Question 1

If the Federal Reserve raises its discount rate, many observers regard this as a signal that the Fed is pushing for tighter credit conditions and market participants may respond by reducing their borrowings and curtailing their spending plans. The effect as described above is called the:

Accepted Answer

A)  Announcement effect 
B)  Cost effect 
C)  Substitution effect 
D)  All of the above 
E)  None of the above

Question 2

Using the the description or the definition below, identify each of the terms and concepts from this chapter.
a. Buying and selling of securities by a central bank in order to influence general credit conditions. 
b. A central bank tool dependent upon psychological pressure and persuasion. 
c. Difference between the market value of a financial asset and its loan value. 
d. Deposits kept at the central bank plus currency and coin held in the vaults of depository institutions.

Accepted Answer

The answer of Using the the description or the definition...

Question 3

Legal reserves that many of the world's central banks require their depository institutions to hold consist of:

Accepted Answer

A)  Amounts on deposit with the central bank 
B)  Coin and currency held in the depository institution's vault 
C)  Government securities 
D)  All of the above 
E)  Choices A and B only

Question 4

If the Federal Reserve sells securities to depository institutions, one of the following events is not likely to occur, according to the discussion in your text. Which event is not likely to occur?

Accepted Answer

A)  Total reserves of depository institutions will fall 
B)  Interest rates will fall 
C)  Excess reserves will decline, at least temporarily 
D)  Loans and investments will decrease 
E)  All of the above are likely to occur following the open-market sales described

Question 5

Central banks change their policy tools often in order to stay up to date.

Accepted Answer

A) True 
 B)False

Question 6

When central bank officials issue letters and public statements in an effort to persuade individuals and institutions to follow what the central bank regards as more desirable behavior, this policy tool is called:

Accepted Answer

A)  Moral suasion 
B)  Regulation Q 
C)  Margin announcements 
D)  Announcement effects 
E)  None of the above

Question 7

The Bundesbank sets an official loan rate on its loans to banks and the sale of government bills.

Accepted Answer

A) True 
 B)False

Question 8

In the early 1980s, in the United States the unemployment rate got above 15% for the first time since the great depression in the 1930s.

Accepted Answer

A) True 
 B)False

Question 9

Frequently, central banks will intervene in the money markets of other countries.

Accepted Answer

A) True 
 B)False

Question 10

The discount rate is usually above the federal funds rate because the Fed wants to discourage discount window borrowing.

Accepted Answer

A) True 
 B)False

Question 11

A decline in nonborrowed reserves should cause an increase in interest rates.

Accepted Answer

A) True 
 B)False

Question 12

The Federal Reserve official who conducts open-market operations daily on behalf of the Federal Reserve System is known as the:

Accepted Answer

A)  SOMA Manager 
B)  Federal Reserve Cashier 
C)  Vice President for Operations, Federal Reserve Board 
D)  Federal Reserve Security Broker 
E)  None of the above

Question 13

Recently, deposit reserve requirements have been enacted in Canada, New Zealand and the United Kingdom.

Accepted Answer

A) True 
 B)False

Question 14

Since the middle of 1999, the Fed's discount rate has followed the federal funds interest rate, such that the discount rate is now a passive tool in the conduct of U.S. monetary policy.

Accepted Answer

A) True 
 B)False

Question 15

If the federal funds rate drops below the discount rate, banks will stop borrowing from the Fed.

Accepted Answer

A) True 
 B)False

Question 16

Defensive open-market operations, according to your text, generally result in rising interest rates and reduced availability of credit.

Accepted Answer

A) True 
 B)False

Question 17

If the Federal Reserve purchases securities from depository institutions, one of the following events is not likely to occur, according to the discussion in your text. Which event is not likely to occur?

Accepted Answer

A)  Total reserves of depository institutions will rise 
B)  Interest rates will rise 
C)  Excess reserves will rise, at least temporarily 
D)  Loans and investments will increase 
E)  All of the above are likely to occur following the open-market purchase described

Question 18

If the Federal Reserve Board elects to lower reserve requirements depository institutions will be willing to make more loans at lower interest rates.

Accepted Answer

A) True 
 B)False

Question 19

Farm banks experience in their greatest need for liquidity around planting and harvesting times.

Accepted Answer

A) True 
 B)False

Question 20

The money market indicator that usually feels the first impact from Federal Reserve policy moves is the:

Accepted Answer

A)  Treasury bill rate 
B)  Federal Reserve's discount rate 
C)  Federal funds rate 
D)  Bank CD rate 
E)  None of the above

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

If the Federal Reserve raises its discount rate, many observers regard this as a signal that the Fed is pushing for tighter credit conditions and market participants may respond by reducing their borrowings and curtailing their spending plans. The effect as described above is called the:

Legal reserves that many of the world's central banks require their depository institutions to hold consist of:

If the Federal Reserve sells securities to depository institutions, one of the following events is not likely to occur, according to the discussion in your text. Which event is not likely to occur?

Central banks change their policy tools often in order to stay up to date.

When central bank officials issue letters and public statements in an effort to persuade individuals and institutions to follow what the central bank regards as more desirable behavior, this policy tool is called:

The Bundesbank sets an official loan rate on its loans to banks and the sale of government bills.

In the early 1980s, in the United States the unemployment rate got above 15% for the first time since the great depression in the 1930s.

Frequently, central banks will intervene in the money markets of other countries.

The discount rate is usually above the federal funds rate because the Fed wants to discourage discount window borrowing.

A decline in nonborrowed reserves should cause an increase in interest rates.

The Federal Reserve official who conducts open-market operations daily on behalf of the Federal Reserve System is known as the:

Recently, deposit reserve requirements have been enacted in Canada, New Zealand and the United Kingdom.

Since the middle of 1999, the Fed's discount rate has followed the federal funds interest rate, such that the discount rate is now a passive tool in the conduct of U.S. monetary policy.

If the federal funds rate drops below the discount rate, banks will stop borrowing from the Fed.

Defensive open-market operations, according to your text, generally result in rising interest rates and reduced availability of credit.

If the Federal Reserve purchases securities from depository institutions, one of the following events is not likely to occur, according to the discussion in your text. Which event is not likely to occur?

If the Federal Reserve Board elects to lower reserve requirements depository institutions will be willing to make more loans at lower interest rates.

Farm banks experience in their greatest need for liquidity around planting and harvesting times.

The money market indicator that usually feels the first impact from Federal Reserve policy moves is the: