Question 1

U.S.Treasury deposits at the Federal Reserve Banks are

Accepted Answer

A)  a liability of the Federal Reserve Banks and the U.S.Treasury.
B)  an asset of the Federal Reserve Banks and the U.S.Treasury.
C)  a liability of the Federal Reserve Banks and an asset for the U.S.Treasury.D) A) and B)
E) A) and C)

Question 2

On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes, respectively, the transactions demand for money can be represented by

Accepted Answer

A)  a line parallel to the horizontal axis.
B)  a vertical line.
C)  a downsloping line or curve from left to right.
D)  an upsloping line or curve from left to right.E) C) and D)
F) A) and B)

Question 3

When the Fed pays interest on excess reserves held at Fed banks, the interest rate used is the discount rate.

Accepted Answer

A) True 
 B)False

Question 4

The largest liability item in the Federal Reserve Banks' consolidated balance sheet (as illustrated in the book, for April 2016)  is

Accepted Answer

A)  Treasury deposits.
B)  Federal Reserve notes.
C)  reserves of commercial banks.
D)  loans to commercial banks.E) C) and D)
F) B) and D)

Question 5

Which of the following is not a tool of monetary policy?

Accepted Answer

A)  open-market operations
B)  changes in banking laws
C)  changes in the rate of interest paid on reserves held at Federal Reserve Banks
D)  Fed lending or borrowing with repos or reverse reposE) A) and B)
F) A) and C)

Question 6

Collateralized loans

Accepted Answer

A)  are only made by Federal Reserve banks.
B)  are less secure than uncollateralized loans.
C)  have higher interest rates than uncollateralized loans.
D)  have lower interest rates than uncollateralized loans.E) None of the above
F) C) and D)

Question 7

Answer the question on the basis of the following information for a bond having no expiration date: bond price = $1,000; bond fixed annual interest payment = $100; bond annual interest rate = 10 percent.If the price of this bond falls by $200, the interest rate will

Accepted Answer

A)  rise by 2.5 percentage points.
B)  rise by 5 percentage points.
C)  fall by 2.5 percentage points.
D)  fall by 5 percentage points.E) None of the above
F) B) and D)

Question 8

In the United States, monetary policy is the responsibility of the

Accepted Answer

A)  U.S.Treasury.
B)  Department of Commerce.
C)  Board of Governors of the Federal Reserve System.
D)  U.S.Congress.E) B) and C)
F) A) and C)

Question 9

Assume that U.S.National Bank has no excess reserves and that the reserve ratio is 20 percent.If U.S.National borrows $5 million from a Federal Reserve Bank through a repo transaction, it can expand its loans by a maximum of

Accepted Answer

A)  $5 million.
B)  $1 million.
C)  $25 million.D) A) and C)
E) None of the above

Question 10

If consumers and businesses are especially pessimistic, as in the Great Recession of 2007-2009, and do not want to borrow money from banks, then the use of an expansionary money policy is likened to

Accepted Answer

A)  completing the circle.
B)  pushing on a string.
C)  filling in the blanks.
D)  checking the list.E) All of the above
F) C) and D)

Question 11

The four main tools of monetary policy are

Accepted Answer

A)  tax-rate changes, the discount rate, open-market operations, and the federal funds rate.
B)  tax-rate changes, changes in government expenditures, open-market operations, and interest on excess reserves.
C)  the discount rate, the reserve ratio, interest on excess reserves, and open-market operations.
D)  changes in government expenditures, the reserve ratio, the federal funds rate, and the discount rate.E) B) and C)
F) None of the above

Question 12

The Federal Reserve Banks sell government securities to the public.As a result, the checkable deposits

Accepted Answer

A)  of commercial banks are unchanged, but their reserves increase.
B)  and reserves of commercial banks both decrease.
C)  of commercial banks are unchanged, but their reserves decrease.
D)  and reserves of commercial banks are both unchanged.E) A) and B)
F) None of the above

Question 13

(Consider This)  Repo transactions involve , while reverse repo transactions

Accepted Answer

A)  an overnight collateralized loan from a bank to the Fed; involve the bank borrowing from the Fed.
B)  an overnight collateralized loan from the Fed to a bank; involve the Fed borrowing from the bank.
C)  monetary expansion; constitute restrictive monetary policy.
D)  banks foreclosing on delinquent mortgages; involve the Fed buying the real properties from the bank.E) B) and D)
F) A) and D)

Question 14

Which statement best reflects the Fed's approach to expansionary monetary policy before the mortgage debt crisis?

