Quiz 12

Which of the following tools of monetary policy has not been used since 1992

The reserve ratio

Assume that there is a 25 percent reserve ratio and that the Federal Reserve buys 200 million worth of government sercurities. If the securities are purchased from the public, then this action has the potential to increase bank lending by a maximum of

600 million, but by 800 million if the securities are purchased directly from commercial banks

If the amount AAA today earns interest at a rate of I percent per year, the the accumulated amount at the end of n years will be

AAAx(1+i)^n

In traditional monetary policy, if the Fed targeted a lower federal funds rate then it was pursuing a restrictive monetary policy

False

Traditionally the fed often communicated its intentions to restrict or expand monetary policy by announcing a change in its target for the

Federa funds rate

Assume that the required reserve ratio is 20 percent. If the Federal Reserve buys 80 million in government securities from commercial bank, then the money supply will immediatley

Increase by 0 with this transaction, and the maxiumim money lending potential if the commercial banking system will increase by 400 million

The price of government bonds and interest rate received by a bond buyer are

Inversely related

One fundamental concept in financial economics is that an investment's rate of return is

Inversely related to the price paid for it

Which of the following combinations of fed actions would be most effective in mopping up rederves away from the baning system?

Reducing the interest paid on excess reserves and also doing reserve repos with banks and non banksbanks

The standard &ppo's 500 index measures prices of the 500

Stock of the largest companies n the United States

Which of the following statements about stocks and bonds is true`

The U.S Federal government issues bonds but not stocks

The so-called risk-free rate essentially measures the investors'

Time preference

Suppose that Clint wins a lottery jackpot f 300 million. He receive it over the next 30 years in annual payments of 10 million, ornhe can receive a lump sum of 100 million immediadley. Assuming that taxes are not a consideration, shoulf Clint take his winnings as a lump sum?

Yes, if he can invest in financial assets that will yield a greater returns than the interest rate implicit in the annual payments

The Feed can regularly influene an chanfe the risk free rate of financial investments through its

open market operations

Before the financial crisis of 2008, restrictive monetary policy by the Fed involved

raising the target federal funds rate and using an open-marketsale of bonds reserves and therby raise the federal funds rate to hit its target