Chapter 16 – Interest Rates and Monetary Policy
103. A commercial bank can add to its actual reserves by:
104. The interest rate at which the Federal Reserve Banks lend to commercial banks is called
the:
105. The discount rate is the rate of interest at which:
Chapter 16 – Interest Rates and Monetary Policy
106. Projecting that it might temporarily fall short of legally required reserves in the coming
days, the Bank of Beano decides to borrow money from its regional Federal Reserve Bank.
The interest rate on the loan is called the:
107. When the Fed lends money to a commercial bank, the bank:
108. Suppose that, for every 1-percentage point decline in the discount rate, commercial
banks collectively borrow an additional $2 billion from Federal Reserve banks. Also assume
that the reserve ratio is 10 percent. If the Fed lowers the discount rate from 4.0 percent to 3.5
percent, bank reserves will:
Chapter 16 – Interest Rates and Monetary Policy
109. Suppose that, for every 1-percentage point decline of the discount rate, commercial
banks collectively borrow an additional $2 billion from Federal Reserve banks. Also assume
that the reserve ratio is 20 percent. If the Fed increases the discount rate from 4.0 percent to
4.25 percent, bank reserves will:
110. Which of the following tools of monetary policy is considered the most important on a
day-to-day basis?
111. Which of the following tools of monetary policy is flexible, and able to affect bank
reserves quickly and by relatively specific amounts?
Chapter 16 – Interest Rates and Monetary Policy
112. Which of the following tools of monetary policy has not been used since 1992?
113. Which of the following monetary policy tools was introduced in December 2007?
114. When the Fed auctions and loans reserves using the term auction facility, what
determines the interest rate that will be charged for those reserves?
Chapter 16 – Interest Rates and Monetary Policy
Answer the next question on the basis of the following information: The Fed is going to
auction $30 billion in reserves using the term auction facility. It receives the following bids:
115. Refer to the above information. What interest rate will the Fed charge for these
reserves?
116. Refer to the above information. As a result of the auction, how much and at what interest
rate will Alpha bank borrow?
Chapter 16 – Interest Rates and Monetary Policy
117. Refer to the above information. As a result of the auction, how much and at what interest
rate will Beta bank borrow?
118. Refer to the above information. As a result of the auction, how much and at what interest
rate will Gamma bank borrow?
119. Refer to the above information. As a result of the auction, how much and at what interest
rate will Delta bank borrow?
Chapter 16 – Interest Rates and Monetary Policy
120. Refer to the above information. As a result of the auction, how much and at what interest
rate will Epsilon bank borrow?
121. Refer to the above information. Which of the following banks will not borrow reserves
as a result of this auction?
122. Refer to the above information. Which of the following banks will only be allowed to
borrow a fraction of the reserves it bid for at this auction?
Chapter 16 – Interest Rates and Monetary Policy
123. Which of the following actions by the Fed will increase commercial bank lending
potential?
124. How often does the Fed offer reserves through the term auction facility?
125. If the Fed wants commercial banks to borrow and expand their reserves by a specific
amount, what monetary policy tool best guarantees that it will happen?
Chapter 16 – Interest Rates and Monetary Policy
126. Economists believe that use of the term auction facility:
127. The interest rate that banks charge one another on overnight loans is called the:
128. The Federal funds rate is the interest rate that _______ charge(s) ______.
Chapter 16 – Interest Rates and Monetary Policy
129. Which of the following statements is true?
130. The Fed directly sets:
131. A Federal funds rate reduction that is caused by monetary policy will:
Chapter 16 – Interest Rates and Monetary Policy
132. To reduce the Federal funds rate, the Fed can:
133. Generally, the prime interest rate:
Chapter 16 – Interest Rates and Monetary Policy
134. Refer to the above diagram for the Federal funds market. If the Fed wants the Federal
funds rate to be i1, what quantity of reserves do they need to make available to banks?
135. Refer to the above diagram for the Federal funds market. If the Fed wants the Federal
funds rate to fall from i1 to i2, it can use open market operations to:
136. Refer to the above diagram for the Federal funds market. If the Fed wants to raise the
Federal funds rate from i1 to i3, it should:
Chapter 16 – Interest Rates and Monetary Policy
137. Refer to the above diagram for the Federal funds market. An expansionary monetary
policy would be shown by:
138. The demand for Federal funds is
139. The demand for Federal funds is
Chapter 16 – Interest Rates and Monetary Policy
140. Refer to the above diagram for the Federal funds market. If the Fed supplies $300 billion
in reserves, the equilibrium Federal funds rate is:
141. Refer to the above diagram for the Federal funds market. If the Fed supplies $200 billion
in reserves, the equilibrium prime interest rate is:
Chapter 16 – Interest Rates and Monetary Policy
142. Refer to the above diagram for the Federal funds market. If the Fed wants to increase
reserves from $200 billion to $300 billion it should:
143. Refer to the above diagram for the Federal funds market. If the Fed wants to raise the
Federal funds rate by one-half of a percentage point, it should:
144. Reserves borrowed at the Federal funds rate are usually repaid:
Chapter 16 – Interest Rates and Monetary Policy
145. The Fed’s initial step in pursuing restrictive monetary policy using the Federal funds rate
is to:
146. Refer to the above diagram for the Federal funds market. A $25 billion increase in
reserves will change the interest rate to:
Chapter 16 – Interest Rates and Monetary Policy
147. Refer to the above diagram for the Federal funds market. If the Federal funds rate rose
from 3.5 percent to 4.0 percent, which of the following is the most likely explanation?
148. Refer to the above diagram for the Federal funds market. The equilibrium Federal funds
rate:
149. Refer to the above diagram for the Federal funds market. If the quantity of reserves falls
from $150 billion to $125 billion, we can expect:
Chapter 16 – Interest Rates and Monetary Policy
150. Refer to the above diagram for the Federal funds market. If the quantity of reserves rises
from $100 billion to $150 billion, we can expect:
151. To increase the Federal funds rate, the Fed can:
152. In recent years the Fed has communicated changes in its monetary policy by announcing
changes in its policy targets for the:
Chapter 16 – Interest Rates and Monetary Policy
153. The prime interest rate:
154. The Federal funds rate is:
155. If the Fed wants to lower the Federal funds rate, it should:
Chapter 16 – Interest Rates and Monetary Policy
156. Other things equal, which of the following would increase the Federal funds rate?
157. The benchmark interest rate that banks use as a reference point for a variety of consumer
and business loans is the:
158. The prime interest rate usually: