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Exam 15: Tools for Monetary Policy

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Question 41

Multiple Choice

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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.

E) A) and B)
F) A) and C)

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Question 42

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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

E) All of the above
F) C) and D)

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Question 43

Multiple Choice

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The discount rate is ________ kept ________ the federal funds rate.

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

When bad storms slow the check-clearing process,float tends to ________ causing the Fed to initiate ________ open market ________.

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

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

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.

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.

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.

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

The two types of open market operations are

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.

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

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

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 decrease in ________ increases the money supply since it causes the ________ to rise.

When the Fed acts as a lender of last resort,the type of lending it provides is

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

The European System of Central Banks signals the stance of its monetary policy by setting a target for the