wayground logo

Free Printable Worksheets

Font size

S
M
L
XL
Worksheets

Monetary Policy Quiz

Total questions: 181

Worksheet time: 2hrs 41mins

Name
Class
Date
1.

The Fed uses three policy tools to manipulate the money supply: ________, which affect reserves and the monetary base; changes in ________, which affect the monetary base; and changes in ________, which affect the money multiplier.

a)

open market operations; borrowed reserves; margin requirements

b)

open market operations; borrowed reserves; reserve requirements

c)

borrowed reserves; open market operations; margin requirements

d)

borrowed reserves; open market operations; reserve requirements

2.

The Fed uses three policy tools to manipulate the money supply: open market operations, which affect the ________; changes in borrowed reserves, which affect the ________; and changes in reserve requirements, which affect the ________.

a)

money multiplier; monetary base; monetary base

b)

monetary base; money multiplier; monetary base

c)

monetary base; monetary base; money multiplier

d)

money multiplier; money multiplier; monetary base

3.

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

a)

prime rate.

b)

discount rate.

c)

federal funds rate.

d)

Treasury bill rate.

4.

The primary indicator of the Fedʹs stance on monetary policy is

a)

the discount rate.

b)

the federal funds rate.

c)

the growth rate of the monetary base.

d)

the growth rate of M2.

5.

The quantity of reserves demanded equals

a)

required reserves plus borrowed reserves.

b)

excess reserves plus borrowed reserves.

c)

required reserves plus excess reserves.

d)

total reserves minus excess reserves.

6.

Everything else held constant, when the federal funds rate is ________ the interest rate paid on reserves, the quantity of reserves demanded rises when the federal funds rate ________.

a)

above, rises

b)

above, falls

c)

below, rises

d)

below, falls

7.

The opportunity cost of holding excess reserves is the federal funds rate ________.

a)

minus the discount rate

b)

plus the discount rate

c)

plus the interest rate paid on excess reserves

d)

minus the interest rate paid on excess reserves

8.

In the market for reserves, when the federal funds rate is above the interest rate paid on excess reserves, the demand curve for reserves is ________.

a)

vertical

b)

horizontal

c)

positively sloped

d)

negatively sloped

9.

When the federal funds rate equals the interest rate paid on excess reserves ________.

a)

the supply curve of reserves is vertical

b)

the supply curve of reserves is horizontal

c)

the demand curve for reserves is vertical

d)

the demand curve for reserves is horizontal

10.

Which of the following is NOT an argument for the Federal Reserve paying interest on excess reserve holdings?

a)

Paying interest reduces the effective tax on deposits.

b)

Paying interest will help in the implementation of monetary policy.

c)

Paying interest will help the Federal Reserve have more control of the amount of discount loans.

d)

Paying interest increases the capacity of the Fedʹs balance sheet which will make it easier to address financial crises.

11.

The quantity of reserves supplied equals

a)

nonborrowed reserves minus borrowed reserves.

b)

nonborrowed reserves plus borrowed reserves.

c)

required reserves plus borrowed reserves.

d)

total reserves minus required reserves.

12.

In the market for reserves, when the federal funds interest rate is below the discount rate, the supply curve of reserves is

a)

vertical.

b)

horizontal.

c)

positively sloped.

d)

negatively sloped.

13.

When the federal funds rate equals the discount rate

a)

the supply curve of reserves is vertical.

b)

the supply curve of reserves is horizontal.

c)

the demand curve for reserves is vertical.

d)

the demand curve for reserves is horizontal.

14.

In the market for reserves, if the federal funds rate is above the interest rate paid on excess reserves, then an open market ________ the supply of reserves, raising the federal funds interest rate, everything else held constant.

a)

sale decreases

b)

sale increases

c)

purchase increases

d)

purchase decreases

15.

In the market for reserves, if the federal funds rate is above the interest rate paid on excess reserves, an open market purchase ________ the ________ of reserves which causes the federal funds rate to fall, everything else held constant.

a)

increases; supply

b)

increases; demand

c)

decreases; supply

d)

decreases; demand

16.

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

17.

In the market for reserves, if the federal funds rate is above the interest rate paid on excess reserves, an open market purchase ________ the supply of reserves and causes the federal funds interest rate to ________, everything else held constant.

a)

decreases; fall

b)

increases; fall

c)

increases; rise

d)

decreases; rise

18.

