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Chapter 16 - Interest Rates and Monetary Policy
51. The fundamental objective of monetary policy is to assist the economy in achieving:
52. Which one of the following is a tool of monetary policy for altering the reserves of
commercial banks?
53. The purchase and sale of government securities by the Fed is called:
Chapter 16 - Interest Rates and Monetary Policy
54. The Fed's lending of reserves to banks through a bidding process is referred to as the:
55. Which monetary policy tool was created in response to the Financial Crisis of 2007-
2008?
56. The interest rate that the Fed charges banks for loans to them through the traditional
channel is called:
Chapter 16 - Interest Rates and Monetary Policy
57. The tools of monetary policy for altering the reserves of commercial banks are the:
58. The Board of Governors of the Federal Reserve System can increase commercial bank
reserves by:
59. The Federal Reserve alters the amount of the nation's money supply by:
Chapter 16 - Interest Rates and Monetary Policy
60. If the Fed buys government securities from commercial banks in the open market:
61. If the Fed sells government securities to the public in the open market,:
Chapter 16 - Interest Rates and Monetary Policy
62. Assume the required reserve ratio is 20 percent. If the Federal Reserve buys $80 million in
government securities from the public, then the money supply will immediately:
63. Assume the required reserve ratio is 25 percent. If the Federal Reserve sells $120 million
in government securities to the public, the money supply will immediately:
Chapter 16 - Interest Rates and Monetary Policy
64. Which of the following Fed actions increases the excess reserves of commercial banks?
65. Which of the following statements is correct?
66. The Federal Reserve could reduce the money supply by:
Chapter 16 - Interest Rates and Monetary Policy
67. The major purpose of the Federal Reserve buying government securities in open market
operations is to:
68. Assume that there is a 25 percent reserve ratio and that the Federal Reserve buys $200
million worth of government securities. If the securities are purchased from the public, then
this action has the potential to increase bank lending by a maximum of:
Chapter 16 - Interest Rates and Monetary Policy
69. Assume that there is a 25 percent reserve ratio and that the Federal Reserve buys $4
billion worth of government securities. If the securities are purchased from the public, this
action has the potential to increase money supply by a maximum of:
70. Assuming that the Federal Reserve Banks sell $40 million in government securities to
commercial banks and the reserve ratio is 20 percent, then the effect will be to reduce:
Chapter 16 - Interest Rates and Monetary Policy
71. Assume that the required reserve ratio for the commercial banks is 25 percent. If the
Federal Reserve Banks buy $3 billion in government securities from the non-bank securities
dealers, then as a result of this transaction, the lending ability of the commercial banking
system will increase by:
72. When the Fed sells bonds to the public (securities dealers):
73. If the Fed buys $1 million in government securities from Bank A, then the immediate
effect of this transaction is an increase in:
Chapter 16 - Interest Rates and Monetary Policy
74. The most frequently used monetary device for achieving price stability is:
75. Lowering the reserve ratio:
76. If the Board of Governors of the Federal Reserve System increases the legal reserve ratio,
this change will:
Chapter 16 - Interest Rates and Monetary Policy
77. Assume the commercial banking system has checkable deposits of $20 billion and excess
reserves of $2 billion when the reserve ratio is 25 percent. If the reserve ratio is then lowered
to 20 percent, we can conclude that the:
78. Lowering the discount rate has the effect of:
79. A television report states: "The Federal Reserve will lower the discount rate for the fourth
time this year." This report indicates that the Federal Reserve is most likely trying to:
Chapter 16 - Interest Rates and Monetary Policy
80. What policy tool of the Federal Reserve relies on bank borrowing to be effective?
81. Which of the following statements best describes the relationship between the term
auction facility and changes in the discount rate?
82. The interest rate that is paid by the Fed's term auction facility's winners is:
Chapter 16 - Interest Rates and Monetary Policy
83. The interest rate that banks charge one another for the loan of excess reserves is the:
84. In recent years, the Fed often communicated its intentions to restrict or expand monetary
policy by announcing a change in its target for the:
85. In a graph of the demand and supply of Federal funds with the Fed setting a target rate, the
demand curve is:
Chapter 16 - Interest Rates and Monetary Policy
86. In a supply-and-demand graph of the Federal funds market, the demand curve is
downward-sloping because:
87. Refer to the figure above. If the Federal funds market is at equilibrium at point C and the
Federal Reserve decides to use open-market operations to add an additional $50 billion in
available reserves, the Federal funds rate will:
Chapter 16 - Interest Rates and Monetary Policy
88. Refer to the figure above. If the Federal funds market is at equilibrium at point C and the
Federal Reserve decides to conduct an open-market sale, then it must be trying to set a:
89. Refer to the figure above. Which change would be consistent with an expansionary
monetary policy by the Federal Reserve?
90. Refer to the figure above. If the Federal funds market is at equilibrium at point B and the
Federal Reserve decides to reduce the rate by a percentage point because the economy is
moving into recession, the supply of funds curve will have to shift to:
Chapter 16 - Interest Rates and Monetary Policy
91. Refer to the figure above. If demand for overnight funds in the graph should increase by
$50 billion at each and every point on the demand curve, but the Federal Reserve wants to
keep the target rate at 5.0 percent, what will be the new equilibrium quantity of reserves?
92. A newspaper headline reads: "Fed Cuts Federal Funds Rate for Fifth Time This Year."
This headline indicates that the Federal Reserve is most likely trying to:
93. When the Fed wants to lower the Federal funds rate, it:
Chapter 16 - Interest Rates and Monetary Policy
94. When the Federal Reserve Banks decide to buy government bonds from banks and the
public, the supply of reserves in the Federal funds market:
95. When the Federal Reserve raises the target Federal funds rate, it:
96. When the Fed buys government securities in the open market, it:
Chapter 16 - Interest Rates and Monetary Policy
97. The interest rate that banks use as a benchmark rate for interest rates on a wide range of
loans to businesses and individuals is the:
98. If the Federal funds rate:
99. Which of the following statements is true?
Chapter 16 - Interest Rates and Monetary Policy
100. Which of the following statements is correct?
101. According to the Taylor rule, if the target rate of inflation for the Fed is two percent and
real GDP rises by one percent above potential GDP, then the Fed should:
102. According to the Taylor rule, if the inflation rate is one percentage point below the target
of 2%, then the Fed should:
Chapter 16 - Interest Rates and Monetary Policy
103. According to the Taylor rule, when real GDP is equal to potential GDP, and the inflation
rate is equal to its target rate of two percent, the Federal funds rate should be:
104. If real GDP is 2% below potential GDP, and the inflation rate is 1%, then according to
the Taylor rule, the Fed should make the real federal funds rate:
