Deck 25: Policy Implementation

Question 1

The Fed's System Open Market Account (SOMA) contains the Fed's dollar denominated assets acquired through

A)open market operations.
B)purchases from the Fedwire.
C)the Exchange Stabilization Fund.
D)Taxing operations.

Answer 1

A

Question 2

The Fed's ____________ contains the Fed's dollar denominated assets acquired through open market operations.

A)System Open Market Account (SOMA)
B)Fedwire
C)the Exchange Stabilization Fund (ESF)
D)Discount window

Answer 2

A

Question 3

_________________are 18 large banks and securities firms that deal directly with the Fed.

A)Bank holding companies
B)Primary dealers
C)The "big-18"
D)Financial holding companies

Answer 3

B

Question 4

Primary dealers are_____________ that deal directly with the Fed.

A)5 large insurance companies
B)18 large banks and securities firms
C)the 12 regional Federal Reserve banks
D)both a and c are correct.

Question 5

The ____________________ is a statement issued by the FOMC to the New York Fed that directs the stance of monetary policy until the next FOMC meeting.

A)Monetary Policy Report
B)policy directive
C)long term policy stance
D)the short run strategy

Question 6

The policy directive is a statement issued by the ______ to the New York Fed that directs the stance of monetary policy until the next _____ meeting.

A)FOMC, FOMC
B)IMF, World Bank
C)World Bank, IMF
D)U.S. Treasury, FDIC

Question 7

The FOMC issues a statement that indicates the risks are weighted mainly towards conditions that may generate heightened inflationary pressures. This means

A)the Fed is more worried about unemployment than inflation in the near future.
B)the Fed is more worried about inflation than unemployment in the near future.
C)the Fed is worried about both unemployment and inflation.
D)the Fed is worried about the potential security of the economy.

Question 8

Which of the following is false?

A)Retail sweep accounts "sweep" balances out of transactions accounts that are subject to reserve requirements and into other accounts that are not.
B)Retail sweep accounts have experienced enormous growth since they were introduced in 1994.
C)Because of retail sweep accounts, required reserves have fallen significantly.
D)The decline in required reserves due to retail sweep accounts gives the Fed more precise control over the fed funds rate and the implementation of monetary policy.

Question 9

Which of the following is true?

A)If the fed funds rate rises above the targeted rate, the Trading Desk should increase the amount of reserves available to depository institutions to bring the rate back to the targeted level.
B)Retail sweep accounts have jeopardized the implementation of monetary policy because required reserves have fallen to very low levels.
C)The funds available for required reserves have increased significantly in recent years due to the growth of retail sweep accounts.
D)All of the above are correct.

Question 10

_______________ is a system of reserve accounting in which the maintenance period more or less corresponds to the computation period.

A)Computation period accounting
B)Double-entry accounting
C)Lagged reserve accounting
D)Contemporaneous reserve accounting

Question 11

Contemporaneous reserve accounting is a system of reserve accounting in which the maintenance period more or less corresponds to the _______ period.

A)computation
B)inflation
C)reserve
D)lagged

Question 12

_______________ is a system of reserve accounting in which the maintenance period occurs after the computation period is over.

A)Maintenance period accounting
B)Double-entry accounting
C)Lagged reserve accounting
D)Contemporaneous reserve accounting

Question 13

A repurchase agreement used to supply reserves on a temporary basis is called a

A)discount loan.
B)special drawing right.
C)system repurchase agreement.
D)policy directive.

Question 14

Under the __________________________, the Fed auctions government securities to primary dealers for 28 days or longer in exchange for less liquid and less credit-worthy securities.

A)Money Market Investor Funding Facility (MMIFF)
B)Commercial Paper Funding Facility (CPFF)
C)Term Securities Lending Facility (TSLF)
D)Temporary Auction Facility (TAF)

Question 15

In general, the Trading Desk manager uses ___________ when he wants to provide or absorb reserves over relatively long time spans.

A)the discount window
B)outright transactions
C)the Exchange Stabilization Fund
D)All of the above

Question 16

Which of the following is most likely to occur if the quantity demanded of reserves is greater than the quantity supplied of reserves?

A)The fed funds rate will fall.
B)The fed funds rate will rise.
C)Discount borrowing will decrease.
D)Both the fed funds rate will rise and discount borrowing will decrease.

Question 17

The Trading Desk has determined that a positive reserve need exists but expects the need to be temporary. What can the manager do to temporarily increase the amount of reserves in the system?

