The __________ is always larger than the __________.
A) yield on a discount basis; coupon equivalent yield
B) yield on a discount basis; bond equivalent yield
C) coupon equivalent yield; yield on a discount basis
D) None of the above.
Congress created the Federal Reserve System in 1913 as the institution delegated to
administer
A) monetary policy to stabilize the economy.
B) the constitutional power of Congress to “coin money and regulate the value thereof.”
C) collect taxes for the federal government.
D) the minting of coins.
Which of the following institutions is eligible to borrow from the Federal Reserve at the
discount rate?
A) Federal government
B) Savings and loan institutions
C) Money market mutual funds
D) Life insurance companies
Assume that excess reserves are $10 million, the required reserve ratio is 10 percent,
and total reserves are $145 million. Demand deposits are
A) $135 million.
B) $1.35 billion.
C) $1.35 million.
D) $1.45 billion.
Virtually all Federal Reserve open-market purchases and sales are conducted with
government securities, mostly
A) Treasury bills.
B) Treasury notes.
C) Treasury bonds.
D) savings bonds.
In the IS curve, at __________ income levels, saving is __________, so the interest rate
must be __________ to expand investment.
A) higher; smaller; lower
B) higher; larger; higher
C) higher; larger; lower
D) lower; larger; lower
In the 1980s, banks responded to the loss of loans to the commercial paper market by
increasing loans to all the following except
A) less creditworthy businesses.
B) commercial real estate loans.
C) loans to less-developed countries.
D) large corporations.
An unexpected fall in Capacity Utilization should send bond prices __________ and
stock prices __________.
A) up; up
B) up; down
C) down; up
D) down; down
If policymakers are expected to increase the money supply, then Monetarists argue that
bond demand and thus prices will __________. When it occurs, the actual increase in
the money supply will have no further effect on bond prices and thus the anticipated
higher inflation rate will cause interest rates to __________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
An effective Federal Reserve operating target is a target that is reliably linked to
A) inflation and unemployment rates.
B) other operating targets.
C) fiscal policy.
D) open market operations.
Federal funds rate targets and reserve targets are incompatible when the Federal
Reserve wants to
A) expand reserves and lower interest rates.
B) expand reserves and raise interest rates.
C) contract reserves and the money supply.
D) contract reserves and raise interest rates.
A sound monetary policy response to a sudden temporary increase in currency held by
the public would be to
A) reduce the rate of currency printing.
B) carry out defensive open market operations.
C) carry out dynamic open market operations.
D) raise reserve requirements.
If the required reserve ratio is .10, demand deposits are $200 million, and total reserves
are $40 million, then excess reserves are
A) $20 million.
B) $40 million.
C) $400 million.
D) $2,000 million.
Discount rates are __________ every two weeks by the directors of each regional
Federal Reserve Bank but are __________ by the Board of Governors.
A) determined; established
B) established; determined
C) recommended; established
D) determined; recommended
It is not surprising to see a rather __________ volume of mergers and acquisitions in
the United States given its __________-oriented financial system.
A) high; banking
B) high; markets
C) low; banking
D) low; markets
As part of the “wealth channel of monetary policy,” a lower money supply __________
bond prices and thus __________ spending.
A) raises; raises consumption
B) raises; raises investment
C) lowers; lowers consumption
D) lowers; lowers investment
If an issuer has the right to pay off a bond before its maturity, the bond is
A) convertible.
B) speculative.
C) callable.
D) reversible.
Savings-and-loans are now federally insured through the
A) FDIC.
B) FSLIC.
C) NCUSIF.
D) Comptroller of the Currency.
Bank reserves will increase if which of the following changes occurs, assuming that
there are no offsetting changes elsewhere on the Fed’s balance sheet?
A) Fed loans decrease
B) Currency held by the public increases
C) Treasury deposits increase
D) The float decreases
A __________ discount rate makes it __________ advantageous to sell securities to
obtain additional reserves.
A) higher; less
B) lower; more
C) higher; more
D) None of the above.
Under the Classical assumptions, an increase in government spending causes
A) income to rise.
B) income to fall.
C) interest rates to rise.
D) interest rates to fall.
Assume a required reserve ratio of .25 and a discount rate of .05. If excess reserves rise
by $20, demand deposits can expand by a maximum of
A) $20.
B) $25.
C) $80.
D) $100.