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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. The quantity of reserves demanded equals
3. The Federal Reserve will engage in a repurchase agreement when it wants to ________ reserves________ in the banking system.
4. ________ 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.
5. 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.
6. 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 decreases the demand for reserves, ________ the federal funds interest rate, everything else held constant.
7. 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 ________ curve of reserves and causes the federal funds interest rate to fall, everything else held constant.
8. 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
9. 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.
10. 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.
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, when the federal funds rate is above the interest rate paid on excess reserves, the demand curve for reserves is ________.
13. 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.
14. Open market operations intended to offset movements in noncontrollable factors (such as float) that affect reserves and the monetary base are called
15. 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.
16. 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.
17. When the Fed acts as a lender of last resort, the type of lending it provides is
18. 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
19. 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.
20. The actual execution of open market operations is done at
21. When the federal funds rate equals the discount rate
22. The interest rate charged on overnight loans of reserves between banks is the
23. The Federal Reserve usually keeps the discount rate
24. In the market for reserves, when the federal funds interest rate is below the discount rate, the supply curve of reserves is
25. If the Fed expects currency holdings to fall, it conducts open market ________ to offset the expected ________ in reserves.

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