Question 1

Why is it easier for the Fed to manage the level of bank reserves using the term auction facility (TAF) as opposed to using discount window lending?

Accepted Answer

A)  Banks do not need to overcome the stigma of requesting a loan when using the TAF.
B)  Banks receive TAF proceeds on a 3-day delay, rather than on the day they are requested.
C)  Banks that use seasonal credit are more likely to use the term auction facility.
D)  Banks receive TAF proceeds after a lengthy verification process.

Question 2

One of the Federal Reserve's most used tools of monetary policy is the buying and selling of US government securities in the secondary market.

Accepted Answer

A) True 
 B)False

Question 3

In order to overcome the stigma that might come from borrowing from the Federal Reserve following the 2007 financial crisis, the Federal Reserve first created

Accepted Answer

A)  the discount window.
B)  quantitative easing.
C)  the Federal Open Market Committee (FOM
C)  .
D)  the term auction facility (TAF) .

Question 4

When the Federal Reserve increases the required reserve ratio, the impact will be to

Accepted Answer

A)  increase the size of the spending multiplier.
B)  decrease the size of the spending multiplier.
C)  increase the size of the money multiplier.
D)  decrease the size of the money multiplier.

Question 5

What is the purpose of the term auction facility (TAF)?

Accepted Answer

The term auction facility (TAF), created...

Question 6

When the Federal Reserve buys US Treasury securities on the open market, it is attempting to

Accepted Answer

A)  lower interest rates.
B)  raise interest rates.
C)  reduce inflation.
D)  slow economic growth.

Question 7

If the goal of monetary policy is to keep interest rates stable, the Federal Reserve's response to increases in the demand for money will be to

Accepted Answer

A)  decrease the supply of money.
B)  increase the supply of money.
C)  hold the supply of money constant.
D)  decrease the demand for money.

Question 8

Times of financial uncertainty tend to cause an increase in the overall demand for money.

Accepted Answer

A) True 
 B)False

Question 9

The Federal Reserve notices an increase in the public's desire to hold cash and fears that it may cause an increase in interest rates. To keep interest rates steady, the Federal Reserve would likely execute which of these plans?

Accepted Answer

A)  A repurchase agreement to provide a short-term reduction in the money supply
B)  A reverse repurchase agreement to provide a short-term reduction in the money supply
C)  A repurchase agreement to provide a short-term boost to the money supply
D)  A matched-sale purchase agreement to provide a short-term boost to the money supply

Question 10

Which of these statements best describes why the required reserve ratio is no longer relevant in most cases today?

Accepted Answer

A)  Sweep accounts eliminated the need for the required reserve ratio.
B)  Changes in the required reserve ratio can affect the size of the money multiplier.
C)  About 70% of banks already have reserves that exceed their level of required reserves.
D)  The required reserve ratio rarely had a positive effect in most situations. C

Question 11

In the figure below, the loanable funds market is in equilibrium at C with the interest rate IR 1 . In conducting monetary policy, the Federal Reserve engages in the selling of US Treasury securities on the open market, which causes
1 . In conducting monetary policy, the Federal Reserve engages in the selling of US Treasury securities on the open market, which causes   A) no change in the loanable funds market, so the equilibrium interest rate remains at IR1. B) the demand for loanable funds to decrease to D, causing the equilibrium interest rate to decrease to IR3. C) both the demand for loanable funds and the supply of loanable funds to decrease to D and S, respectively, keeping the equilibrium interest rate at IR1. D) the supply of loanable funds to decrease to S, causing the equilibrium interest rate to increase to IR2." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)  no change in the loanable funds market, so the equilibrium interest rate remains at IR1.
B)  the demand for loanable funds to decrease to D, causing the equilibrium interest rate to decrease to IR3.
C)  both the demand for loanable funds and the supply of loanable funds to decrease to D and S, respectively, keeping the equilibrium interest rate at IR1.
D)  the supply of loanable funds to decrease to S, causing the equilibrium interest rate to increase to IR2.

Question 12

A financially healthy bank borrowing overnight from the Federal Reserve is known as

Accepted Answer

A)  seasonal credit.
B)  secondary credit.
C)  primary credit.
D)  discount window borrowing.

Question 13

Banks that have some financial difficulty and borrow from the Federal Reserve in what is known as secondary credit will pay an interest rate equal to the

Accepted Answer

A)  discount rate.
B)  discount rate plus a penalty.
C)  federal funds rate.
D)  federal funds rate plus a penalty.

Question 14

When a negative shock to the economy becomes more intense due to worsening financial market conditions, it's known as a negative shock accelerator.

Accepted Answer

A) True 
 B)False  False

Question 15

Which of these is the most often used and the most flexible monetary tool used by the Federal Reserve?

