Home > Consumer Behavior 101 > Quizzes > Money, Banking, and Financial Markets Practice Test: Tools for Monetary Policy (U.S.)
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. If float is predicted to decrease because of unseasonably good weather, the manager of the trading desk at the Federal Reserve Bank of New York will likely conduct a ________ open market ________ of securities.
2. When bad storms slow the check-clearing process, float tends to ________ causing the Fed to initiate ________ open market ________.
3. A financial panic was averted in October 1987 following ʺBlack Mondayʺ when the Fed announced that
4. In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, a ________ in the reserve requirement ________ the demand for reserves, lowering the federal funds interest rate, everything else held constant.
5. The Federal Reserve will engage in a matched sale-purchase transaction when it wants to________ reserves ________ in the banking system.
6. Everything else held constant, the vertical section of the supply curve of reserves is shortened when the
7. 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.
8. 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
9. The opportunity cost of holding excess reserves is the federal funds rate ________.
10. The most common type of discount lending that the Fed extends to banks is called
11. Open market operations intended to offset movements in noncontrollable factors (such as float) that affect reserves and the monetary base are called
12. 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.
13. The Fed uses three policy tools to manipulate the money supply: open market operations, which affect the ________; changes in borrowed reserves, which affect the ________; and changes in reserve requirements, which affect the ________.
14. The discount rate is ________ kept ________ the federal funds rate.
15. The quantity of reserves demanded equals
16. 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
17. If the Fed wants to temporarily inject reserves into the banking system, it will engage in
18. If Treasury deposits at the Fed are predicted to fall, the manager of the trading desk at the New York Fed bank will likely conduct ________ open market operations to ________ reserves.
19. Everything else held constant, in the market for reserves, when the federal funds rate is 3%, raising the discount rate from 5% to 6%
20. 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 ________.
21. 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.
22. 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.
23. 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.
24. The most important advantage of discount policy is that the Fed can use it to
25. The quantity of reserves supplied equals

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