978-1259723223 Test Bank TBChap036 Part 4

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written consent of McGraw-Hill Education.

C.

open–market operations

D.

the federal funds rate

123.

Which of the following monetary policy tools was introduced in 2008?

124.

If the Fed wants to discourage commercial bank lending, it will

125.

Interest paid on excess reserves held at the Fed

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B.

incentivizes financial institutions to hold more reserves and reduce risky lending.

C.

is determined by the federal funds rate.

D.

totaled over $1 trillion in 2012.

126.

Beginning in 2008, the Fed was allowed to

127.

Big Bucks Bank currently holds $20 million in excess reserves. If the Fed increases the

rate of interest it pays on excess reserves held at the Fed,

we would expect Big Bucks Bank

to

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To pi c: Tools of Monetary Policy

128.

Which of the following actions by the Fed most likely increase commercial bank

lending?

129.

The interest rate that banks charge one another on overnight loans is called the

130.

The federal funds rate is the interest rate that

charge(s)

.

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D i f f i c u l t y : 02 Medium

Learning Objective: 36-04 Describe the federal funds rate and how the Fed directly influences

it.

Test Bank: I

To pi c: Targeting the Federal Funds Rate

132.

The Fed directly sets

133.

A federal funds rate reduction that is caused by monetary policy will

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B.

decrease the size of the monetary multiplier.

C.

increase the Fed’s discount rate.

D.

decrease the prime interest rate.

134.

Prior to the financial crisis, to reduce the federal funds rate, the Fed could

135.

Generally, the prime interest rate

136.

Reserves borrowed at the federal funds rate are usually repaid

137.

The Fed’s initial step in pursuing restrictive monetary policy using the federal funds

rate is to

138.

To increase the federal funds rate, the Fed historically has

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D i f f i c u l t y : 02 Medium

Learning Objective: 36-04 Describe the federal funds rate and how the Fed directly influences

it.

Test Bank: I

To pi c: Targeting the Federal Funds Rate

139.

In recent years, the Fed has communicated changes in its monetary policy by

announcing changes in its policy targets for the

140.

The prime interest rate

141.

The federal funds rate is

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C.

higher than the prime interest rate but lower than the discount rate.

D.

lower than the prime interest rate but higher than the discount rate.

142.

Before the financial crisis, if the Fed wanted to lower the federal funds rate, it would

143.

Other things equal, which of the following would increase the federal funds rate?

144.

The benchmark interest rate that banks use as a reference point for a variety of

consumer and business loans is the

145.

The prime interest rate usually

146.

Since the financial crisis of 2007–2009, borrowing at the federal funds rate

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Learning Objective: 36-04 Describe the federal funds rate and how the Fed directly influences

it.

Test Bank: I

To pi c: Targeting the Federal Funds Rate

147.

Which of the following statements is most accurate about the Fed’s use of the federal

funds rate target since the financial crisis of 2007–2009?

148.

After the financial crisis of 2007–2009, why did the Federal Reserve effectively lose

its ability to increase the money supply by manipulating the

federal funds rate target?

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To pi c: Targeting the Federal Funds Rate

149.

Prior to the financial crisis of 2007–2009, the Fed would typically initiate an

expansionary monetary policy by

150.

Which statement best reflects the Fed’s approach to expansionary monetary policy

before the mortgage debt crisis?

151.

The prime interest rate

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B.

usually is at the same level as the federal funds rate.

C.

is a benchmark interest rate set directly by the Fed.

D.

is influenced by Fed policies that change the money supply.

152.

The increase in excess reserves that occurred as a result of the mortgage debt crisis

153.

The Fed’s inability to stimulate the economy by reducing interest rates is known as the

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154.

Why wouldn’t the Fed want to drive nominal interest rates below zero in response to a

financial crisis and recession?

155.

Which of the following would most likely result from the Fed imposing negative

nominal interest rates in response to a financial crisis and

recession?

156.

The Fed’s response to the zero lower bound problem was

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A. to raise the lower bound.

B.

quantitative easing.

C.

to lower the reserve ratio.

D.

restrictive monetary policy.

157.

Which of the following statements about quantitative easing is most accurate?

158.

Which of the following is a difference between “quantitative easing” and ordinary

open-market operations?

159.

In terms of the mechanics of quantitative easing,

160.

Prior to the mortgage debt crisis, the most frequently employed restrictive monetary

policy tool was

161.

When the Fed sells bonds to the bank and the public, the expected result is that

162.

Restrictive monetary policy since the mortgage debt crisis

163.

What does it mean when economists say that the Fed has attempted to “normalize”

monetary policy after the Great Recession?

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B.

The Fed has tried to use monetary policy to raise excess reserves back up to normal

prerecession levels.

C.

The Fed has tried to make all of the monetary policy actions used during the financial

crisis a normal part of the monetary policy tool kit.

D.

The Fed has tried to use monetary policy to bring interest rates back to the historically

normal range of 3 percent or higher.

164.

The Fed’s normalization plan for monetary policy included

165.

The Fed’s attempt to normalize monetary policy by increasing the interest on excess

reserves rate

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it.

166.

Which of the following statements is most accurate about the Fed’s attempt to normalize

monetary policy after the Great Recession?

167.

According to the Taylor rule,

168.

If the Fed were to set policy according to the Taylor rule, then if real GDP falls by 2

percent below potential GDP, the Fed should

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A. raise the real federal funds rate by 1 percentage point.

B.

reduce the real federal funds rate by 1 percentage point.

C.

raise the inflation rate by 1 percentage point.

D.

change the real federal funds rate until inflation hits the target rate of 4 percent.

169.

According to the Taylor rule, when real GDP is at its potential and inflation is at its

target rate of 2 percent, the Fed should

170.

According to the Taylor rule,

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Blooms: Understand

D i f f i c u l t y : 02 Medium

Learning Objective: 36-04 Describe the federal funds rate and how the Fed directly influences

it.

Test Bank: I

To pi c: Targeting the Federal Funds Rate

171.

According to the Taylor rule, if real GDP is 4 percent below potential GDP, the Fed

should

172.

According to the Taylor rule, if inflation has risen by 6 percentage points above its

target of 2 percent, the Fed should

173.

Which of the following best describes the cause-effect chain of an expansionary

monetary policy?