Chapter 16 HW Qs – Flashcards
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It is costly to hold money because:
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in doing so, one sacrifices interest income
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Which of the following statements is correct?
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Interest rates and bond prices vary inversely
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Federal Reserve Notes in circulation are:
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a liability as viewed by the FRBs
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When a commercial bank borrows from a FRB:
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the commercial bank's lending ability is increased
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The FRBs sell government securities to teh public. As a result, the checkable deposits:
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and reserves of commercial banks both decrease
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In the United States, monetary policy is the responsibility of the:
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Board of Governors of the Federal Reserve System
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The four main tools of the monetary policy are:
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the discount rate, the reserve ratio, interest on reserves, and open-market operations
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Open-market operations refer to:
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the purchase or sale of government securities by the Fed
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Suppose the FRBs sell $2 billion of government bonds to the public, which pays for them by drawing checks. As a result, commercial bank reserves will:
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decrease by $2 billion
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An increase in the legal reserve ratio:
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decreases the money supply by decreasing excess reserves and decreasing the monetary multiplier
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A decrease in the reserve ratio increases the:
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amount of excess reserves in the banking system
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Which of the monetary policy tools can alter both the level of excess reserves and the money multiplier?
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the reserve ratio
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The interest rate at which the FRBs lend to commercial banks is called the:
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discount rate
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Which of the following tools of monetary policy is flexible and able to affect reserves quickly and by relatively specific amounts?
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open-market operations
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Which of the following monetary policy tools was introduced in 2008?
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interest on reserves held at the Fed
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Interest paid on reserves held at the Fed:
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incentivizes financial institutions to hold more reserves and reduce risky lending
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Beginning in 2008, the Fed was allowed to:
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pay interest on reserves deposited at Fed banks
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The interest rate that banks charge one another on overnight loans is called the:
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federal funds rate
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Which of the following statements is true?
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The Federal Reserve does not set the federal funds rate, but it influences it through the use of it open-market operations
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A federal funds rate reduction that is caused by monetary policy will:
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decrease the prime interest rate
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To reduce the federal funds rate, the Fed can:
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buy government bonds from the public
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If the Fed wants to lower the federal funds rate, it should:
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buy government securities in the open market
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The benchmark interest rate that banks use as a reference point for a variety of consumer and business loans is the:
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prime interest rate
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According to the Taylor rule:
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if inflation rises by 1 percentage point above its target, then the Fed should raise the real federal funds rate by one-half a percentage point
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If the Fed were to set policy according to the Taylor rule, then if real GDP falls by 2 percent below potential GDP, the Fed should:
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reduce the real federal funds rate by 1 percentage point
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If the Federal Reserve authorities were attempting to reduce demand-pull inflation, the proper policies would be to:
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sell government securities, raise reserve requirements, raise the discount rate, and increase the interest paid on reserves held at the Fed banks
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A contraction on the money supply:
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increases interest rate and decreases aggregate demand
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Monetary policy is expected to have its greatest impact on:
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Ig
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Which of the following actions by the Fed would cause the money supply to increase?
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Purchases of government bonds from banks
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Which of the following best describes the cause-effect chain of a restrictive monetary policy?
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A decrease in the moneys supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP
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The purpose of an expansionary monetary policy is to shift the:
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aggregate demand curve leftward
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All else equal, when the Federal Reserve Banks engage in an expansionary monetary policy, the interest rates received on government bonds usually:
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fall
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The price of government bonds and the interest rate received by a bond buyer are:
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inversely related
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A restricted monetary policy is designed to shift the:
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aggregate demand curve leftward
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As part of its zero interest rate policy (ZIRP), the Federal Reserve:
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used open-market operations to keep the federal funds rate between zero and 0.25 percent
