Question 1

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.

Accepted Answer

If the federal funds rate is above the interest rate paid on excess reserves, banks can earn a higher return by loaning out their excess reserves in the federal funds market. This increases the demand for reserves and puts upward pressure on the federal funds rate. In order to bring the federal funds rate back down to the target rate, the Fed would need to decrease the supply of reserves. This can be achieved by selling securities in the open market, which decreases the reserves available to banks and raises the federal funds rate.

Question 2

Everything else held constant,when the federal funds rate is ________ the interest rate paid on reserves,the quantity of reserves demanded rises when the federal funds rate ________.

Accepted Answer

According to the relationship between the federal funds rate, the interest rate paid on reserves, and the quantity of reserves demanded, when the federal funds rate is above the interest rate paid on reserves, the quantity of reserves demanded falls. This is because banks prefer to lend their reserves in the federal funds market to earn a higher interest rate. Conversely, when the federal funds rate is above the interest rate paid on reserves, the quantity of reserves demanded rises as banks find it more profitable to hold on to their reserves instead of lending them out.

Question 3

The interest rate charged on overnight loans of reserves between banks is the

Accepted Answer

The interest rate charged on overnight loans of reserves between banks is the federal funds rate. The prime rate is the interest rate charged by commercial banks to their most creditworthy customers. The discount rate is the interest rate at which banks can borrow money directly from the Federal Reserve. The Treasury bill rate is the interest rate on short-term government bonds. Only the federal funds rate is directly related to interbank lending.

Question 4

The quantity of reserves demanded equals

Accepted Answer

The quantity of reserves demanded is the total amount of reserves a bank wants to hold. It is made up of two components: required reserves (the minimum amount of reserves a bank is required to hold by the Federal Reserve) and excess reserves (reserves that a bank holds above the required amount). Therefore, the quantity of reserves demanded equals required reserves plus excess reserves. Borrowed reserves are not included in this calculation.

Question 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.

Accepted Answer

The Fed uses open market operations to buy or sell government securities, which affect reserves and the monetary base. Changes in borrowed reserves (discount rate) also affect reserves and the monetary base. Changes in reserve requirements affect the money multiplier. Therefore, the correct policy tools and their effects are captured in choice B.

Question 6

When the federal funds rate equals the interest rate paid on excess reserves ________.

Accepted Answer

The answer of When the federal funds rate equals the...

Question 7

Suppose on any given day there is an excess supply 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.

Accepted Answer

The answer of Suppose on any given day there is...

Question 8

Suppose on any given day the prevailing equilibrium federal funds rate is above the Federal Reserve's 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.

Accepted Answer

If the prevailing equilibrium federal funds rate is above the Federal Reserve's federal funds target rate, then there is excess supply of reserves, which puts downward pressure on the federal funds rate. To bring the federal funds rate up to the target level, the Federal Reserve needs to decrease the supply of reserves, which can be achieved through an open market purchase of Treasury securities. Therefore, the appropriate action for the Federal Reserve to take is a dynamic open market purchase, making option D the correct choice.

Question 9

The opportunity cost of holding excess reserves is the federal funds rate ________.

Accepted Answer

The opportunity cost of holding excess reserves is the federal funds rate minus the interest rate paid on excess reserves. This is because the opportunity cost is what a bank forgoes by holding excess reserves instead of lending them out at the federal funds rate. The interest paid on excess reserves reduces this cost.

Question 10

In the market for reserves,when the federal funds interest rate is below the discount rate,the supply curve of reserves is

Accepted Answer

The answer of In the market for reserves,when the federal...

