Econ 3229 Ch 18

23 Questions | By Stlepin | Updated: Mar 17, 2022 | Attempts: 150

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1.

1. The focus for most central banks today is:
- A.
  
  The quantity of M1
- B.
  
  Interest rates
- C.
  
  The quantity of M2
- D.
  
  Controlling the size of the money multiplier
2.

2. Most central banks, including the Fed and the ECB, provide discount loans at a rate:
- A.
  
  Equal to the target interest rate
- B.
  
  Below the target interest rate
- C.
  
  Above the target interest rate
- D.
  
  That is equal to the overnight interbank lending rate
3.

3. The ways the Fed can inject reserves into the banking system include:
- A.
  
  An increase in the size of the Fed's balance sheet through purchasing securities
- B.
  
  Increasing the discount rate
- C.
  
  Making loans to non-bank corporations
- D.
  
  An increase in the size of the Fed's balance sheet through selling securities
4.

4. The tools of monetary policy available to the Fed include each of the following, except the:
- A.
  
  Currency to deposit ration
- B.
  
  Discount rate
- C.
  
  Target federal funds rate
- D.
  
  Reserve requirement
5.

5. Which of the following statements is most correct?
- A.
  
  The FOMC sets the federal funds rate
- B.
  
  The discount rate is the primary policy tool of the FOMC
- C.
  
  The FOMC sets the target federal funds rate
- D.
  
  The difference between the target and actual federal funds rate is the dealer's spread
6.

6. Which of the following would be categorized as an unconventional monetary policy tool?
- A.
  
  Discount window lending
- B.
  
  Lending to nonbanks
- C.
  
  Federal funds rate target
- D.
  
  Deposit rate
7.

7. If the market federal funds rate were below the target rate, the response from the Fed would likely be to:
- A.
  
  Raise the required reserve rate
- B.
  
  Purchase US treasury securities
- C.
  
  Sell US treasury securities
- D.
  
  Raise the discount rate
8.

8. If the current market federal funds rate equals the target rate and the demand for reserves decreases, the likely response in the federal funds market will be:
- A.
  
  The market federal funds rate will decrease
- B.
  
  The market federal funds rate will equal the target rate
- C.
  
  The market federal funds rate will increase
- D.
  
  Nothing; the Fed would act immediately and the market would not be affected
9.

9. One reason the target federal funds rate may not equal the actual federal funds rate is because:
- A.
  
  There is no way that the Fed could keep the actual rate at the target rate
- B.
  
  The target rate changes with the demand for reserves
- C.
  
  Attaining the target rate involves forecasting reserve demand and forecasts are subject to error
- D.
  
  None of the answers is correct; the target and the actual federal funds rates are always equal
10.

10. Discount lending ties into the Fed's function of:
- A.
  
  Lender of last resort
- B.
  
  Open market operations
- C.
  
  The governments bank
- D.
  
  Regulation of banking
11.

11. The Fed will make a discount loan to a bank during a crisis:
- A.
  
  No matter what condition the bank is in
- B.
  
  Only if the bank is sound financially and can provide collateral for the loan
- C.
  
  But if the bank doesn't have collateral the interest rate is higher
- D.
  
  Only if the bank would fail without the loan
12.

12. The types of loans the Fed makes consist of each of the following, except:
- A.
  
  Primary credit
- B.
  
  Conditional credit
- C.
  
  Seasonal credit
- D.
  
  Secondary credit
13.

13. Secondary credit provided by the Fed is designed for:
- A.
  
  Banks who qualify for a lower interest than what is available under primary credit
- B.
  
  Banks that are in trouble and cannot obtain a loan from anyone else
- C.
  
  Banks that want to borrow without putting up collateral
- D.
  
  Foreign banks
14.

14. Seasonal credit provided by the Fed is not as common as it used to be because:
- A.
  
  There are fewer banks in seasonal areas
- B.
  
  Other sources for long-term loans have developed for banks in seasonal areas
- C.
  
  Seasonal credit has been replaced by secondary credit
- D.
  
  Seasonal credit is being replaced by primary credit
15.

15. The Fed is reluctant to change the required reserve rate because:
- A.
  
  Changes in the rate have a small impact on the actual quantity of money
- B.
  
  The money multiplier is not impacted by the required reserve rate
- C.
  
  The time lag between changing the required reserve rate and changes in the money supply can be too long
- D.
  
  Small changes in the required reserve rate can have too big of an impact on the money multiplier and the level of deposits
16.

16. Which of the following features would characterize a good monetary policy instrument?
- A.
  
  Observable only to monetary policy officials
- B.
  
  Tightly linked to monetary policy objectives
- C.
  
  Controllable and rigid
- D.
  
  Difficult to change
17.

17. From 1979 to 1982, the Fed targeted bank reserves as the monetary policy tool. One side effect of this strategy was:
- A.
  
  The inflation rate increased to over 18 percent in 1983
- B.
  
  Many banks failed that otherwise may not have
- C.
  
  Interest rates rose very high
- D.
  
  Inflation remained high for most of the 1980's
18.

18. Which of the following statements is not correct?
- A.
  
  The current target of the FOMC is the federal funds rate
- B.
  
  If the Fed were to target the quantity of reserves, a decrease in reserve demand would result in a lower federal funds rate
- C.
  
  The Fed currently sets both an interest rate and a quantity target for monetary policy
- D.
  
  If the Fed were to target the quantity of reserves, an increase in reserve demand would raise the federal funds rate
19.

19. A good definition for intermediate targets of monetary policy would be:
- A.
  
  Instruments under the direct control of central bankers but one step removed from operational targets
- B.
  
  Instruments that are not under the direct control of the central banks but lie between operational instruments and objectives
- C.
  
  The quantity or non-price targets of monetary policy
- D.
  
  The real goals of monetary policy
20.

20. Over the last few decades, central bankers have:
- A.
  
  Mostly abandoned intermediate targets
- B.
  
  Greatly increased their focus on intermediate targets
- C.
  
  Found that the links between the operating instruments and intermediate targets have become more stable
- D.
  
  Developed more intermediate targets
21.

21. The components of the formula for the Taylor rule includes each of the following, except:
- A.
  
  Target federal funds rate
- B.
  
  Current inflation rate
- C.
  
  30-year US treasury bond rate
- D.
  
  Inflation gap
22.

22. If each of the coefficients in front of the inflation gap and the output gap in the formula for the Taylor rule is 0.5, this implies:
- A.
  
  That the Fed assumes that inflation and output are right on target
- B.
  
  That inflation and output are one half a percent off of their targets
- C.
  
  The Fed is giving equal weight to objectives of inflation and output
- D.
  
  That the Fed will not accept higher inflation unless unemployment falls by twice the inflation rate
23.

23. Given the following formula for the Taylor rule: Target federal funds rate = 2 + current inflation + ½(inflation gap) +½(output gap) If the current rate of inflation is 5% and the target rate of inflation is 2%, and output is 3% above its potential, the target federal funds rate would be:
- A.
  
  6.5%
- B.
  
  2.5%
- C.
  
  3.5%
- D.
  
  10.5%