Suppose on any given day the prevailing equilibrium federal funds rate is above the Federal Reserveʹs 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

19.

In the market for reserves, if the federal funds rate is above the interest rate paid on excess reserves, an open market sale ________ the supply of reserves causing the federal funds rate to ________, everything else held constant.

a)

decreases; decrease

b)

increases; decrease

c)

increases; increase

d)

decreases; increase

20.

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

21.

Suppose on any given day the prevailing equilibrium federal funds rate is below the Federal Reserveʹs 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

22.

In the market for reserves, if the federal funds rate is above the interest rate paid on excess reserves, an open market sale ________ the ________ of reserves, causing the federal funds rate to increase, everything else held constant.

a)

increases; supply

b)

increases; demand

c)

decreases; supply

d)

decreases; demand

23.

In the market for reserves, a lower discount rate

a)

decreases the supply of reserves.

b)

increases the supply of reserves.

c)

lengthens the vertical section of the supply curve of reserves.

d)

shortens the vertical section of the supply curve of reserves.

24.

In the market for reserves, a lower interest rate paid on excess reserves

a)

decreases the supply of reserves.

b)

increases the supply of reserves.

c)

decreases the effective floor for the federal funds rate.

d)

increases the effective floor for the federal funds rate.

25.

Everything else held constant, in the market for reserves, when the federal funds rate is 3%, lowering the discount rate from 5% to 4%

a)

lowers the federal funds rate.

b)

raises the federal funds rate.

c)

has no effect on the federal funds rate.

d)

has an indeterminate effect on the federal funds rate.

26.

Everything else held constant, in the market for reserves, when the federal funds rate is 3%, increasing the interest rate paid on excess reserves from 1% to 2%

a)

lowers the federal funds rate.

b)

raises the federal funds rate

c)

has no effect on the federal funds rate.

d)

has an indeterminate effect on the federal funds rate.

27.

Everything else held constant, in the market for reserves, when the federal funds rate is 5%, lowering the discount rate from 5% to 4%

a)

lowers the federal funds rate.

b)

raises the federal funds rate.

c)

has no effect on the federal funds rate.

d)

has an indeterminate effect on the federal funds rate.

28.

Everything else held constant, in the market for reserves, when the federal funds rate is 1%, increasing the interest rate paid on excess reserves from 1% to 2%

a)

lowers the federal funds rate.

b)

raises the federal funds rate.

c)

has no effect on the federal funds rate.

d)

has an indeterminate effect on the federal funds rate.

29.

Everything else held constant, in the market for reserves, when the federal funds rate is 3%, raising the discount rate from 5% to 6%

a)

lowers the federal funds rate.

b)

raises the federal funds rate.

c)

has no effect on the federal funds rate.

d)

has an indeterminate effect on the federal funds rate.

30.

Everything else held constant, in the market for reserves, when the federal funds rate is 3%, lowering the interest rate paid on excess reserves rate from 2% to 1%

a)

lowers the federal funds rate.

b)

raises the federal funds rate.

c)

has no effect on the federal funds rate.

d)

has an indeterminate effect on the federal funds rate.

31.

Everything else held constant, in the market for reserves, when the federal funds rate equals the discount rate, lowering the discount rate

a)

increases the federal funds rate.

b)

lowers the federal funds rate.

c)

has no effect on the federal funds rate.

d)

has an indeterminate effect of the federal funds rate.

32.

Everything else held constant, in the market for reserves, when the federal funds rate equals the interest rate paid on excess reserves, raising the interest rate paid on excess reserves

a)

increases the federal funds rate.

b)

lowers the federal funds rate.

c)

has no effect on the federal funds rate.

d)

has an indeterminate effect of the federal funds rate.

33.

Everything else held constant, in the market for reserves, when the demand for federal funds intersects the reserve supply curve along the horizontal section, increasing the discount rate

a)

increases the federal funds rate.

b)

lowers the federal funds rate.

c)

has no effect on the federal funds rate.

d)

has an indeterminate effect on the federal funds rate.

34.

Everything else held constant, in the market for reserves, when the supply for federal funds intersects the reserve demand curve along the horizontal section, lowering the interest rate paid on excess reserves

a)

increases the federal funds rate.

b)

lowers the federal funds rate.

c)

has no effect on the federal funds rate.

d)

has an indeterminate effect of the federal funds rate.

35.

Everything else held constant, in the market for reserves, when the demand for federal funds intersects the reserve supply curve on the vertical section, increasing the discount rate

a)

increases the federal funds rate.

b)

lowers the federal funds rate.

c)

has no effect on the federal funds rate.

d)

has an indeterminate effect on the federal funds rate.

36.

Everything else held constant, in the market for reserves, when the supply for federal funds intersects the reserve demand curve on the downward sloping section, decreasing the interest rate paid on excess reserves

a)

increases the federal funds rate.

b)

lowers the federal funds rate.

c)

has no effect on the federal funds rate.

d)

has an indeterminate effect on the federal funds rate.

37.

Everything else held constant, in the market for reserves, increases in the discount rate affect the federal funds rate

a)

when the funds rate is below the discount rate.

b)

when the funds rate equals the discount rate.

c)

when the demand for federal funds intersects the vertical section of the reserve supply curve.

d)

when the demand for federal funds equals zero.

38.

Everything else held constant, in the market for reserves, decreases in the interest rate paid on excess reserves affect the federal funds rate

a)

when the funds rate is below the interest rate paid on excess reserves.

b)

when the funds rate equals the interest rate paid on excess reserves.

c)

when the funds rate is below the discount rate.

d)

when the funds rate equals the discount rate.

39.

The Federal Reserve usually keeps the discount rate

a)

above the target federal funds rate.

b)

equal to the target federal funds rate.

c)

below the target federal funds rate.

d)

equal to zero.

40.

Everything else held constant, the vertical section of the supply curve of reserves is shortened when the

a)

discount rate increases.

b)

discount rate decreases.

c)

federal funds rate rises.

d)

federal funds rate falls.

41.

Everything else held constant, the vertical section of the supply curve of reserves is lengthened when the

a)

discount rate increases.

b)

discount rate decreases.

c)

federal funds rate rises.

d)

federal funds rate falls.

42.

In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, an increase in the reserve requirement ________ the demand for reserves, ________ the federal funds rate, everything else held constant.

a)

decreases; lowering

b)

increases; lowering

c)

increases; raising

d)

decreases; raising

43.

In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, a ________ in the reserve requirement ________ the demand for reserves, raising the federal funds interest rate, everything else held constant.

a)

rise; decreases

b)

rise; increases

c)

decline; increases

d)

decline; decreases

44.

In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, a ________ in the reserve requirement increases the demand for reserves, ________ the federal funds interest rate, everything else held constant.

a)

rise; lowering

b)

decline; raising

c)

decline; lowering

d)

rise; raising

45.

In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, an increase in the reserve requirement ________ the demand of reserves and causes the federal funds interest rate to ________, everything else held constant.

a)

decreases; fall

b)

increases; fall

c)

increases; rise

d)

decreases; rise

46.

In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, an increase in the reserve requirement ________ the ________ for reserves and causes the federal funds interest rate to rise, everything else held constant.

a)

decreases; demand

b)

increases; demand

c)

increases; supply

d)

decreases; supply

47.

In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, a ________ in the reserve requirement ________ the demand for reserves, lowering the federal funds interest rate, everything else held constant.

a)

rise; decreases

b)

rise; increases

c)

decline; increases

d)

decline; decreases

48.

In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, a ________ in the reserve requirement decreases the demand for reserves, ________ the federal funds interest rate, everything else held constant.

a)

rise; lowering

b)

decline; raising

c)

decline; lowering

d)

rise; raising

49.

In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, a decline in the reserve requirement ________ the ________ curve of reserves and causes the federal funds interest rate to fall, everything else held constant.

a)

decreases; demand

b)

increases; demand

c)

increases; supply

d)

decreases; supply

50.

In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, a decline in the reserve requirement ________ the demand of reserves, ________ the federal funds rate, everything else held constant.

a)

decreases; lowering

b)

increases; lowering

c)

increases; raising

d)

decreases; raising

51.

At a given federal funds rate, there is an excess demand for reserves in the federal funds market. If the Fed wants the federal funds rate to stay at that level, then it should undertake an open market ________ of bonds, everything else held constant. If the Fed does nothing, however, the federal funds rate will ________.

a)

sale; increase

b)

purchase; increase

c)

sale; decrease

d)

purchase; decrease

52.

