MRU15.3

The Federal Reserve is powerful because it can influence _______ through its control over _______.

aggregate demand; the money supply

If the Fed wanted to use open market operations to reduce interest rates, it would:

buy T-bills from banks.

For the most part, prior to 2008, banks typically held:

excess reserves equal to less than 1% of deposits.

When the Fed buys T-bills from banks:

the supply of bank reserves rises.

In the "old days" (prior to 2008), the Fed typically conducted monetary policy by:

targeting the federal funds rate with open market operations.

How long does it take for the rate to adjust when the Fed announces a change to its target for the federal funds rate?

Sometimes it adjusts before the Fed even takes any action.

Which of the following summarizes the limitations of monetary policy?

The Fed has a lot of control over just one interest rate, and interest rates influence economic activity in the short run only.

When banks use the money they receive from deposits to make loans, they:

increase the money supply through the money multiplier.

The Fed's communication:

is itself an important tool of monetary policy.

Prior to 2008, a bank might have borrowed reserves from another bank because:

it kept its reserves too low and could not meet Fed requirements.