A)engage in open market outright purchases
B)engage in open market outright sales
C)engage in a system repurchase agreement
D)engage in a reverse repurchase agreement

Question 18

What kind of Fed activity is likely to be evident when the Fed desires to drain reserves out of the banking system and underscore a policy move toward restraint?

A)No Fed buying or selling is likely to occur.
B)The Fed is likely to use reverse repurchase agreements.
C)The Fed is likely to engage in system repurchase agreements.
D)The Fed is likely to engage in outright sales.

Question 19

What kind of Fed activity is likely to be evident when a reserve drain is required, but the Fed does not want to signal a policy move toward restraint?

A)No Fed buying or selling is likely to occur.
B)The Fed is likely to engage in reverse repurchase agreements.
C)The Fed is likely to engage in system repurchase agreements.
D)The Fed is likely to engage in outright sales.

Question 20

Which of the following is true?

A)Primary dealers can now borrow overnight from the Fed.
B)The Fed auctions government securities to primary dealers for a 28-day or long period in exchange for less liquid and less credit-worth securities.
C)The Commercial Paper Funding Facility (CPFF) supports the commercial paper market by purchasing commercial paper.
D)All of the above are true.

Question 21

A statement that accurately reflects Fed behavior in recent years is which of the following?

A)The Fed has become much more open in recent years.
B)The Fed prefers to operate in secrecy so that it can execute its policies before they are made public.
C)The Fed continues it long-term policies of secrecy.
D)The Fed is much more open with Congress now but not with the public.

Question 22

Equilibrium in the market for reserves means which of the following?

A)The quantity demanded exceeds the quantity supplied by a large consistent amount.
B)The quantity supplied exceeds the quantity demanded by only a small consistent amount.
C)The quantity demanded equals the quantity supplied.
D)The fed funds rate equals the fed fund rate target set by the FOMC.

Question 23

Ceteris paribus, if the quantity demanded of reserves exceeds the quantity supplied of reserves, the Fed funds rates will

A)decrease.
B)remain the same.
C)increase.
D)decrease significantly.

Question 24

Ceteris paribus, if the quantity demanded of reserves is less than the quantity supplied of reserves, the fed funds rates will

A)decrease.
B)remain the same.
C)increase.
D)increase dramatically

Question 25

Which of the following statements is false?

A)The demand for reserve balances has decreased significantly in recent years due to the growth of retail sweep accounts.
B)The FOMC releases a statement following every meeting announcing any shifts in its view of upcoming economic developments.
C)The Fed can make an intermeeting policy change if the situation warrants it.
D)Intermeeting changes have been very frequent historically.

Question 26

Outright purchases in the open market typically account for

A)no less than 50 percent of total Fed transactions.
B)no more than 30 percent of total Fed transactions.
C)no less than 20 percent total Fed transactions.
D)no more than 10 percent of total Fed transactions.

Question 27

In general, the largest portion of outright purchases in the open market involves which of the following?

A)Treasury bills
B)common stock
C)municipal savings bonds
D)federal agency issues

Question 28

If the federal funds rate falls below the targeted rate, the Trading Desk ____ the amount of reserves available to depository institutions in order to bring the fed funds rate back to the targeted level.

A)reverses
B)increases
C)decreases
D)leaves the same

Question 29

When the trading desk buys securities on a self-reversing, temporary basis, this is called which of the following?

A)a reverse repurchase agreement
B)a system repurchase agreement
C)an outright transaction
D)a temporary buy back

Question 30

Repurchase agreements are

A)for long periods of time.
B)often made for overnight or other short periods.
C)extremely complicated.
D)ineffective in providing reserves.

Question 31

What is the name of a repurchase agreement used by the Fed for the purpose of supplying reserves on a temporary basis?

A)temporary repurchase agreement
B)outright repurchase agreement
C)Fed repurchase agreement
D)system repurchase agreement

Question 32

What is the name of a repurchase agreement used by the Fed for the purpose of withdrawing reserves on a temporary basis?

A)system repurchase agreement
B)temporary repurchase agreement
C)outright repurchase agreement
D)reverse repurchase agreement

Question 33

When the manager of the Fed's open market account wants to drain reserves temporarily from the banking system, which of the following are used?

