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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. Open market purchases raise the ________ thereby raising the ________.
2. 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.
3. 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.
4. Suppose on any given day there is an excess supply 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.
5. The discount rate is ________ kept ________ the federal funds rate.
6. When the federal funds rate equals the discount rate
7. The interest rate on secondary credit is set ________ basis points ________ the primary credit rate.
8. The most important advantage of discount policy is that the Fed can use it to
9. The Federal Reserve will engage in a matched sale-purchase transaction when it wants to________ reserves ________ in the banking system.
10. The Fedʹs discount lending is of three types: ________ is the most common category; ________ is given to a limited number of banks in vacation and agricultural areas; ________ is given to banks that have experienced severe liquidity problems.
11. 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.
12. 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.
13. If Treasury deposits at the Fed are predicted to ________, the manager of the trading desk at theNew York Fed bank will likely conduct ________ open market operations to ________ reserves.
14. 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
15. 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.
16. If Treasury deposits at the Fed are predicted to ________, the manager of the trading desk at theNew York Fed bank will likely conduct ________ open market operations to ________ reserves.
17. Everything else held constant, in the market for reserves, when the federal funds rate equals the interest rate paid on excess reserves, raising the interest rate paid on excess reserves
18. Which of the following special lending facilities set up by the Federal Reserve is reserve neutral?
19. When the federal funds rate equals the interest rate paid on excess reserves ________.
20. 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.
21. Open market purchases ________ reserves and the monetary base thereby ________ the money supply.
22. The two types of open market operations are
23. The interest rate on seasonal credit equals
24. The Fed is considering eliminating
25. Everything else held constant, the vertical section of the supply curve of reserves is lengthened when the

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