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________ 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.
A) Open market operations; monetary base
B) Open market operations; money multiplier
C) Changes in reserve requirements; monetary base
D) Changes in reserve requirements; money multiplier

Open market operations; monetary base

Open market purchases raise the ________ thereby raising the ________.
A) money multiplier; money supply
B) money multiplier; monetary base
C) monetary base; money supply
D) monetary base; money multiplier

monetary base; money supply

Open market purchases ________ reserves and the monetary base thereby ________ the money supply.
A) raise; lowering
B) raise; raising
C) lower; lowering
D) lower; raising

raise; raising

Open market sales shrink ________ thereby lowering ________.
A) the money multiplier; the money supply
B) the money multiplier; reserves and the monetary base
C) reserves and the monetary base; the money supply
D) the money base; the money multiplier

reserves and the monetary base; the money supply

Open market sales ________ reserves and the monetary base thereby ________ the money supply.
A) raise; lowering
B) raise; raising
C) lower; lowering
D) lower; raising

lower; lowering

The two types of open market operations are
A) offensive and defensive.
B) dynamic and reactionary.
C) active and passive.
D) dynamic and defensive.

dynamic and defensive

There are two types of open market operations: ________ open market operations are intended to change the level of reserves and the monetary base, and ________ open market operations are intended to offset movements in other factors that affect the monetary base.
A) defensive; dynamic
B) defensive; static
C) dynamic; defensive
D) dynamic; static

dynamic; defensive

Open market operations intended to offset movements in noncontrollable factors (such as float) that affect reserves and the monetary base are called
A) defensive open market operations.
B) dynamic open market operations.
C) offensive open market operations.
D) reactionary open market operations.

defensive open market operations.

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
A) defensive.
B) offensive.
C) dynamic.
D) reactionary.

defensive

The Federal Open Market Committee makes the Fed's decisions on the purchase or sale of government securities, but these purchases or sales are executed by the Federal Reserve Bank of
A) Chicago.
B) Boston.
C) New York.
D) San Francisco.

New York

The actual execution of open market operations is done at
A) the Board of Governors in Washington, D.C.
B) the Federal Reserve Bank of New York.
C) the Federal Reserve Bank of Philadelphia.
D) the Federal Reserve Bank of Boston.

the Federal Reserve Bank of New York

If float is predicted to decrease because of unseasonably good weather, the manager of the trading desk at the Federal Reserve Bank of New York will likely conduct a ________ open market ________ of securities.
A) defensive; sale
B) defensive; purchase
C) dynamic; sale
D) dynamic; purchase

defensive; purchase

When bad storms slow the check-clearing process, float tends to ________ causing the Fed to initiate defensive open market ________.
A) decrease; sales
B) decrease; purchases
C) increase; sales
D) increase; purchases

increase; sales

When good weather speeds the check-clearing process, float tends to ________ causing the Fed to initiate defensive open market ________.
A) decrease; sales
B) decrease; purchases
C) increase; sales
D) increase; purchases

decrease; purchases

When bad storms slow the check-clearing process, float tends to ________ causing the Fed to initiate ________ open market ________.
A) decrease; defensive; sales
B) decrease; dynamic; purchases
C) increase; defensive; sales
D) increase; dynamic; purchases

increase; defensive; sales

When good weather speeds the check-clearing process, float tends to ________ causing the Fed to initiate ________ open market ________.
A) decrease; defensive; sales
B) decrease; dynamic; sales
C) decrease; defensive; purchases
D) increase; dynamic; purchases

decrease; defensive; purchases

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.
A) defensive; inject
B) defensive; drain
C) dynamic; inject
D) dynamic; drain

defensive; drain

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.
A) defensive; inject
B) defensive; drain
C) dynamic; inject
D) dynamic; drain

defensive; inject

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.
A) defensive; inject
B) defensive; drain
C) dynamic; inject
D) dynamic; drain

defensive; inject

If Treasury deposits at the Fed are predicted to ________, the manager of the trading desk at the New York Fed bank will likely conduct ________ open market operations to ________ reserves.
A) increase; defensive; inject
B) decrease; defensive; inject
C) increase; dynamic; inject
D) decrease; dynamic; drain