Suppose, at a given federal funds rate, there is an excess supply of reserves in the federal funds market. If the Fed wants the federal funds rate to stay at that level, then it should undertake an open market ________ of bonds, everything else held constant. If the Fed does nothing, however, the federal funds rate will ________.

a)

sale; increase

b)

purchase; increase

c)

sale; decrease

d)

purchase; decrease

53.

Explain the Fedʹs three tools of monetary policy and how each is used to change the money supply. Does each tool affect the monetary base or the money multiplier?

4 lines
54.

State whether the following statement is true or false AND explain why: ʺA decrease in the discount rate will always cause a decrease in the federal reserve funds rate.ʺ

4 lines
55.

State whether the following statement is true or false AND explain why: ʺAn increase in the interest rate paid on excess reserves will always cause an increase in the federal reserve funds rate.ʺ

4 lines
56.

________ 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

57.

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

58.

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

a)

raise; lowering

b)

raise; raising

c)

lower; lowering

d)

lower; raising

59.

Open market sales shrink ________ thereby lowering ________.

4 lines
60.

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

61.

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

a)

raise; lowering

b)

raise; raising

c)

lower; lowering

d)

lower; raising

62.

The two types of open market operations are

a)

offensive and defensive.

b)

dynamic and reactionary.

c)

active and passive.

d)

dynamic and defensive.

63.

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

64.

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.

65.

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.

66.

The Federal Open Market Committee makes the Fedʹs 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.

67.

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.

68.

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

69.

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

70.

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

71.

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

72.

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

73.

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

74.

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

75.

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

76.

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

77.

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; drain

c)

increase; dynamic; inject

d)

decrease; dynamic; drain

78.

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

79.

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

80.

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

81.

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

82.

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

83.

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

84.

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.

