Question 1

Everything else held constant,the vertical section of the supply curve of reserves is shortened when the

Accepted Answer

The vertical section of the supply curve of reserves is shortened when the discount rate decreases because it becomes cheaper for banks to borrow from the Federal Reserve, making them less reliant on reserves.

Question 2

Everything else held constant,in the market for reserves,decreases in the interest rate paid on excess reserves affect the federal funds rate

Accepted Answer

When the federal funds rate equals the interest rate paid on excess reserves, a decrease in the interest rate on excess reserves will lower the federal funds rate, as banks will be less inclined to hold excess reserves and more inclined to lend them out, thus increasing the supply of reserves and lowering the rate.

Question 3

Everything else held constant,the vertical section of the supply curve of reserves is lengthened when the

Accepted Answer

The vertical section of the supply curve of reserves is lengthened when the discount rate increases because banks are less inclined to borrow from the Federal Reserve, making non-borrowed reserves the primary source of funding.

Question 4

Everything else held constant,in the market for reserves,when the federal funds rate is 1%,increasing the interest rate paid on excess reserves from 1% to 2%

Accepted Answer

When the interest rate paid on excess reserves increases, banks have less incentive to lend out their excess reserves in the federal funds market because they can earn more by holding onto them. This reduces the supply of funds available for lending, which, according to the law of supply and demand, increases the federal funds rate.

Question 5

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

Accepted Answer

When the federal funds rate equals the interest rate paid on excess reserves, raising the interest rate on excess reserves makes holding reserves more attractive. Banks will be less inclined to lend out their excess reserves in the federal funds market, reducing the supply of funds available for lending. This decrease in supply, with demand remaining constant, leads to an increase in the federal funds rate.

Question 6

After 2003,The Federal Reserve usually keeps the discount rate

Accepted Answer

After 2003, the Federal Reserve has generally kept the discount rate above the target federal funds rate in order to provide an incentive for banks to borrow from each other instead of relying on the Fed’s discount window. This helps to keep the federal funds rate within the Fed’s target range.

Question 7

Everything else held constant,in the market for reserves,when the supply for federal funds intersects the reserve demand curve along the horizontal section of the demand curve,lowering the interest rate paid on excess reserves

Accepted Answer

When the interest rate paid on excess reserves is lowered, banks are less likely to hold onto their excess reserves and more likely to lend them out in the federal funds market. This increases the supply of federal funds and lowers the federal funds rate.

Question 8

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.

Accepted Answer

An increase in the reserve requirement means banks need to hold more reserves, thus increasing the demand for reserves. This increased demand, with supply remaining constant, causes the federal funds interest rate to rise.

Question 9

Everything else held constant,in the market for reserves,when the federal funds rate equals the discount rate,lowering the discount rate

Accepted Answer

Lowering the discount rate makes borrowing from the Fed cheaper, which would lead banks to demand less reserves in the federal funds market, causing the federal funds rate to go down.

Question 10

Everything else held constant,in the market for reserves,when the federal funds rate is 3%,raising the discount rate from 5% to 6%

Accepted Answer

The discount rate is above the federal funds rate, so banks are not borrowing from the Federal Reserve at the discount rate. Therefore, changing the discount rate does not affect the federal funds rate.

Question 11

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.

Accepted Answer

An increase in the reserve requirement increases the demand for reserves as banks need more reserves to meet the new requirements. This increased demand, with supply constant, causes the federal funds interest rate to rise.

Question 12

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.

Accepted Answer

A rise in the reserve requirement increases the demand for reserves, as banks need to hold more reserves to meet the new requirement, which, in turn, raises the federal funds interest rate, assuming all other factors remain constant.

Question 13

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.

Accepted Answer

If the federal funds rate is between the discount rate and the interest rate paid on excess reserves, a reduction in reserve requirements will increase the supply of reserves, leading to a decrease in the demand for reserves and a lower federal funds rate. Therefore, the best choice is (D) decline; decreases.

Question 14

Everything else held constant,in the market for reserves,when the demand for federal funds intersects the reserve supply curve along the horizontal section,increasing the discount rate

Accepted Answer

The answer of Everything else held constant,in the market for...

Question 15

Everything else held constant,in the market for reserves,when the supply for federal funds intersects the reserve demand curve on the downward sloping section,decreasing the interest rate paid on excess reserves

Accepted Answer

The answer of Everything else held constant,in the market for...

Question 16

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%

Accepted Answer

Lowering the interest rate paid on excess reserves makes it less attractive for banks to hold excess reserves, which in turn increases the supply of reserves in the market. This increase in supply lowers the federal funds rate.

Question 17

Everything else held constant,in the market for reserves,when the demand for federal funds intersects the reserve supply curve on the vertical section,increasing the discount rate

Accepted Answer

When the demand for federal funds intersects the reserve supply curve on the vertical section, the supply of reserves is inelastic. In this situation, changes in the discount rate do not affect the federal funds rate because banks are not borrowing from the discount window; they are borrowing from each other at the federal funds rate, which is determined by the demand and supply in the market for reserves.

Question 18

Everything else held constant,in the market for reserves,increases in the discount rate affect the federal funds rate

Accepted Answer

When the federal funds rate equals the discount rate, changes in the discount rate can directly affect the federal funds rate because the discount rate acts as a ceiling for the federal funds rate.

Question 19

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.

Accepted Answer

An increase in the reserve requirement increases the demand for reserves as banks need more reserves to meet the new requirement, which, given the supply of reserves, raises the federal funds rate.

Question 20

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 increases the demand for reserves,________ the federal funds interest rate,everything else held constant.

Accepted Answer

A rise in the reserve requirement increases the demand for reserves as banks need to hold more reserves to meet the new requirement. This increased demand for reserves, with everything else held constant, puts upward pressure on the federal funds interest rate, thereby raising it.

Quiz 15: Tools of Monetary Policy