Question 11

The primary indicator of the Fed's stance on monetary policy is

Accepted Answer

The Federal Reserve's stance on monetary policy is most directly indicated by the federal funds rate, which is the interest rate at which banks can borrow reserves from each other overnight. The Fed sets a target for this rate and adjusts it through its open market operations, such as buying or selling government securities. Changes in the federal funds rate ultimately affect the broader financial markets and the economy as a whole. The discount rate is another interest rate at which banks can borrow from the Fed directly, but it is less commonly used and is generally considered a secondary indicator of the Fed's policy stance. The growth rates of the monetary base and M2 are important indicators of the overall money supply and can provide information about the Fed's actions, but they are not as direct or immediate in signaling changes in monetary policy as the federal funds rate.

Question 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 ________.

Accepted Answer

When the federal funds rate is above the interest rate paid on excess reserves, banks have an incentive to lend any excess reserves rather than hold them, since lending at the federal funds rate would yield a higher return than the interest paid on those reserves. This creates a situation where the quantity of reserves demanded decreases as the federal funds rate increases, leading to a negatively sloped demand curve for reserves.

Question 13

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.

Accepted Answer

In order to keep the federal funds rate at its current level when there is excess demand for reserves in the federal funds market, the Federal Reserve would need to inject more reserves into the banking system. This can be accomplished by conducting a defensive open market purchase, which involves buying government securities from banks in exchange for reserves. This increase in the supply of reserves would push down the federal funds rate and bring it back to its target level. Defensive open market operations are typically used to maintain the Fed's target interest rate, while dynamic open market operations are used to address more fundamental changes in the economy.

Question 14

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.

Accepted Answer

An open market sale by the Federal Reserve decreases the supply of reserves in the banking system because banks are selling their securities to the Fed in exchange for reserves. This reduction in reserves increases the federal funds rate, as banks have fewer reserves and may charge more for overnight loans to other banks.

Question 15

Which of the following is NOT an argument for the Federal Reserve paying interest on excess reserve holdings?

Accepted Answer

Paying interest on excess reserves has no direct impact on the amount of discount loans that the Federal Reserve makes. However, it indirectly affects the amount of reserves in the system, which could in turn impact the demand for discount loans. Therefore, argument C is not a valid reason for paying interest on excess reserves.

Question 16

When the federal funds rate equals the discount rate

Accepted Answer

The answer of When the federal funds rate equals the...

Question 17

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 ________.

Accepted Answer

Open market operations affect the monetary base, changes in borrowed reserves affect the monetary base, and changes in reserve requirements affect the money multiplier.

Question 18

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.

Accepted Answer

An open market purchase increases the supply of reserves in the banking system because the central bank is buying securities from the banks and paying them with reserves. This increase in reserves puts downward pressure on the federal funds rate, causing it to fall, everything else held constant.

Question 19

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.

Accepted Answer

An open market purchase by the Federal Reserve increases the supply of reserves in the banking system. When banks have more reserves, they have less need to borrow from each other, which leads to a decrease in the federal funds rate, assuming all other factors remain constant.

Question 20

The quantity of reserves supplied equals

Accepted Answer

The quantity of reserves supplied in a banking system equals nonborrowed reserves plus borrowed reserves. Nonborrowed reserves are those provided by the central bank's monetary policy operations, while borrowed reserves are those banks borrow from the central bank or other sources.

Quiz 15: Tools for Monetary Policy

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.

Everything else held constant,when the federal funds rate is the interest rate paid on reserves,the quantity of reserves demanded rises when the federal funds rate .

The interest rate charged on overnight loans of reserves between banks is the

The quantity of reserves demanded equals

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.

When the federal funds rate equals the interest rate paid on excess reserves ________.

Suppose on any given day there is an excess supply 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.

The opportunity cost of holding excess reserves is the federal funds rate ________.

In the market for reserves,when the federal funds interest rate is below the discount rate,the supply curve of reserves is

The primary indicator of the Fed's stance on monetary policy is

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 ________.

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.

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.

Which of the following is NOT an argument for the Federal Reserve paying interest on excess reserve holdings?

When the federal funds rate equals the discount rate

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 .

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.

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.

The quantity of reserves supplied equals