85.
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.
86.
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
87.
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.
88.
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.
89.
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
90.
When the Fed acts as a lender of last resort, the type of lending it provides is
a)
primary credit.
b)
seasonal credit.
c)
secondary credit.
d)
installment credit.
91.
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
92.
The discount rate is kept the federal funds rate.
a)
always; below
b)
typically; below
c)
typically; equal to
d)
typically; above
93.
The discount rate refers to the interest rate on
a)
primary credit.
b)
secondary credit.
c)
seasonal credit.
d)
federal funds.
94.
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
95.
The interest rate for primary credit is usually set basis points the federal funds rate. In March , this gap was changed to basis points.
a)
50; below; 100
b)
100; above; 25
c)
100; below; 50
d)
50; above; 25
96.
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.
97.
The Fed is considering eliminating
a)
primary credit lending.
b)
secondary credit lending.
c)
seasonal credit lending.
d)
its lender of last resort function.
98.
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.
99.
Much of the credit for prevention of a financial market meltdown after Black Monday October , must be given to the Federal Reserve System and its chairman
a)
Paul Volker.
b)
Alan Blinder.
c)
Arthur Burns.
d)
Alan Greenspan.
100.
A financial panic was averted in October 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.
101.
The facility that was created in December of 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)
Commerical Paper Funding Facility
102.
Which of the following special lending facilities set up by the Federal Reserve is reserve neutral?
a)
Term Auction Facility
b)
Primary Dealer Credit Facility
c)
Term Securities Lending Facility
d)
Asset - Backed Commercial Paper Money Market Mutual Fund Liquidity Facility
103.
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.
104.
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.
105.
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
106.
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
107.
The Federal Reserve has had the authority to vary reserve requirements since the
a)
1920s.
b)
1930s.
c)
1940s.
d)
1950s.
108.
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
109.
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
110.
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.
111.
The European System of Central Banks signals the stance of its monetary policy by setting a target for the
a)
federal funds rate.
b)
overnight cash rate.
c)
lombard rate.
d)
reserve rate.
112.
When the European System of Central Banks uses main refinancing operations, it is similar to the Federal Reserve using
a)
dynamic open market operations.
b)
defensive open market operations.
c)
discount policy.
d)
reserve requirements.
113.
When the European System of Central Banks uses long - term refinancing operations, it is similar to the Federal Reserve using
a)
dynamic open market operations.
b)
defensive open market operations.
c)
discount policy.
d)
reserve requirements.
114.
The equivalent to the Federal Reserve s discount rate in the European System of Central Banks is the
a)
federal funds rate.
b)
marginal lending rate.
c)
deposit facility rate.
d)
lombard rate.
115.
The Federal Reserve pay interest on reserves held on deposit. The European System of Central Banks pay interest on reserves held on deposit.
a)
does; does
b)
does; does not
c)
does not; does
d)
does not; does not
116.
Since the European Central Bank interest on reserves, banks have a cost of complying with reserve requirements when compared to banks complying with the reserve requirements of the Federal Reserve.
a)
pays; lower
b)
pays; higher
c)
does not pay; lower
d)
does not pay; higher
117.
Under monetary targeting, a central bank announces an annual growth rate target for .
a)
a monetary aggregate
b)
a reserve aggregate
c)
the monetary base
d)
GDP
118.
During the years 1979 to 1982, the Federal Reserve s announced policy was monetary targeting. During this time period the Federal Reserve
a)
hit all of their monetary targets.
b)
did not hit any of their monetary targets because it is believed that controlling the money supply was not the intent of the Federal Reserve.
c)
did not hit any of their monetary targets because they were unrealistic.
d)
hit about half of their monetary targets.
119.
Compared to the United States, Japan s experience with monetary targeting performed
a)
b etter with regard to the inflation rate and output fluctuations.
b)
worse with regard to the inflation rate and output fluctuations.
c)
b etter with regard to the inflation rate, but worse with regard to output fluctuations.
d)
worse with regard to the inflation rate, but better with regard to output fluctuations.
120.
One of the factors that contributed to the success German policymakers had using a monetary targeting type policy was that
a)
they used a rigid target for the money growth rate.
b)
they implemented policy so their inflation rate goal was met in the short run.
c)
the money target was flexible to allow the Bundesbank to concentrate on other goals as needed.
d)
they rarely communicated the intentions of policy to the public in order to keep the public from panicking.
121.
Which of the following is the best description of the monetary policy strategy followed by the European Central Bank ECB?
