Chapter 17 Tools of Monetary Policy
5) Open market purchases raise the _____ thereby raising the _____.
A) money multiplier; money supply B) money multiplier; monetary base
C) monetary base; money supply D) money base; money multiplier
Answer: C
10) Open market sales _____ reserves and the monetary base thereby _____ the _____.
A) lower; lowering; money supply
B) raise; raising; money supply
C) lower; lowering; money multiplier
D) raise; raising; money multiplier
E) lower; raising; money multiplier
Answer: A
15) The Fed's most commonly used means of changing the money supply is
A) changing reserve requirements.
B) changing the discount rate.
C) open market operations.
D) changes in the Regulation Q ceiling rate.
Answer: C
20) If the Fed wants to temporarily drain reserves from the banking system, it will engage in
A) a repurchase agreement. B) a matched sale-purchase transaction.
C) a "pump" agreement. D) none of the above.
Answer: B
25) When bad storms slow the check-clearing process, float tends to _____ causing the Fed to initiate defensive open market _____.
A) decrease; sales B) decrease; purchases
C) increase; sales D) increase; purchases
Answer: C
30) If either Treasury deposits or foreign deposits at the Fed are predicted to temporarily rise, then a _____ open market _____ would be needed to offset the expected decrease in reserves and the monetary base.
Answer: B
35) The most common type of discount loan, _____ credit loans, are intended to help banks with short-term liquidity problems that often result from temporary deposit outflows.
A) extended B) adjustment C) temporary D) seasonal
Answer: B
40) Discount policy affects the money supply by affecting the volume of _____ and the _____.
A) excess reserves; monetary base B) discount loans; monetary base
C) excess reserves; money multiplier D) discount loans; money multiplier
Answer: B
45) Which of the following is an advantage of a penalty discount rate?
A) A penalty discount rate would eliminate announcement effect uncertainty.
B) Banks would no longer borrow from the Fed to make a profit.
C) Fluctuations in reserves and the monetary base would be reduced relative to the current administered rate policy.
D) Each of the above.
E) Only (a) and (b) of the above.
Answer: D
50) A decrease in _____ increases the money supply since it causes the _____ to rise.
A) reserve requirements; monetary base
B) reserve requirements; money multiplier
C) margin requirements; monetary base
D) margin requirements; money multiplier
Answer: B
55) Under 100 percent reserve banking, the money multiplier is
A) 100 B) 10 C) 1. D) 0.
Answer: C
60) There are two types of open market operations: _____ open market operations are intended to change the level of reserves and the monetary base, and _____ open market operations are intended to offset movements in other factors that affect the monetary base.
A) defensive; dynamic B) defensive; static
C) dynamic; defensive D) dynamic; static
Answer: C
65) If float is predicted to _____ because of good weather, the manager of the trading desk at the New York Fed bank will likely conduct _____ open market operations to _____ reserves.
A) decrease; defensive; inject B) increase; defensive; drain
C) decrease; dynamic; inject D) increase; dynamic; drain
Answer: A
70) If either Treasury deposits or foreign deposits at the Fed are predicted to fall, a _____ open market _____ would be needed to offset the expected increase in reserves and the monetary base.
A) dynamic; purchase B) dynamic; sale
C) defensive; purchase D) defensive; sale
Answer: D
75) Open market operations as a monetary policy tool have the advantages that
A) they are flexible and precise.
B) they are easily reversed if mistakes are made.
C) they can be implemented quickly without administrative delays.
D) all of the above.
E) only (a) and (b) of the above.
Answer: D
80) Extended credit
A) can not be obtained with a telephone call.
B) is expected to be repaid fairly quickly.
C) is the most common type of discount loan.
D) is all of the above.
Answer: A
85) Discount policy
A) can be used to signal the Fed's intentions about future monetary policy.
B) can be important in preventing financial panics.
C) is the Fed's preferred method for changing the level of reserves in the banking system.
D) all of the above.
E) only (a) and (b) of the above.
Answer: E
90) Disadvantages of discount policy include
A) the confusion concerning the Fed's intentions about future monetary policy because of the uncertainty about what a change in the discount rate is intended to signal.
B) large fluctuations in the money multiplier from even small changes in the discount rate.
C) its powerful effect, when compared to open market operations, on reserves and the monetary base.
D) only (a) and (b) of the above.
Answer: A
95) The main advantage of using reserve requirements to control the money supply and interest rates is
A) that they affect all banks equally and have a powerful effect on the money supply.
B) that they eliminate the need for the Fed to use dynamic open market operations.
C) that raising them can reduce liquidity problems for banks with low excess reserves.
D) none of the above.
Answer: A
100) The Fed is reluctant to use reserve requirements to control the money supply and interest rates because
A) the have the potential to create lending problems for banks with high excess reserves.
B) frequent changes in reserve requirements complicate liquidity management for banks.
C) of their weak impact on the money supply.
D) of only (a) and (b) of the above.
Answer: B
105) In the market for reserves, an open market _____ shifts the supply curve to the left, _____ the
federal funds interest rate.A) sale; lowering
B) sale; raising
C) purchase; lowering
D) purchase; raising
Answer: B
Answer: D
115) In the market for reserves, a lower discount rate shifts the supply curve to the
Answer: B
120) In the market for reserves, a higher discount rate shifts the supply curve to the
Answer: D
125) In the market for reserves, a higher discount rate shifts the supply curve to the _____ and causes the federal funds interest rate to _____.
Answer: D
130) In the market for reserves, a _____ in the reserve requirement shifts the demand curve to the right, _____ the federal funds interest rate.
Answer: D
135) In the market for reserves, an increase in the reserve requirement shifts the _____ curve to the _____ and causes the federal funds interest rate to rise.
Answer: B
140) Open market purchases _____ reserves and thereby _____ the _____.
Answer: B
145) Open market sales _____ the _____ thereby _____ the money supply.
Answer: C