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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. In the market for reserves, if the federal funds rate is above the interest rate paid on excess reserves, an open market purchase ________ the ________ of reserves which causes the federal funds rate to fall, everything else held constant.
2. 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
3. If the Fed expects currency holdings to fall, it conducts open market ________ to offset the expected ________ in reserves.
4. 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.
5. 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.
6. The discount rate is ________ kept ________ the federal funds rate.
7. When the European System of Central Banks uses main refinancing operations, it is similar to the Federal Reserve using
8. Since 1980, ________ are subject to reserve requirements.
9. 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, raising the federal funds interest rate, everything else held constant.
10. Everything else held constant, in the market for reserves, increases in the discount rate affect the federal funds rate
11. When the federal funds rate equals the discount rate
12. 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.
13. The Fed is considering eliminating
14. The Federal Reserve usually keeps the discount rate
15. The actual execution of open market operations is done at
16. Discount policy affects the money supply by affecting the volume of ________ and the ________.
17. When the Fed acts as a lender of last resort, the type of lending it provides is
18. 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.
19. Everything else held constant, in the market for reserves, when the federal funds rate is 3%, lowering the interest rate paid on excess reserves rate from 2% to 1%
20. Open market purchases raise the ________ thereby raising 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, an increase in the reserve requirement ________ the ________ for reserves and causes the federal funds interest rate to rise, everything else held constant.
22. 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.
23. The interest rate on secondary credit is set ________ basis points ________ the primary credit rate.
24. At its inception, the Federal Reserve was intended to be
25. 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.

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