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Exam 16: Monetary Policy Tools

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Question 1

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If there is no discount lending and the Fed uses open market operations to lower the equilibrium federal funds rate, the _____ of reserves shifts to the

A) demand, right.
B) demand, left.
C) supply, right.
D) supply, left.

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Question 2

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When a central bank sets a maximum and minimum for its target short term interest rate, it is using the channel system.

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Question 3

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Why does the demand for reserves slope down with respect to the federal funds rate?

Lowering the discount rate always lowers the federal funds rate.

On a graph of the supply and demand for reserves, what would shift the supply curve down?

Which of these policy tools can a central bank use?

Raising the discount rate raises the equilibrium federal funds rate if the demand for reserves intersects the vertical portion of the supply for reserves.

If banks fear a run, the demand for reserves shifts to the left.

To effectively implement the channel system, a central bank must pay interest on reserves.

When the Fed raises the reserve requirement, the _____ of reserves shifts to the

Under the channel system, a shift in the demand for reserves can change the equilibrium overnight rate if that rate is

The demand for reserves slopes down with respect to the federal funds rate, since the Fed tends to make more loans when the federal funds rate is low.

List the unconventional tools a central bank might employ, and tell when they would use them.

Show a graph for supply and demand for reserves where there is discount lending. Show and explain the effect on equilibrium of raising the discount rate.

The part of the Federal Reserve that implements open market operations is

The supply of reserves is horizontal at the equilibrium federal funds rate.

Which of the following is not a program developed by the Fed during the 2008 financial crisis?

The goal of quantitative easing is to _____.

When the Fed raises the discount rate, the _____ of reserves shifts to the

The interest rate used by the ECB that is analogous to the discount rate for the Federal Reserve is the