Econ Test 3 (Ch. 13-14)

The Federal Reserve usually keeps the discount rate

Above target federal funds rate

In the market reserves a ______ in the reserve requirement decreases the demand for reserves, _______ the federal funds interest rate

Decline; lowering

When good weather speeds the check-clearing process, float tends to _______ causing the Fed to initiate defensive open market

Decrease; purchases

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

Defensive

Open market operations intended to offset movements in noncontrollable factors that affect reserves and the monetary base are called

Defensive open market operations

When the European System of Central Banks uses main refinancing operations, it is similar to the Federal Reserve using

Defensive open market operations

If Treasury deposits at the Fed are predicted to fall, the manager of the trading desk at the New York Fed bank will likely conduct _______ open market operations to ______ reserves

Defensive; drain

If float is predicted to increase because of bad weather, the manager of the trading desk at the New York Fed bank will likely conduct _______ open market operations to ______ reserves

Defensive; drain

If Treasury deposits at the Fed are predicted to increase, the manager of the trading desk at the New York Fed bank will likely conduct ______ open market operations to _______ reserves

Defensive; inject

If float is predicted to decrease because of good weather, the manager of the trading desk at the New York Fed bank will likely conduct _______ open market operations to ______ reserves

Defensive; inject

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

Defensive; purchase

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

Defensive; sale

The vertical section of the supply curve of reserves is lengthened when the

Discount rate increases

The Federal Reserve _______ pay interest on reserves held on deposit. The European System of Central Banks ______ pay interest on reserves held on deposit

Does not; does

The two types of open market operation are

Dynamic and defensive

When the European System of Central Bank uses long-term refinancing operations, it is similar to the Federal Reserve using

Dynamic open market operations

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 target level, then the appropriate action for the Federal Reserve to take is a ______ open market ______, everything else held constant

Dynamic; purchase

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 target level, then the appropriate action for the Federal Reserve to take is a ______ open market ______, everything else held constant

Dynamic; sale

In the market for reserves, when the demand for federal funds intersects the reserve supply curve along the horizontal section, increasing the discount rate

Increases the federal funds rate

In the market reserves, an increase in the reserve requirement _____ the demand for reserves, ______ the federal funds rate

Increases; raising

In the market for reserves, an open market purchase ______ the ______ of reserves which causes the federal funds rate to fall, everything else held constant

Increases; supply

Since the European Central Bank _______ interest on reserves, banks have a ______ cost of complying with reserve requirements when compared to the banks complying with the reserve requirements of the Federal Reserve

Pays; lower

The most important advantage of discount policy is that the Fed can use it to

Perform its role as lender of last resort

The discount refers to the interest rate on

Primary credit

The most common type of discount lending that the Fed extends to banks is called

Primary credit

The Fed's discount lend is is of three type: _______ is the most common category; _______ is given to a limited number of banks in vacation & agricultural areas; _______ is given to banks that have experienced sever liquidity problems

Primary credit; seasonal credit; secondary credit;

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 bond. If the Fed does nothing however my the federal funds rate will ________

Purchase; increase

If the Fed expects currency holdings to rise, it conducts open market _____ to offset the expected _______ in reserves

Purchases; decrease

In the market for reserves, when the federal funds interest rate is below is the discount rate, the supply curve of reserves is

Vertical

In the market for reserves, increases in the discount rate affect the federal funds rate

When the funds rate = discount rate

The interest rate for primary credit is set ______ basis points ______ the federal funds rate

100; above

The Federal Reserve has had he authority to vary reserve requirements since the

1930's

The interest rate on secondary credit is set ______ basis points ______ the primary credit rate

50; above

At its inception, the Federal Reserve was intended to be

A lender-of-last-resort

The Fed can offset the effects of an increase in float by engaging in

A matched sale-purchase transaction

If the Fed wants to temporarily inject reserves into the banking system, it will engage in

