else held constant. C) A decrease; appreciate
