FIN 201: Chapter 4 & 5
Which of the following might be monitored as an indicator of inflation?
All of these may be indicators of inflation
The ____ meets with the Board of Governors twice a year and offers views on the economic circumstances and financial services needs of consumers and communities.
Community Advisory Council
____ open market operations offset the impact of other conditions that affect the level of funds.
Defensive
The ____ is directly responsible for conducting monetary policy.
FOMC
The is directly responsible for controlling money supply growth.
FOMC
During the 2008-2015 period, the Fed reduced the federal funds rate to 6 percent in an effort to stimulate the economy.
False
The policy directive is provided by Board of Governors to the FOMC.
False
All commercial banks are required to be members of the Fed.
False
The Fed faces a trade-off in monetary policy between reducing unemployment and reducing the federal government's budget deficit.
False
The Fed's purchase of Treasury securities is primarily intended to ensure liquidity in the commercial paper market.
False
To increase the money supply, the Fed may increase the reserve requirement ratio.
False
The advisory committee making recommendations to the Fed about economic and banking related issues is the:
Federal Advisory Council
Which of the following is NOT true with respect to inflation targeting?
If unemployment is slightly higher than normal, while inflation is at the peak of the target range, an inflation targeting approach would like advocate a loose monetary policy.
Which of the following statements is incorrect with respect to a single European monetary policy?
It allows each country in Europe to use its own currency.
The form of money consisting of currency held by the public and checkable deposits at depository institutions is called:
M1
Which of the following best describes the relationship between the Fed and the presidential administration?
None of these are correct.
Which of the following is true about an increase in the U.S. government's budget deficit?
None of these are correct.
The ____ lag is the time from when an economic problem arises until it is recognized.
Recognition
Which of the following is NOT a major component of the Federal Reserve System?
Securities and Exchange Commission
If the Fed implemented a policy of inflation targeting, and if the U.S. inflation rate deviated substantially from the Fed's target inflation rate, the Fed could lose credibility.
True
The primary credit lending rate changes in accordance with changes in the federal funds rate.
True
An attempt by the Fed to stimulate the economy by reducing short-term interest rates may have a limited effect if long-term interest rates remain unaffected.
True
When both inflation and unemployment are relatively high, there is more disagreement among FOMC members about the proper monetary policy to implement.
True
When the Fed wants to encourage businesses to increase their spending on long-term projects, it may use a stimulative policy focused on reducing long-term Treasury yields.
True
A weak dollar would stimulate ____, discourage ____, and ____ the U.S. economy.
U.S. exports; U.S. imports; stimulate
Which of the following is NOT an activity of Fed district banks?
acting as an intermediary to match up lenders and borrowers in the stock market
According to the theory of rational expectations, if the Fed uses open market operations to increase the supply of loanable funds, the ultimate effect on interest rates
cannot be determined.
The ____ indicators tend to rise or fall at the same time as a business cycle.
coincident
Which of the following is NOT an indicator of inflation?
consumer confidence surveys
When the Fed sells securities, the total funds of commercial banks ____ by the market value of the securities sold by the Fed. This activity initiated by the FOMC's policy directive is referred to as a ____ of money supply growth.
decrease; tightening
There is some evidence that high money supply growth may lead to _______ U.S. inflation over time, which in turn places ____ pressure on U.S. interest rates.
higher; upward
The time between when the Fed adjusts the money supply and when the adjustment has an effect on the economy is the:
impact lag
To decrease the money supply, the Fed could the reserve requirement ratio.
increase
When the Fed initiated a program to purchase commercial paper, one of its primary goals was to
increase activity in the market for commercial paper and boost the confidence of investors in commercial paper.
Assume that the reserve requirement ratio is 12 percent and that the Fed uses open market operations to buy $200 million worth of Treasury securities. Assuming that banks use all funds except required reserves to make loans and that the public does not store any cash, the money supply should ____ by about ____.
increase; $1.67 billion
A(n) ____ in Federal Reserve float causes a(n) ____ in bank funds.
increase; increase AND decrease; decrease
The Fed can ____ the level of spending as a means of stimulating the economy by ____ the money supply.
increase; increasing
When the Fed purchases securities, the total funds of commercial banks ____ by the market value of the securities purchased by the Fed. This activity initiated by the FOMC's policy directive is referred to as a(n) ____ of money supply growth.
increase; loosening
A ____-money policy can reduce unemployment, and a ____-money policy can reduce inflation.
loose; tight
When the Fed purchases _______, it is attempting to directly stimulate the housing market.
mortgage-backed securities
The purchase of government securities by someone other than the Fed results in
offsetting changes in funds at commercial banks.
Which of the following did the Fed NOT do during the credit crisis?
prevent depository institutions from obtaining funding through the discount window
Financial institutions such as commercial banks, bond mutual funds, insurance companies, and pension funds maintain large portfolios of bonds, so their portfolios are ____ affected when the Fed ____ interest rates.
unfavorably; increases
When the Fed buys Treasury bills as a means of increasing the money supply, it places ____ pressure on their prices and ____ pressure on their yields.
upward; downward
If a firm has a credit risk premium of 3 percent and the Treasury security rate is 4 percent, the firm will be able to borrow at ________. If the Fed implements a monetary policy that raises the Treasury security rate to 6 percent, the cost of borrowing for the firm will be ________.
7 percent; 9 percent
The ____ is directly responsible for setting reserve requirements
Board of Governors
The ____ is made up of seven individual members, and each member is appointed by the president of the United States.
Board of Governors
In 2012, the Fed stated that it would continue to purchase Treasury bonds in the financial markets until GDP growth increased to a target level.
False
The purpose of the Trading Desk of the Federal Reserve Bank of New York is to buy stocks for member commercial banks.
False
According to the theory of rational expectations, higher inflationary expectations encourage businesses and households to reduce their demand for loanable funds.
False
Adjustment of the primary credit lending rate is the most common means by which the Fed controls the money supply.
False
The Fed is usually more willing to maintain a stimulative monetary policy when inflation is relatively high.
False
The euro has been adopted by all of the major countries of Western Europe, including Switzerland and the United Kingdom.
False
The supply schedule of loanable funds indicates the quantity of funds that would be demanded at various possible interest rates.
False
Members of the Board of Governors serve 14-year nonrenewable terms.
True
The Fed is more likely to use a stimulative policy during a strong-dollar period.
True
Each Federal Reserve district bank is responsible for reporting its regional conditions, and all of these reports are consolidated to compose the Beige Book.
True
Global crowding out is described in the text to mean the impact of
an excessive budget deficit in one country on interest rates of another country.
When the Fed uses open market operations to sell some of its Treasury securities, there will be
an inward shift in the supply schedule of loanable funds.
The ____ rate is the interest rate charged on the Fed's short-term loans to depository institutions.
primary credit lending
The intent of the Fed's operation twist strategy in 2011 and 2012 was to:
reduce long-term interest rates.
Repurchase agreements are purchased by the Fed to
temporarily increase the aggregate level of bank funds.
