Exam 13: Central Banking and Monetary Policy: Exploring Tools and Strategies

The Federal Reserve can keep total reserves at roughly the level it desires.

Using the the description or the definition below, identify each of the terms and concepts from this chapter. a. Narrowest definition of the U.S. money supply. b. Money supply concept that includes savings deposits and small-denomination time deposits. c. Money supply definition that includes large-denomination time deposits. d. Legal reserves loaned to depository institutions by the Federal Reserve banks.

Open-market operations of the Fed have two effects on the banking system and credit conditions. These effects are on:

The most flexible policy tool available to many of the world's central banks is:

Different central banks around the world emphasize different policy tools.

The principal intermediate target of Federal Reserve policy, according to the textbook, is:

A decrease in any component of Reserve bank credit results in an increase in the reserves of depository institutions.

The so-called "operating objectives" of central bank policy are:

Increased required reserves mandated by the Federal Reserve will tend to increase interest rates in the money market.

A change in deposit reserve requirements affects:

The European Central Bank will conduct its open-market operations centrally, just like the U.S. Federal Reserve.

An increase in the deposits of foreign central banks held with the Federal Reserve banks results in a decline in the domestic banking system's reserves.

Frictional unemployment occurs when the economy's growth loses momentum due to monetary policy changes, foreign competition or other external factors and employers begin to reduce their work force.

When currency and coin are retired from the financial system, the total reserves of the banking system will:

The Fed exerts some control over the spread between the discount rate and the federal funds rate through the supply of reserves.

If more depository institutions are in debt to the Federal Reserve in greater amounts these institutions will tend to expand the supply of credit and make more loans to offset higher borrowing costs.

When the Fed follows its federal funds interest-rate targeting procedure and sells securities:

Banks borrow at the discount window only to meet short-term liquidity needs.

The inherent difficulties in projecting the future evolution of the economy is perhaps the principal reason why we observed monetary policy inertia.

Most major central banks have shifted their focus from money and reserve targeting to interest-rate targeting.