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59 terms

15.2

STUDY
PLAY
________ 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