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