Ch 18 Econ 490

The interest rate on primary credit extended by the Fed is:

100 basis points above the target federal funds rate

Most central banks, including the Fed and the ECB, provide discount loans at a rate:

Above the target interest rate

An increase in the federal funds rate should:

Cause mortgage rates to increase by less than the increase in the federal funds rate

The types of loans the Fed makes consist of each of the following, except:

Conditional credit

The tools of monetary policy available to the Fed include each of the following, except the:

Currency-to-deposit ratio

The fact that there is a market for federal funds enables banks to:

Hold a lower level of excess reserves than they would otherwise hold

Which of the following would be categorized as an unconventional monetary policy tool?

Lending to nonbanks

For most of the Fed's history, the Fed:

Lent reserves at an interest rate below the target federal funds rate

Variables that can influence the Fed's forecast for reserves each day include forecasting the:

Level of float in the banking system and the balance of the U.S. Treasury's account

The Fed will make a discount loan to a bank during a crisis:

Only if the bank is sound financially and can provide collateral for the loan

The tool the Fed uses to keep the federal funds rate close to the target is:

Open market operations

One outcome that would result if the Fed paid interest on reserves would be:

The federal government's deficit would be larger (or surplus smaller)

f the current market federal funds rate equals the target rate and the demand for reserves increases, the likely response in the federal funds market will be:

An increase in the market federal funds rate

The ways the Fed can inject reserves into the banking system include:

An increase in the size of the Fed's balance sheet through purchasing securities

When the Fed forecasts a sustained increase in the demand for the monetary base, the staff of the Fed is likely to meet this demand through:

An outright purchase of U.S. Treasury Securities

The fact that, for most of its history, the Fed was reluctant to make discount loans actually:

At times was a destabilizing force for financial markets

One reason the target federal funds rate may not equal the actual federal funds rate is because:

Attaining the target rate involves forecasting reserve demand and forecasts are subject to error

In 2002, the Federal Reserve changed its discount lending procedures. Which of the following statements is correct?

Before 2002 the Fed discouraged banks from borrowing and actually destabilized the interbank market for reserves

If the market federal funds rate were below the target rate, the response from the Fed would likely be to:

Sell U.S Treasury Securitites

Primary credit extended by the Fed is:

Short-term, usually overnight loans

If the current market federal funds rate equals the target rate and the demand for reserves decreases, the likely response in the federal funds market will be:

The market federal funds rate will decrease

The primary policy instrument of the Federal Open Market Committee (FOMC) is:

The target federal funds rate

The tools of monetary policy include:

The target federal funds rate

The interest rate the Fed charges for secondary credit is:

50 basis points above the primary discount rate

Secondary credit provided by the Fed is designed for:

Banks that are in trouble and cannot obtain a loan from anyone else

On a particular day, the actual federal funds rate can deviate from the target federal funds rate. This might be due to all of the following except:

Daily changes in the target rate

If the demand for reserves remains constant and the market federal funds rate is below the target rate, the Fed would:

Decrease the supply of reserves

The market for reserves derives from the fact that:

Desired reserves don't always equal actual reserves

The Fed could make the market federal funds rate equal the target rate by:

Entering the federal funds market as a borrower or a lender

If the Fed entered the federal funds market as a borrower or a lender to make sure the market rate always equals the target rate, they would be doing all of the following except:

Following the directives issued by Congress

The focus for most central banks today is:

Interest rates

Discount lending by the Fed:

Is not as important today as it was in the past

Discount lending ties into the Fed's function of:

Lender of last resort

Seasonal credit provided by the Fed is not as common as it used to be because:

Other sources for long-term loans have developed for banks in seasonal areas

Which of the following statements is most correct?

Over the last 10 years the deviations between the target and market federal funds rate have decreased

One of the reasons primary credit exists is to

Provide additional reserves when the open market staff's forecasts are off

Discount lending today is primarily used for:

Providing short-term financial stability and preventing bank panics

If the market federal funds rate were above the target rate, the response from the Fed would likely be to:

Purchase U.S Treasury Securities

The Fed's temporary operations involve the use of:

Repurchase agreements

Which of the following statements is most correct?

The FOMC sets the target federal funds rate

Which of the following statements is most correct?

The Fed can control either the size of the monetary base or the price of its components

Federal funds loans are:

Unsecured loans

The daily reserve supply curve is:

Vertical until the federal funds rate equals the discount rate; at that point it becomes horizontal

The Fed would use a reverse repo when they:

Want to temporarily decrease the monetary base

During the financial crisis of 2007 - 2009 it became difficult for the Fed to hit their target federal funds rate because:

of the loss of liquidity in the interbank lending market