FIN 421 - Monetary Policy

Both ________ and ________ are Federal Reserve assets.

• currency in circulation; reserves

• currency in circulation; securities

• securities; loans to financial institutions

• securities; reserves

The monetary base minus currency in circulation equals

• reserves.

• the borrowed base.

• the nonborrowed base.

• discount loans.

All else the same, when the Fed calls in a $100 discount loan previously extended to the First National Bank, reserves in the banking system

(Hint/Clarification: “Call in” here means the Fed requires the bank to pay back a discount loan.)

• increase by $100.

• increase by more than $100.

• decrease by $100.

• decrease by more than $100.

If the Fed decides to reduce bank reserves, it can

• purchase government bonds.

• extend discount loans to banks.

• sell government bonds.

• print more currency.

The interest rate charged on overnight loans of reserves between banks is the

• prime rate.

• discount rate.

• federal funds rate.

• Treasury bill rate.

Open market sales ________ reserves and the monetary base thereby ________ the money supply.

• raise; lowering

• raise; raising

• lower; lowering

• lower; raising

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.

• secondary

•  primary

• temporary

• seasonal

To lower long-term interest rates, in 2010 the Fed started its new open market operation program to purchase

• mortgage-backed securities.

• commercial papers.

• long-term Treasuries.

• Treasury bills and Treasury notes.

The Fed's open market operations normally involve only the purchase of government securities, particularly those that are short-term. However, during the crisis, the Fed started new programs to purchase

• mortgage-backed securities and long-term Treasuries.

• mortgage-backed securities and Treasury bills.

• commercial papers and short-term Treasuries.

• Treasury bills and Treasury notes.

Economists believe that countries recently suffering hyperinflation have experienced

• reduced growth.

• increased growth.

• reduced prices.

• lower interest rates.