Accepted Answer

A)  The Fed would announce a lower target for the federal funds rate, then increase the supply of reserves through a balanced combination of the monetary policy tools.
B)  The Fed would quietly begin using open-market operations to increase the supply of reserves, with secrecy critical to not alarming securities markets.
C)  The Fed would announce a lower target for the federal funds rate, then rely primarily on open-market operations to increase the supply of reserves.
D)  The Fed would itself lower the federal funds rate and then use a varied combination of monetary policy tools to increase the supply of reserves.E) All of the above
F) A) and C)

Question 15

When the Fed undertakes reverse repo transactions with financial institutions, it is trying to

Accepted Answer

A)  increase the money supply.
B)  reduce the money supply.
C)  increase the federal budget deficit.
D)  reduce the federal budget deficit.E) None of the above
F) B) and D)

Question 16

Other things equal, which of the following would increase the federal funds rate?

Accepted Answer

A)  a decrease in loan demand in the federal funds market
B)  a decrease in the reserve ratio
C)  Fed purchases of government securities from banks
D)  a decline in excess reserves in the banking systemE) C) and D)
F) B) and C)

Question 17

When the required reserve ratio is decreased, the excess reserves of member banks are

Accepted Answer

A)  reduced, but the multiple by which the commercial banking system can lend is unaffected.
B)  reduced and the multiple by which the commercial banking system can lend is increased.
C)  increased and the multiple by which the commercial banking system can lend is increased.
D)  increased and the multiple by which the commercial banking system can lend is reduced.E) A) and B)
F) None of the above

Question 18

The Fed increases interest rates mainly by selling government securities.

Accepted Answer

A) True 
 B)False

Question 19

There is an asset demand for money because households and business firms use money as a store of value.

Accepted Answer

A) True 
 B)False

Question 20

The zero interest rate policy (ZIRP) presented a policy problem when the economy remained weak, and that problem is known as the zero bound problem.

Accepted Answer

A) True 
 B)False

Exam 36: Interest Rates and Monetary Policy

The zero interest rate policy (ZIRP) presented a policy problem when the economy remained weak, and that problem is known as the zero bound problem.

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The four main tools of monetary policy are

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Collateralized loans

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The Federal Reserve Banks sell government securities to the public.As a result, the checkable deposits

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U.S.Treasury deposits at the Federal Reserve Banks are

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When the required reserve ratio is decreased, the excess reserves of member banks are

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On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes, respectively, the transactions demand for money can be represented by

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Assume that U.S.National Bank has no excess reserves and that the reserve ratio is 20 percent.If U.S.National borrows $5 million from a Federal Reserve Bank through a repo transaction, it can expand its loans by a maximum of

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Which statement best reflects the Fed's approach to expansionary monetary policy before the mortgage debt crisis?

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When the Fed undertakes reverse repo transactions with financial institutions, it is trying to

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When the Fed pays interest on excess reserves held at Fed banks, the interest rate used is the discount rate.

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The Fed increases interest rates mainly by selling government securities.

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If consumers and businesses are especially pessimistic, as in the Great Recession of 2007-2009, and do not want to borrow money from banks, then the use of an expansionary money policy is likened to

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Which of the following is not a tool of monetary policy?

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Other things equal, which of the following would increase the federal funds rate?

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There is an asset demand for money because households and business firms use money as a store of value.

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The largest liability item in the Federal Reserve Banks' consolidated balance sheet (as illustrated in the book, for April 2016) is

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Answer the question on the basis of the following information for a bond having no expiration date: bond price = $1,000; bond fixed annual interest payment = $100; bond annual interest rate = 10 percent.If the price of this bond falls by $200, the interest rate will

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In the United States, monetary policy is the responsibility of the

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(Consider This) Repo transactions involve , while reverse repo transactions

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