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