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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. The actual execution of open market operations is done at
2. The policy tool of changing reserve requirements is
3. When good weather speeds the check-clearing process, float tends to ________ causing the Fed to initiate defensive open market ________.
4. The Fed is considering eliminating
5. Everything else held constant, in the market for reserves, when the demand for federal funds intersects the reserve supply curve on the vertical section, increasing the discount rate
6. ________ are the most important monetary policy tool because they are the primary determinant of changes in the ________, the main source of fluctuations in the money supply.
7. The primary indicator of the Fedʹs stance on monetary policy is
8. 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 of reserves and causes the federal funds interest rate to ________, everything else held constant.
9. The Fed uses three policy tools to manipulate the money supply: ________, which affect reserves and the monetary base; changes in ________, which affect the monetary base; and changes in________, which affect the money multiplier.
10. When the Fed acts as a lender of last resort, the type of lending it provides is
11. If Treasury deposits at the Fed are predicted to increase, the manager of the trading desk at theNew York Fed bank will likely conduct ________ open market operations to ________ reserves.
12. A decrease in ________ increases the money supply since it causes the ________ to rise.
13. The interest rate for primary credit is usually set ________ basis points ________ the federal funds rate. In March 2008, this gap was changed to ________ basis points.
14. When good weather speeds the check-clearing process, float tends to ________ causing the Fed to initiate ________ open market ________.
15. 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.
16. If the Fed wants to temporarily inject reserves into the banking system, it will engage in
17. The opportunity cost of holding excess reserves is the federal funds rate ________.
18. 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
19. In the market for reserves, if the federal funds rate is above the interest rate paid on excess reserves, an open market purchase ________ the supply of reserves and causes the federal funds interest rate to ________, everything else held constant.
20. In the market for reserves, when the federal funds interest rate is below the discount rate, the supply curve of reserves is
21. 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.
22. The Federal Reserve will engage in a matched sale-purchase transaction when it wants to________ reserves ________ in the banking system.
23. In the market for reserves, a lower discount rate
24. When bad storms slow the check-clearing process, float tends to ________ causing the Fed to initiate defensive open market ________.
25. Open market purchases ________ reserves and the monetary base thereby ________ the money supply.

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