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Money, Banking, and Financial Markets Practice Test: Tools for Monetary Policy (U.S.)
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The Federal Reserve (Fed) uses three main tools to implement monetary policy in the US: Open market operations: Buying or selling federal government bonds Discount rate: Changing the discount rate, which affects how much banks loan Reserve requirements: Changing reserve requirements  Other tools the Fed uses include: Term Auction Facility: Provides financial institutions with access to Fed dollars to alleviate short-term cash needs Term Securities Lending Facility: Allows institutions to swap out mortgage-backed CDOs in exchange for U.S. Treasuries  The Fed controls the monetary policy... Show more
Money, Banking, and Financial Markets Practice Test: Tools for Monetary Policy (U.S.)
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25 Questions

1. Suppose on any given day the prevailing equilibrium federal funds rate is below the FederalReserveʹs federal funds target rate. If the Federal Reserve wishes for the federal funds rate to be at their target level, then the appropriate action for the Federal Reserve to take is a ________ open market ________, everything else held constant.
2. In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, an increase in the reserve requirement ________ the demand for reserves, ________ the federal funds rate, everything else held constant.
3. The Fed is considering eliminating
4. The Federal Open Market Committee makes the Fedʹs decisions on the purchase or sale of government securities, but these purchases or sales are executed by the Federal Reserve Bank of
5. The Federal Reserve will engage in a repurchase agreement when it wants to ________ reserves________ in the banking system.
6. Everything else held constant, in the market for reserves, when the federal funds rate is 3%, increasing the interest rate paid on excess reserves from 1% to 2%
7. Everything else held constant, in the market for reserves, increases in the discount rate affect the federal funds rate
8. Suppose on any given day the prevailing equilibrium federal funds rate is above the FederalReserveʹs federal funds target rate. If the Federal Reserve wishes for the federal funds rate to be at their target level, then the appropriate action for the Federal Reserve to take is a ________ open market ________, everything else held constant.
9. In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, an increase in the reserve requirement ________ the ________ for reserves and causes the federal funds interest rate to rise, everything else held constant.
10. In the market for reserves, if the federal funds rate is above the interest rate paid on excess reserves, an open market sale ________ the supply of reserves causing the federal funds rate to________, everything else held constant.
11. The most common type of discount lending, ________ credit loans, are intended to help healthy banks with short-term liquidity problems that often result from temporary deposit outflows.
12. If the Fed expects currency holdings to rise, it conducts open market ________ to offset the expected ________ in reserves.
13. In the market for reserves, if the federal funds rate is above the interest rate paid on excess reserves, an open market sale ________ the ________ of reserves, causing the federal funds rate to increase, everything else held constant.
14. When the Federal Reserve engages in a repurchase agreement to offset a withdrawal ofTreasury funds from the Federal Reserve, the open market operation is said to be
15. The two types of open market operations are
16. In the market for reserves, when the federal funds rate is above the interest rate paid on excess reserves, the demand curve for reserves is ________.
17. Much of the credit for prevention of a financial market meltdown after ʺBlack Mondayʺ (October, 1987) must be given to the Federal Reserve System and its chairman
18. If the Fed wants to temporarily inject reserves into the banking system, it will engage in
19. In the market for reserves, if the federal funds rate is above the interest rate paid on excess reserves, then an open market ________ the supply of reserves, raising the federal funds interest rate, everything else held constant.
20. Discount policy affects the money supply by affecting the volume of ________ and the ________.
21. In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, a decline in the reserve requirement ________ the demand of reserves, ________ the federal funds rate, everything else held constant.
22. Everything else held constant, in the market for reserves, when the supply for federal funds intersects the reserve demand curve along the horizontal section, lowering the interest rate paid on excess reserves
23. Suppose on any given day there is an excess demand of reserves in the federal funds market. If the Federal Reserve wishes to keep the federal funds rate at its current level, then the appropriate action for the Federal Reserve to take is a ________ open market ________, everything else held constant.
24. Open market purchases ________ reserves and the monetary base thereby ________ the money supply.
25. When the federal funds rate equals the discount rate

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