A)system repurchase agreements
B)temporary repurchase agreements
C)outright repurchase agreements
D)reverse repurchase agreements

Question 34

Effects of the Fed's more openness in recent years are all of the following except that

A)there is less uncertainty about policy moves.
B)as a result of less uncertainty, there is more control over future expectations and long term interest rates.
C)a smaller volume of open market operations are needed to hit any fed funds targeted rate.
D)the monetary policy lag is longer.

Question 35

The Fed does not

A)generally react to economic events.
B)give heavy weight to forecasts.
C)monitor incoming data to solicit changes in the economy.
D)give heavy weight to incoming data.

Question 36

Which of the following is true?

A)The Fed's new openness has led to more direct control over the fed funds rate and a smaller volume of open market operation necessary to hit the targeted fed funds rate.
B)Expectations of market participants cause the fed funds rate to move in the desired direction before the Fed even intervenes.
C)With the new Fed openness, time lags in the monetary policy process have been reduced.
D)All of the above are true.

Question 37

In 1994, the Fed began to announce the decisions made at the FOMC meetings _______________________. This policy was formally adopted in 1995.

A)a week after the meetings.
B)in the published minutes.
C)immediately following the meetings.
D)10 days after the meetings.

Question 38

The period in which banks are required to hold an amount of reserve assets that was determined in the computation period is called which of the following?

A)the fiscal period
B)the cyclical period
C)the maintenance period
D)the band period

Question 39

The period during which the actual amount of required reserve assets to be held during the maintenance period is determined is called the

A)maintenance period.
B)cyclical period.
C)required reserve period.
D)computation period.

Question 40

Which of the following is a system of reserve accounting in which the maintenance period more or less corresponds to the computation period?

A)Required reserve period
B)Fiscal period
C)Computation period
D)Contemporaneous reserve accounting

Question 41

Total reserves are

A)required reserves plus excess reserves.
B)borrowed reserves plus nonborrowed reserves.
C)vault cash plus deposits at the Fed.
D)All of the above are correct.

Question 42

During the maintenance period, the actual average amount of reserves held must be

A)more than the average required reserves determined in the computation period.
B)equal to the average required reserves determined in the computation period.
C)less than the average required reserves determined in the computation period.
D)substantially less than the average required reserves determined in the computation period.

Question 43

Which of the following would be considered a liability of the Fed?

A)government securities
B)giscount loans
C)Treasury deposits
D)float

Question 44

The demand for reserves is

A)less than required plus desired excess reserves.
B)more than required plus desired excess reserves.
C)equal to the demand for required plus desired excess reserves.
D)equal to required minus desired excess reserves.

Question 45

The supply of reserves is which of the following?

A)less than borrowed plus nonborrowed reserves
B)more than borrowed plus nonborrowed reserves
C)equal to borrowed plus nonborrowed reserves
D)equal to borrowed minus nonborrowed reserves

Question 46

The ____________________ is the difference between actual reserves and those projected to be needed to keep the fed funds rate at the targeted level.

A)contemporaneous amount of reserves
B)reserve need
C)required reserves
D)lagged amount of reserves

Question 47

The FOMC issues a Policy Directive that

A)specifies an exact numerical value for the fed funds rate.
B)communicates whether the rate is likely to go up or down in the future but does not specify a numerical target value.
C)targets the growth range for the money supply until the next FOMC meeting.
D)is kept secret from the public until the minutes have been approved at the next FOMC meeting.

Question 48

The statement that emerges from the FOMC Meeting and is used by the New York Fed to gauge monetary policy is called the

A)monetary policy report.
B)Fed monetary directive.
C)uniform directive.
D)policy directive.

Question 49

If the federal funds rate rises above the targeted rate, the Trading Desk ____ the amount of reserves available to depository institutions in order to bring the fed funds rate back to the targeted level.

A)reverses
B)increases
C)decreases
D)leaves the same

Question 50

_______________ is a system of reserve accounting in which the maintenance period occurs after the computation period is over.

A)Maintenance period accounting
B)Double-entry accounting
C)Lagged reserve accounting
D)Contemporaneous reserve accounting

Question 51

Which of the following is most likely to occur if the quantity demanded of reserves is less than the quantity supplied of reserves?

A)The fed funds rate will fall.
B)The fed funds rate will rise.
C)Discount borrowing will decrease.
D)Both discount borrowing will decrease and the fed funds rate will rise.

Question 52

Which of the following can be used to decrease banking system reserves?