a)
The ECB follows monetary targeting.
b)
The ECB follows inflation targeting.
c)
The ECB has a hybrid strategy with elements of both monetary targeting and inflation targeting.
d)
The ECB has a Fed - like just do it approach.
122.
Which of the following is an advantage to money targeting?
a)
There is an immediate signal on the achievement of the target.
b)
It does not rely on a stable money - inflation relationship.
c)
It implies lack of transparency.
d)
It implies smaller output fluctuations.
123.
Which of the following is a disadvantage to monetary targeting?
a)
It relies on a stable money - inflation relationship.
b)
There is a delayed signal about the achievement of a target.
c)
It implies larger output fluctuations.
d)
It implies a lack of transparency.
124.
If the relationship between the monetary aggregate and the goal variable is weak, then
a)
monetary aggregate targeting is superior to exchange - rate targeting.
b)
monetary aggregate targeting is superior to inflation targeting.
c)
inflation targeting is superior to exchange - rate targeting.
d)
monetary aggregate targeting will not work.
125.
The monetary policy strategy that provides an immediate signal on target achievement is
a)
exchange - rate targeting.
b)
monetary targeting.
c)
inflation targeting.
d)
the implicit nominal anchor.
126.
The monetary policy strategy that relies on a stable money - income relationship is
a)
exchange - rate targeting.
b)
monetary targeting.
c)
inflation targeting.
d)
the implicit nominal anchor.
127.
The type of monetary policy that is used in Canada, New Zealand, and the United Kingdom is
a)
monetary targeting.
b)
inflation targeting.
c)
targeting with an implicit nominal anchor.
d)
interest - rate targeting.
128.
Which of the following is N OT an element of inflation targeting?
a)
A public announcement of medium - term numerical targets for inflation
b)
An institutional commitment to price stability as the primary long - run goal
c)
An information - inclusive approach in which only monetary aggregates are used in making decisions about monetary policy
d)
Increased accountability of the central bank for attaining its inflation objectives
129.
The first country to adopt inflation targeting was
a)
the United Kingdom.
b)
Canada.
c)
New Zealand.
d)
Australia.
130.
In both New Zealand and Canada, what has happened to the unemployment rate since the countries adopted inflation targeting?
a)
The unemployment rate increased sharply.
b)
The unemployment rate remained constant.
c)
The unemployment rate has declined substantially after a sharp increase.
d)
The unemployment rate declined sharply immediately after the inflation targets were adopted.
131.
Which of the following is N OT an advantage of inflation targeting?
a)
There is simplicity and clarity of the target.
b)
Inflation targeting does not rely on a stable money - inflation relationship.
c)
There is an immediate signal on the achievement of the target.
d)
Inflation targeting reduces the effects of inflation shocks.
132.
Which of the following is N OT a disadvantage to inflation targeting?
a)
There is a delayed signal about achievement of the target.
b)
Inflation targets could impose a rigid rule on policymakers.
c)
There is potential for larger output fluctuations.
d)
There is a lack of transparency.
133.
The decision by inflation targeters to choose inflation targets zero reflects the concern of monetary policymakers that particularly inflation can have substantial negative effects on real economic activity.
a)
b elow; high
b)
b elow; low
c)
above; high
d)
above; low
134.
Inflation targets can increase the central bank s flexibility in responding to declines in aggregate spending. Declines in aggregate that cause the inflation rate to fall below the floor of the target range will automatically stimulate the central bank to monetary policy without fearing that this action will trigger a rise in inflation expectations.
a)
demand tighten
b)
demand; loosen
c)
supply; tighten
d)
supply; loosen
135.
Estimates suggest that, in the United States economy, it takes just over for monetary policy to affect output and just over for monetary policy to affect the inflation rate.
a)
year; years
b)
years; year
c)
year; months
d)
months; year
136.
Which of the following is an advantage of the Fed s just do it approach to monetary policy?
a)
It does not rely on the money - inflation relationship.
b)
It is simplistic and has clarity.
c)
There is increased accountability of central bankers.
d)
There is an immediate signal if the target has been achieved.
137.
Which of the following is N OT a disadvantage of of the Fed s just do it approach to monetary policy?
a)
There is low transparency of policy.
b)
There is low accountability for central bankers.
c)
This type of policy relies on the policy - makers in charge.
d)
It relies on a stable money - inflation relationship.
138.
When compared to the Fed s anchor approach, targeting can make the institutional framework for the conduct of monetary policy more consistent with democratic principles.
a)
nominal; inflation
b)
implicit; monetary
c)
nominal; monetary
d)
implicit; inflation
139.
The monetary policy strategy that suffers a lack of transparency is
a)
exchange - rate targeting.
b)
monetary targeting.
c)
inflation targeting.
d)
the implicit nominal anchor.
140.
The monetary policy strategy that provides the least accountability is
a)
exchange - rate targeting.
b)
monetary targeting.
c)
inflation targeting.
d)
the implicit nominal anchor.
141.
Which of the following is a potential operating instrument for the central bank?
a)
The monetary base