increase; defensive; inject

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.
A) defensive; inject
B) defensive; drain
C) dynamic; inject
D) dynamic; drain

defensive; drain

If Treasury deposits at the Fed are predicted to ________, the manager of the trading desk at the New York Fed bank will likely conduct ________ open market operations to ________ reserves.
A) rise; defensive; drain
B) fall; defensive; drain
C) rise; dynamic; inject
D) fall; dynamic; drain

fall; defensive; drain

If the Fed expects currency holdings to rise, it conducts open market ________ to offset the expected ________ in reserves.
A) purchases; increase
B) purchases; decrease
C) sales; increase
D) sales; decrease

purchases; decrease

If the Fed expects currency holdings to fall, it conducts open market ________ to offset the expected ________ in reserves.
A) purchases; increase
B) purchases; decrease
C) sales; increase
D) sales; decrease

sales; increase

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 ________.
A) fall; fall
B) fall; rise
C) rise; fall
D) rise; rise

fall; rise

The Federal Reserve will engage in a repurchase agreement when it wants to ________ reserves ________ in the banking system.
A) increase; permanently
B) increase; temporarily
C) decrease; temporarily
D) decrease; permanently

increase; temporarily

If the Fed wants to temporarily inject reserves into the banking system, it will engage in
A) a repurchase agreement.
B) a matched sale-purchase transaction.
C) a reverse repurchase agreement.
D) an open market sale.

a repurchase agreement

The Fed can offset the effects of an increase in float by engaging in
A) a repurchase agreement.
B) a matched sale-purchase transaction.
C) an interest rate swap.
D) an open market purchase

a matched sale-purchase transaction

The Federal Reserve will engage in a matched sale-purchase transaction when it wants to ________ reserves ________ in the banking system.
A) increase; permanently
B) increase; temporarily
C) decrease; temporarily
D) decrease; permanently

decrease; temporarily

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.
A) defensive; sale
B) defensive; purchase
C) dynamic; sale
D) dynamic; purchase

defensive; purchase

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.
A) defensive; sale
B) defensive; purchase
C) dynamic; sale
D) dynamic; purchase

dynamic; 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.
A) defensive; sale
B) defensive; purchase
C) dynamic; sale
D) dynamic; purchase

defensive; sale

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.
A) defensive; sale
B) defensive; purchase
C) dynamic; sale
D) dynamic; purchase

dynamic; sale

Discount policy affects the money supply by affecting the volume of ________ and the ________.
A) excess reserves; monetary base
B) borrowed reserves; monetary base
C) excess reserves; money multiplier
D) borrowed reserves; money multiplier

borrowed reserves; monetary base

The discount rate is
A) the interest rate the Fed charges on loans to banks.
B) the price the Fed pays for government securities.
C) the interest rate that banks charge their most preferred customers.
D) the price banks pay the Fed for government securities.

the interest rate the Fed charges on loans to banks

The most common type of discount lending that the Fed extends to banks is called
A) seasonal credit.
B) secondary credit.
C) primary credit.
D) installment credit.

primary credit.

The most common type of discount lending, ________ credit loans, are intended to help healthy banks with short-term liquidity problems that often result from temporary deposit outflows.
A) secondary
B) primary
C) temporary
D) seasonal

primary

The Fed's discount lending is of three types: ________ is the most common category; ________ is given to a limited number of banks in vacation and agricultural areas; ________ is given to banks that have experienced severe liquidity problems.
A) seasonal credit; secondary credit; primary credit
B) secondary credit; seasonal credit; primary credit
C) primary credit; seasonal credit; secondary credit
D) seasonal credit; primary credit; secondary credit

primary credit; seasonal credit; secondary credit

The discount rate is kept ________ the federal funds rate because the Fed prefers that ________
A) below ; banks borrow reserves from each other.
B) below; banks borrow reserves from the Fed.
C) above; banks borrow reserves from each other.
D) above; banks borrow reserves from the Fed.

above; banks borrow reserves from each other

The discount rate is kept ________ the federal funds rate because the Fed prefers that ________
A) below ; banks can monitor each other for credit risk.
B) below; the Fed can monitor banks for credit risk.
C) above ; banks can monitor each other for credit risk.
D) above; the Fed can monitor banks for credit risk.

