Monetary Policy Quiz

The Fed uses three policy tools to manipulate the money supply: ________, which affect reserves and the monetary base; changes in ________, which affect the monetary base; and changes in ________, which affect the money multiplier.

• open market operations; borrowed reserves; margin requirements

• open market operations; borrowed reserves; reserve requirements

• borrowed reserves; open market operations; margin requirements

• borrowed reserves; open market operations; reserve requirements

The Fed uses three policy tools to manipulate the money supply: open market operations, which affect the ________; changes in borrowed reserves, which affect the ________; and changes in reserve requirements, which affect the ________.

• money multiplier; monetary base; monetary base

• monetary base; money multiplier; monetary base

• monetary base; monetary base; money multiplier

• money multiplier; money multiplier; monetary base

The interest rate charged on overnight loans of reserves between banks is the

• prime rate.

• discount rate.

• federal funds rate.

• Treasury bill rate.

The primary indicator of the Fedʹs stance on monetary policy is

• the discount rate.

• the federal funds rate.

• the growth rate of the monetary base.

• the growth rate of M2.

The quantity of reserves demanded equals

• required reserves plus borrowed reserves.

• excess reserves plus borrowed reserves.

• required reserves plus excess reserves.

• total reserves minus excess reserves.

Everything else held constant, when the federal funds rate is ________ the interest rate paid on reserves, the quantity of reserves demanded rises when the federal funds rate ________.

• above, rises

• above, falls

• below, rises

• below, falls

The opportunity cost of holding excess reserves is the federal funds rate ________.

• minus the discount rate

• plus the discount rate

• plus the interest rate paid on excess reserves

• minus the interest rate paid on excess reserves

In the market for reserves, when the federal funds rate is above the interest rate paid on excess reserves, the demand curve for reserves is ________.

• vertical

• horizontal

• positively sloped

• negatively sloped

When the federal funds rate equals the interest rate paid on excess reserves ________.

• the supply curve of reserves is vertical

• the supply curve of reserves is horizontal

• the demand curve for reserves is vertical

• the demand curve for reserves is horizontal

Which of the following is NOT an argument for the Federal Reserve paying interest on excess reserve holdings?

• Paying interest reduces the effective tax on deposits.

• Paying interest will help in the implementation of monetary policy.

• Paying interest will help the Federal Reserve have more control of the amount of discount loans.

• Paying interest increases the capacity of the Fedʹs balance sheet which will make it easier to address financial crises.