b)
The M1 money supply
c)
Nominal GDP
d)
The discount rate
142.
Due to the lack of timely data for the price level and economic growth, the Fed s strategy
a)
targets the exchange rate, since the Fed can control this variable.
b)
targets the price of gold, since it is closely related to economic activity.
c)
uses an intermediate target, such as an interest rate.
d)
stabilizes the consumer price index, since the Fed can control the CPI.
143.
If the central bank targets a monetary aggregate, it is likely to lose control over the interest rate because
a)
of fluctuations in the demand for reserves.
b)
of fluctuations in the consumption function.
c)
b ond values will tend to remain stable.
d)
of fluctuations in the business cycle.
144.
If the Fed pursues a strategy of targeting an interest rate when fluctuations in money demand are prevalent,
a)
fluctuations of nonborrowed reserves will be small.
b)
fluctuations of nonborrowed reserves will be large.
c)
the Fed will probably quickly abandon this policy, as it did in the 1960s.
d)
the Fed will probably quickly abandon this policy, as it did in the 1950s.
145.
Fluctuations in the demand for reserves cause the Fed to lose control over a monetary aggregate if the Fed targets
a)
a monetary aggregate.
b)
the monetary base.
c)
an interest rate.
d)
nominal GDP.
146.
Interest rates are difficult to measure because
a)
data on them are not available in a timely manner.
b)
real interest rates depend on the hard - to - determine expected inflation rate.
c)
they fluctuate too often to be accurate.
d)
they cannot be controlled by the Fed.
147.
Which of the following criteria need not be satisfied for choosing an intermediate target?
a)
The variable must be measurable.
b)
The variable must be controllable.
c)
The variable must be predictable.
d)
The variable must be transportable.
148.
Which of the following is not a requirement in selecting an intermediate target?
a)
Measurability
b)
Controllability
c)
Flexibility
d)
Predictability
149.
When it comes to choosing an policy instrument, both the rate and aggregates are measured accurately and are available daily with almost no delay.
a)
three - month T - b ill; monetary
b)
three - month T - b ill; reserve
c)
federal funds; monetary
d)
federal funds; reserve
150.
If the desired intermediate target is an interest rate, then the preferred policy instrument will be an variable like the .
a)
interest rate; three - month T - b ill rate
b)
interest rate; federal funds rate
c)
monetary aggregate; monetary base
d)
monetary aggregate; nonborrowed base
151.
If the desired intermediate target is a monetary aggregate, then the preferred policy instrument will be an variable like the .
a)
interest rate; three - month T - b ill rate
b)
interest rate; federal funds rate
c)
reserve aggregate; monetary base
d)
reserve aggregate; narrow money supply M1
152.
If the desired intermediate target is a monetary aggregate, which of the following would be the most preferred policy instrument?
a)
The federal funds rate
b)
The - day T - b ill rate
c)
The - day T - b ill rate
d)
The monetary base
153.
If the desired intermediate target is an interest rate, the preferred policy instrument would be
a)
the federal funds rate.
b)
the monetary base.
c)
nonborrowed reserves.
d)
b orrowed reserves. Ethe discount rate.
154.
Using Taylor s rule, when the equilibrium real federal funds rate is percent, the positive output gap is percent, the target inflation rate is percent, and the actual inflation rate is percent, the nominal federal funds rate target should be
a)
5 percent.
b)
5.5 percent.
c)
6 percent.
d)
6.5 percent.
155.
Using Taylor s rule, when the equilibrium real federal funds rate is percent, there is no output gap, the actual inflation rate is zero, and the target inflation rate is percent, the nominal federal funds rate should be
a)
0 percent.
b)
1
c)
2
d)
3
156.
According to the Taylor Principle, when the inflation rate rises, the nominal interest rate should be by than the inflation rate increase.
a)
increased; more
b)
increased; less
c)
decreased; more
d)
decreased; less
157.
If the Taylor Principle is not followed and nominal interest rates are increased by less than the increase in the inflation rate, then real interest rates will and monetary policy will be too .
a)
rise; tight
b)
rise; loose
c)
fall; tight
d)
fall; loose
158.
The rate of inflation tends to remain constant when
a)
the unemployment rate is above the NAIRU.
b)
the unemployment rate equals the NAIRU.
c)
the unemployment rate is below the NAIRU.
d)
the unemployment rate increases faster than the NAIRU increases.
159.
The rate of inflation increases when
a)
the unemployment rate equals the NAIRU.
b)
the unemployment rate exceeds the NAIRU.
c)
the unemployment rate is less than the NAIRU.
d)
the unemployment rate increases faster than the NAIRU increases.
160.
Suppose interest rates are kept very low for a long time such that there is a spike in the amount of lending. Everything else held constant, this could cause bubble.
a)
an irrational exuberance
b)
a credit - driven
c)
a stock
d)
a debt - driven
161.
A credit - driven bubble arises when in lending causes in asset prices which can cause in lending.
a)
a decrease; a decrease; an increase
b)
a decrease; an increase; an increase
c)
an increase; an increase; a further increase
d)
a decrease; a decrease; a further decrease
162.
bubble is driven entirely by unrealistic optimistic expectations.
a)
An irrational exuberance
b)
A credit - driven
c)
A stock
d)
A debt - driven
163.