Accepted Answer

A)  Discount window lending
B)  Dynamic transactions
C)  Open market operations
D)  Quantitative easing C

Question 16

One emergency lending procedure put into place in 2008 was the creation of the Term Securities Lending Facility. This entity was set up to

Accepted Answer

A)  lend up to $50 billion of Treasury securities to primary securities dealers for a fee.
B)  lend up to $200 billion of Treasury securities to primary securities dealers for a fee.
C)  lend funding to the Money Market Investor Funding Facility
D)  lend funding to any commercial bank that needed it.

Question 17

Government deficits can complicate monetary policy because government borrowing can lead to

Accepted Answer

A)  "crowding out," which leads to lower interest rates.
B)  "crowding out," which leads to higher interest rates.
C)  "crowding in," which leads to lower interest rates.
D)  "crowding in," which leads to higher interest rates.

Question 18

Three rounds of extraordinary expansionary monetary policy (QE1, QE2, and QE3) were undertaken by the Fed beginning in November 2008 and ending when?

Accepted Answer

A)  November 2009
B)  2011
C)  2014
D)  2017

Question 19

Alistair tells a friend that he likes to deposit his entire paycheck into his checking account just in case prices fall. This is an example of the __________ demand for money.

Accepted Answer

A)  inflationary
B)  transactions
C)  speculative
D)  precautionary

Question 20

Open market operations in which the European Central Bank specifies an interest rate at which it will lend and then participating banks submit bids on the amount of money they wish to borrow at that rate are known as __________ tenders.

Accepted Answer

A)  fixed-rate reverse
B)  fixed-rate standard
C)  variable-rate standard
D)  variable-rate reverse

Exam 9: Monetary Policy Tools

Why is it easier for the Fed to manage the level of bank reserves using the term auction facility (TAF) as opposed to using discount window lending?

Correct AnswerverifiedShow Answer

One of the Federal Reserve's most used tools of monetary policy is the buying and selling of US government securities in the secondary market.

Correct AnswerverifiedShow Answer

In order to overcome the stigma that might come from borrowing from the Federal Reserve following the 2007 financial crisis, the Federal Reserve first created

Correct AnswerverifiedShow Answer

When the Federal Reserve increases the required reserve ratio, the impact will be to

Correct AnswerverifiedShow Answer

What is the purpose of the term auction facility (TAF)?

Correct AnswerverifiedThe term auction facility (TAF), created...View AnswerShow Answer

When the Federal Reserve buys US Treasury securities on the open market, it is attempting to

Correct AnswerverifiedShow Answer

If the goal of monetary policy is to keep interest rates stable, the Federal Reserve's response to increases in the demand for money will be to

Correct AnswerverifiedShow Answer

Times of financial uncertainty tend to cause an increase in the overall demand for money.

Correct AnswerverifiedShow Answer

The Federal Reserve notices an increase in the public's desire to hold cash and fears that it may cause an increase in interest rates. To keep interest rates steady, the Federal Reserve would likely execute which of these plans?

Correct AnswerverifiedShow Answer

Which of these statements best describes why the required reserve ratio is no longer relevant in most cases today?

Correct AnswerverifiedC

In the figure below, the loanable funds market is in equilibrium at C with the interest rate IR 1 . In conducting monetary policy, the Federal Reserve engages in the selling of US Treasury securities on the open market, which causes

Correct AnswerverifiedShow Answer

A financially healthy bank borrowing overnight from the Federal Reserve is known as

Correct AnswerverifiedShow Answer

Banks that have some financial difficulty and borrow from the Federal Reserve in what is known as secondary credit will pay an interest rate equal to the

Correct AnswerverifiedShow Answer

When a negative shock to the economy becomes more intense due to worsening financial market conditions, it's known as a negative shock accelerator.

Correct AnswerverifiedFalse

Which of these is the most often used and the most flexible monetary tool used by the Federal Reserve?

Correct AnswerverifiedC

One emergency lending procedure put into place in 2008 was the creation of the Term Securities Lending Facility. This entity was set up to

Correct AnswerverifiedShow Answer

Government deficits can complicate monetary policy because government borrowing can lead to

Correct AnswerverifiedShow Answer

Three rounds of extraordinary expansionary monetary policy (QE1, QE2, and QE3) were undertaken by the Fed beginning in November 2008 and ending when?

Correct AnswerverifiedShow Answer

Alistair tells a friend that he likes to deposit his entire paycheck into his checking account just in case prices fall. This is an example of the __________ demand for money.

Correct AnswerverifiedShow Answer

Open market operations in which the European Central Bank specifies an interest rate at which it will lend and then participating banks submit bids on the amount of money they wish to borrow at that rate are known as __________ tenders.

Correct AnswerverifiedShow Answer

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The term auction facility (TAF), created...
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C

In the figure below, the loanable funds market is in equilibrium at C with the interest rate IR ₁ . In conducting monetary policy, the Federal Reserve engages in the selling of US Treasury securities on the open market, which causes

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False

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C

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