A)a system repurchase agreement
B)open market purchases
C)decrease reserve requirements
D)a reverse repurchase agreement

Question 53

The Trading Desk derives the reserve need, which is the difference, if any, between actual reserves and those projected to be need to keep the ________ at the desired level.

A)federal funds rate
B)prime interest rate
C)discount rate
D)inflation rate

Question 54

Economic projections and expected performance for the next year are announced in which of these reports?

A)The Monetary Policy Report to the President
B)The Monetary Policy Report to the Congress
C)The Monetary Policy Report to the Senate
D)The Monetary Policy Report to the Fed

Question 55

The __________________________ supported a private plan to provide liquidity to U.S. money markets by funding the purchase of short-term CDs and commercial paper from money market mutual funds and money market investors.

A)Money Market Investor Funding Facility (MMIFF)
B)Commercial Paper Funding Facility (CPFF)
C)Term Asset-backed Securities Loan Facility (TALF)
D)Temporary Auction Facility (TAF)

Question 56

The amount of reserves necessary to maintain the existing level of borrowing and the fed funds rate specified by the policy directive is called which of the following?

A)the reserve need
B)open market operations
C)the maintenance period reserves
D)the reserve drain

Question 57

Once the long-term policy stance is set, the focus of the FOMC shifts to the ______ period.

A)immediate
B)previous
C)lagged
D)final

Question 58

The _______ implements the FOMC policy directive by using _____________.

A)Board of Governors, discount window operations
B)Board of Governors, reserve requirements
C)New York Fed, open market operations
D)The U.S. Treasury, discount window

Question 59

Which of the following statements is false?

A)Under the Temporary Auction Facility (TAF), the Fed auctions funds to depository institutions for 28 or 84 days.
B)The Temporary Auction Facility (TAF) is designed to provide liquidity to short-term markets such as the fed funds market.
C)Discount loans are usually made for longer terms than loans from the Temporary Auction Facility.
D)When loans from the Temporary Auction Facility (TAF) are repaid, reserves fall.

Question 60

Which of the following statements is false?

A)Under the Primary Dealer Credit Facility (PDCF), primary dealers can borrow from the Fed similar to the way in which banks can borrow from the Fed at the discount window.
B)The creation of the Primary Dealer Credit Facility (PDCF) marks the first time nonbanks can borrow from the Fed.
C)The Primary Dealer Credit Facility (PDCF) allows primary dealers to borrow overnight funds from the Fed without collateral.
D)The Primary Dealer Credit Facility (PDCF) is designed to increase liquidity and to provide support for the financial system.

Question 61

Which of the following statements is true?

A)The assets of the Fed decreased dramatically as a result of the financial crisis of 2007 and 2008.
B)A series of special lending facilities were created by the Fed in response to the financial crisis of 2007 and 2008 to provide support for the financial system.
C)Under the Term Securities Lending Facility (TSLF), the Fed auctions government securities to primary dealers for a 28 day or longer period in exchange for less liquid and less credit-worthy securities such as mortgage-backed securities thereby increasing reserves to the financial system.
D)Under the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), the AMLF can loan funds to banks to sell asset-backed commercial paper to money market mutual funds.

Question 62

Which of the following statements is true?

A)The Commercial Paper Funding Facility (CPFF) authorized the Fed to directly purchase commercial paper.
B)The Money Market Investor Funding Facility (MMIFF) supported a private plan to provide liquidity to U.S. money markets by funding the purchase of short-term CDs and commercial paper from money market mutual funds and money market investors.
C)The Term Asset-backed Securities Loan Facility (TALF) authorized the Fed to lend up to $200 billion to the issuers of asset-backed securities.
D)All of the above are true.

Question 63

The __________________________ supported a private plan to provide liquidity to U.S. money markets by funding the purchase of short-term CDs and commercial paper from money market mutual funds and money market investors.

A)Money Market Investor Funding Facility (MMIFF)
B)Commercial Paper Funding Facility (CPFF)
C)Term Asset-backed Securities Loan Facility (TALF)
D)Temporary Auction Facility (TAF)

Question 64

Under the __________________________, the Fed auctions funds to depository institutions for 28 or 84 day in order to provide liquidity to the financial system.

A)Money Market Investor Funding Facility (MMIFF)
B)Commercial Paper Funding Facility (CPFF)
C)Term Asset-backed Securities Loan Facility (TALF)
D)Temporary Auction Facility (TAF)