Everything else held constant, a credit - drive bubble is generally considered to have the potential to cause damage to an economy compared to an irrational exuberance bubble.
a)
less
b)
about the same amount of
c)
more
d)
either more, less, or the same amount of
164.
A central bank has chance to identify a credit - driven bubble compared to an irrational exuberance bubble.
a)
a greater
b)
less of a
c)
about the same level of a
d)
a greater, less or about the same level of a
165.
Which of the following is N OT an argument against using monetary policy to prick asset - price bubbles?
a)
The effect of increasing interest rates on asset prices is uncertain.
b)
A bubble may only exist in some asset - prices and monetary policy will affect all asset prices.
c)
Using monetary policy to prick an asset - price bubble may have adverse effect on the aggregate economy.
d)
Even though credit - drive bubbles are easier to identify, they are still relatively hard to identify.
166.
In its earliest years, the Federal Reserve s guiding principle for the conduct of monetary policy was known as the
a)
real bills doctrine.
b)
liberal liquidity doctrine.
c)
free reserves doctrine.
d)
quantity theory of money.
167.
The guiding principle for the conduct of monetary policy that held that as long as loans were being made for productive purposes, then providing reserves to the banking system to make these loans would not be inflationary became known as the
a)
free reserves doctrine.
b)
Benjamin Strong doctrine.
c)
efficient liquidity doctrine.
d)
real bills doctrine.
168.
The real bills doctrine was the guiding principle for the conduct of monetary policy during the
a)
1910s.
b)
1940s.
c)
1950s.
d)
1960s.
169.
The Fed accidentally discovered open market operations in the early
a)
1920s.
b)
1910s.
c)
1900s.
d)
1890s.
170.
The Fed accidentally discovered open market operations when
a)
it came to the rescue of failing banks in the early 1930s, and found that its purchases of bank loans injected reserves into the banking system.
b)
it purchased securities for income following the - recession.
c)
it attempted to slow inflation in by selling securities and found that its sales drained reserves from the banking system.
d)
it reinterpreted a key provision of the Federal Reserve Act.
171.
The Fed s mistakes of the early 1930s were compounded by its decision to
a)
raise reserve requirements in - .
b)
lower reserve requirements in - .
c)
raise the monetary base in - .
d)
lower the monetary base in - .
172.
During World War II, whenever interest rates would and the price of bonds would begin to , the Fed would make open market purchases.
a)
rise; rise
b)
rise; fall
c)
fall; rise
d)
fall; fall
173.
During World War II, whenever interest rates would rise and the price of bonds would begin to fall, the Fed would
a)
lower reserve requirements.
b)
raise reserve requirements.
c)
make open market purchases of government securities.
d)
make open market sales of government securities.
174.
During World War II, the Fed in effect relinquished its control of monetary policy through its policy of
a)
continually lowering reserve requirements.
b)
continually raising reserve requirements.
c)
pegging interest rates.
d)
targeting free reserves.
175.
The Fed was committed to keeping interest rates low to assist Treasury financing of budget deficits
a)
only during World War I.
b)
during the Great Depression.
c)
during World War I and World War II.
d)
throughout the entire existence of the Fed.
176.
The Fed - Treasury Accord of March provided the Fed greater freedom to
a)
let interest rates increase.
b)
let unemployment increase.
c)
let inflation accelerate.
d)
let exchange rates increase.
177.
During the 1950s, the Fed targeted
a)
M1.
b)
M2.
c)
the monetary base.
d)
money market conditions.
178.
During the 1950s, Fed monetary policy targeted
a)
the monetary base.
b)
the exchange rate.
c)
discount loans.
d)
interest rates.
179.
Targeting interest rates can be procyclical because
a)
an increase in income increases interest rates, causing the Fed to buy bonds, increasing the monetary base and money supply, leading to further increases in income.
b)
an increase in interest rates increases income, causing the Fed to buy bonds, increasing the monetary base and money supply, leading to further increases in income.
c)
an increase in the monetary base increases the money supply, causing the Fed to buy bonds, increasing the monetary base and money supply, leading to further increases in income.
d)
an increase in income increases the monetary base and money supply, causing the Fed to buy bonds to increase interest rates and income.
180.
High inflation can spiral out of control when
a)
expected inflation increases nominal interest rates, causing the Fed to buy bonds, increasing the money supply and further increasing inflation.
b)
expected inflation decreases nominal interest rates, causing the Fed to buy bonds, increasing the money supply and further increasing inflation.
c)
expected inflation increases nominal interest rates, causing the Fed to sell bonds, increasing the money supply and further increasing inflation.
d)
expected inflation decreases nominal interest rates, causing the Fed to sell bonds, increasing the money supply and further increasing inflation.
181.
In practice, the Fed s policy of targeting money market conditions in the 1960s proved to be
a)
countercyclical, helping to stabilize the economy.
b)
procyclical, destabilizing the economy.
c)
procyclical, helping to stabilize the economy.
d)
countercyclical, destabilizing the economy.

Similar Resources on Wayground

Math

180 questions

Math

quiz

Worksheet

•

4th Grade - Professio...