above ; banks can monitor each other for credit risk

The Fed prefers that so that
A) banks borrow reserves from each other ; banks can monitor each other for credit risk.
B) banks borrow reserves from each other; the Fed can monitor banks for credit risk.
C) banks borrow reserves from the Fed; banks can monitor each other for credit risk.
D) banks borrow reserves from the Fed; the Fed can monitor banks for credit risk.

banks borrow reserves from each other ; banks can monitor each other for credit risk

The discount rate refers to the interest rate on
A) primary credit.
B) secondary credit.
C) seasonal credit.
D) federal funds.

primary credit

The interest rate on secondary credit is set ________ basis points ________ the primary credit rate.
A) 100; above
B) 100; below
C) 50; above
D) 50; below

50; above

The interest rate for primary credit is usually set ________ basis points ________ the federal funds rate. In March 2008, this gap was changed to ________ basis points.
A) 50; below; 100
B) 100; above; 25
C) 100; below; 50
D) 50; above; 25

100; above; 25

The interest rate on seasonal credit equals
A) the federal funds rate.
B) the primary credit rate.
C) the secondary credit rate.
D) an average of the federal funds rate and rates on certificates of deposits.

an average of the federal funds rate and rates on certificates of deposits.

The Fed is considering eliminating
A) primary credit lending.
B) secondary credit lending.
C) seasonal credit lending.
D) its lender of last resort function.

seasonal credit lending

At its inception, the Federal Reserve was intended to be
A) the Treasury's banker.
B) the issuer of government debt.
C) a lender-of-last-resort.
D) a regulator of bank holding companies.

a lender-of-last-resort.

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
A) Paul Volker.
B) Alan Blinder.
C) Arthur Burns.
D) Alan Greenspan.

Alan Greenspan

A financial panic was averted in October 1987 following "Black Monday" when the Fed announced that
A) it was lowering the discount rate.
B) it would provide discount loans to any bank that would make loans to the security industry.
C) it stood ready to purchase common stocks to prevent a further slide in stock prices.
D) it was raising the discount rate

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

The facility that was created in December of 2007 that banks can use to borrow from the Fed that has less of a stigma for banks compared to borrowing from the discount window is the
A) Term Securities Lending Facility.
B) Term Auction Facility.
C) Primary Dealer Credit Facility.
D) Commercial Paper Funding Facility.

Term Auction Facility

The Fed's lender-of-last-resort function
A) has proven to be ineffective.
B) cannot prevent runs by large depositors.
C) is no longer necessary due to FDIC insurance.
D) creates a moral hazard problem

creates a moral hazard problem

The most important advantage of discount policy is that the Fed can use it to
A) precisely control the monetary base.
B) perform its role as lender of last resort.
C) control the money supply.
D) punish banks that have deficient reserves.

perform its role as lender of last resort

An increase in ________ reduces the money supply since it causes the ________ to fall.
A) reserve requirements; monetary base
B) reserve requirements; money multiplier
C) margin requirements; monetary base
D) margin requirements; money multiplier

reserve requirements; money multiplier

A decrease in ________ increases the money supply since it causes the ________ to rise.
A) reserve requirements; monetary base
B) reserve requirements; money multiplier
C) margin requirements; monetary base
D) margin requirements; money multiplier

reserve requirements; money multiplier

The Federal Reserve has had the authority to vary reserve requirements since the
A) 1920s.
B) 1930s.
C) 1940s.
D) 1950s.

1930s

Since 1980, ________ are subject to reserve requirements.
A) only commercial banks
B) only the member institutions of the Federal Reserve
C) only nationally chartered depository institutions
D) all depository institutions

all depository institutions

Funds held in ________ are subject to reserve requirements.
A) all checkable deposits
B) all checkable and time deposits
C) all checkable, time, and money market fund deposits
D) all time deposits

all checkable deposits

The policy tool of changing reserve requirements is
A) the most widely used.
B) the preferred tool from the bank's perspective.
C) no longer used.
D) still used, even with its disadvantages.

no longer used

When the Fed wants to raise interest rates after banks have accumulated large amounts of excess reserves, it would
A) increase the interest rate paid on excess reserves.
B) increase discount rate.
C) conduct massive open market purchase.
D) conduct massive open market purchase.

increase the interest rate paid on excess reserves

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