A repurchase agreement

Much of the credit for prevention of a financial market meltdown after "Black Monday" (October 19, 1987) must be given to the Federal Reserve System and its chairman

Alan Greenspan

Funds held in ______ are subject to reserve requirements

All checkable deposits

Since 1980, _______ are subject to reserve requirements

All depository institutions

The interest rate on seasonal credit =

An average of the federal funds rate and rates on certificates of deposits

In the market for reserves, when the demand for federal funds intersects the reserve supply curve on the vertical section, increasing the discount rate

Has no effect on the federal funds rate

Discount policy affects the money supply by affecting the volume of _______ and the ______

Borrowed reserves; monetary base

The Fed's lender-of-last-resort function

Crates a moral hazard problem

In the market for reserves, when the federal funds rate is 3% raising the discount rate from 5% to 6%

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 discount rate from 5% to 4%

Has no effect on the Federal funds rate

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 excess reserves to lend and the federal funds rate will probably ______

Fall; rise

The interest rate charged on overnight loans of reserves between banks is the

Federal funds rate

The quantity of reserves demanded rises when the

Federal funds rate falls

When bad storms slow the check-clearing process, float tends to _____ causing the Fed to initiated defensive open market ________

Increase; sales

A financial panic was averted in October 1987 following "Black Monday" when the Fed announced that

It would provide discount loans to any bank that would make loans to the security industry

Everything else held constant, in the market for reserves, when the federal funds rate = discount rate, lowering the discount rate

Lowers the federal funds rate

In the market for reserves, when the federal funds rate is 5% lowering the discount rate from 5% to 4%

Lowers the federal funds rate

The equivalent to the Federal Reserve's discount rate in the European System of Central Banks is the

Marginal lending rate

Open market purchases raise the ______ thereby raising the _______

Monetary base; money supply

In the channel-corridor system

Monetary control can be exercised with no required reserves

The policy tool of changing reserve requirement is

No longer used

The quantity of reserves supplied equals

Nonborrowed reserves + borrowed reserves

The Fed uses 3 policy tools to manipulate the money supply: ______, which affect reserves and the monetary base; changes in _______, which affect the monetary base; and changes in _____, which affect the money multiplier

Open market operations; borrowed reserves; reserve requirements

______ 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

Open market operations; monetary base

The European System of Central Banks signals the stance of its monetary policy by setting a target for the

Overnight cash rate

The quantity of reserves demanded equals

Required reserves + excess reserves

A decrease in ______ increases the money supply since it causes the ______ to rise

Reserve requirements; money multiplier

An increase in ______ reduces the money supply since it causes the ______ to fall

Reserve requirements; money multiplier

Open market sales shrink ______ thereby lowering ______

Reserves and the monetary base; the money supply

In the market for reserves, an open market _____ the supply of reserves, raising the federal funds interest rate, everything else held constant

Sale decreases

Suppose at a given federal funds rate, there is an excess supply 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 bond. If the Fed does nothing however my the federal funds rate will ________

Sale; decrease

If the Fed expects currency holdings to fall, it conducts open market _____ to offset the expected _______ in reserves

Sales; increase

The Fed is considering eliminating

Seasonal credit lending

When the Fed acts as a lender of last resort, the type of lending it provides is

Secondary credit

In the market for reserves, a lower discount rate

Shortens the vertical selection of the supply curve of reserves

The actual execution of open market operations is done at

The Federal Reserve Bank of New York

Chapter 14

The Conduct of Monetary Policy: Strategy and Tactics

The opportunity cost of holding excess reserves if

The federal funds rate

The primary indicator of the Fed's stance of monetary policy is

The federal funds rate

The discount rate is

The interest rate the Fed charges on loans to banks

When the federal funds rate = the discount rate

The supply curve of reserves is horizontal

Chapter 13

Tools of Monetary Policy

The discount rate is ______ kept _____ the federal funds rate

Typically; above