Ample Reserves

In an ample reserves system, What is the federal reserves' key policy tool?

• Open Market Operations

• interest on reserves

• Discount Rate

• Reserve Requirement

Central banks carry out policy to hit a _____ for an overnight interbank lending rate

• target range

• interest rate

• employment rate

• inflation rate

In an economy with ample reserves, changes in the money supply _____ effectively change the nominal interest rate; instead, the central bank can influence the nominal interest rate by changing its administered interest rates

• Do

• Do Not

Because of an ample reserve policy, a _______ is now considered to be antiquated and unecessary

• fixed money supply

• overnight lending

• reserve requirement ratio

• open market operation

What are administered rates? (Select all that apply)

• interest on reserves (ior)

• discount rate

• Interest rates set directly by the federal reserve

• Open Market operations

Given ample reserves, _____ maintains the policy rate

• maintaining exchange rates

• open market operations

• arbitrage - you can get free interest from being in the targeted policy rate than the reverse repo market

• Seriously, you gotta understand this concept of what arbitrage is. It's free stuff for nothing!!!!

The discount rate (DR1) is an effective price ceiling on reserves because commercial banks have no incentive to borrow reserves at a higher rate.

• financial institutions have no incentive to lend reserves at a lower rate

• The interest gets too high to afford

• It has a doctors degree

• commercial banks have no incentive to borrow reserves at a higher rate

The overnight reverse repurchase offering rate (ONRRP1)is an effective price floor on reserves because

• financial institutions have no incentive to lend reserves at a lower rate

• commercial banks have no incentive to borrow reserves at a higher rate.

The Federal Reserve supplies reserves (to make sure reserves remain ample) to commercial banks in exchange for US through open market operations

• Treasury Securities

• municipal bonds

• corporate bonds

• Discount Rate

the interest rate paid by the Fed on overnight deposits to financial institutions like the primary security dealers who help facilitate open market operations.

• Interest on reserves

• Policy Rate

• Discount Rate

• Reverse Repo Market