Homework 6 Flashcards
The discount window is:
A) another name for the discount rate
B) the means by which the Fed makes discount loans to banks
C) the spread between the discount rate and the T-bill rate
D) the period each mont during which the banks are allowed to apply for discount loans
B) the means by which the Fed makes discount loans to banks
Discount loans available to healthy banks which can be used for any purpose are called: A) primary credit B) secondary credit C) seasonal credit D) repo loans
A) primary credit
Which of the following statements is correct?
A) the discount rate is generally above the federal funds rate
B) the discount rate is generally below the federal funds rate
C) the discount rate is generally equal to the federal funds rate
D) there is no general pattern
A) the discount rate is generally above the federal funds rate
Which of the following statements accurately describes the Fed’s control of discount policy?
A) it controls discount policy more completely than it controls open market operations
B) it must abide by discount rates set by Congress
C) it controls discount policy less completely than it controls open market operations
D) it controls discount policy completely, just as it controls open market operations
C) it controls discount policy less completely than it controls open market operations
The Fed's inability to instantaneously observe changes in inflation and economic growth result in: A) information lag B) impact lag C) policy lag D) jet lag
A) information lag
Which of the following is an operating target? A) M1 B) M2 C) non borrowed reserves D) the inflation rate
C) non borrowed reserves
According to Taylor's rule, all of the following variables help explain the behavior of the federal funds rate EXCEPT: A) output gap B) current inflation C) inflation gap D) yield curve
D) yield curve
The inflation gap can best be described as:
A) the percentage difference between GDP and its potential
B) the difference between inflation and its target
C) the change in the inflation rate from one year to the next
D) the difference between the inflation rate and the average inflation rate
B) the difference between inflation and its target
An open market purchase: A) increases the monetary base B) decreases the monetary base C) increases the federal funds rate D) is another name for a discount loan
A) increases the monetary base
How were open market operations conducted prior to 1935? A) Federal Open Market Committee B) Secretary of the Treasury C) district Federal Reserve banks D) Banking committee of the House
C) district Federal Reserve banks
Under which circumstance is the Fed most likely to carry out a defensive open market operation?
A) to prevent an increase in inflation
B) if a snowstorm results in a delay in check clearing, resulting in an increase in the Federal Reserve float
C) to defend the value of the US dollar on the foreign exchange market
D) to prevent the negative impact of a demand shock
B) if a snowstorm results in a delay in check clearing, resulting in an increase in the Federal Reserve float
An open market sale:
A) decreases the price of Treasury securities and also decreases their yield
B) increases the price of Treasury securities and decreases their yield
C) increases the price of Treasury securities and also increases their yield
D) decreases the price of Treasury securities and increases their yield
D) decreases the price of Treasury securities and increases their yield
The FOMC states its overall objectives for interest rates in: A) the Governor's Order B) the Policy Directive C) the Federal Reserve bulletin D) the Chairman's Order
B) the Policy Directive
If the accounting manager find the current level of bank reserves is greater than the desired level indicated in the most recent directive from the FOMC, he will:
A) order banks to reduce their reserves
B) order banks to raise their interest rates in an attempt to get them to loan out more of their reserves
C) conduct an open market purchase
D) conduct an open market sale
D) conduct an open market sale
Open market operations:
A) lack flexibility because only very small purchases or sales may be carried out in any given month
B) lack flexibility because open market purchases cannon easily be offset by subsequent open market sales
C) are more flexible than other policy tools
D) may be carried out only on Friday
C) are more flexible than other policy tools
Which of the following is NOT an accurate description of open market operations prior to 2008?
A) it was used to affect the market for bank reserves
B) it was used to control the federal funds rate
C) it involved buying and selling short-term Treasury securities
D) it involved buying and selling long-term securities
D) it involved buying and selling long-term securities
What was the name of the plan, enacted in 2011, in which the Fed bought $400 billion worth of long-term securities while selling $400 billion worth of short-term securities? A) Operation Go Long B) Operation Twist C) QE2 D) QE3
B) Operation Twist
Which of the following best describes a policy of inflation targeting?
A) it’s an inflexible rule that requires the central bank to always achieve a specified inflation rate
B) it allows monetary policy to focus on inflation and inflation forecasts except in the case of severe recession
C) it allows the central bank the flexibility of setting different inflation targets each year
D) it requires central banks to target current inflation rather than inflation forecasts
B) it allows monetary policy to focus on inflation and inflation forecasts except in the case of severe recession
Which of the following describes the relationship between the actual federal funds rate and that suggested by Taylor’s rule following the recovery from the 2001 recession?
A) the federal funds rate was above that suggested by Taylor’s rule
B) the federal funds rate was below that suggested by Taylor’s rule
C) the federal funds rate was about equal to that suggested by Taylor’s rule
D) there was not a clear relationship
B) the federal funds rate was below that suggested by Taylor’s rule
The output gap can best be described as:
A) the percentage difference between GDP and its potential
B) the difference between GDP in the current year compared to the previous year
C) the difference between a nation’s GDP and that of the nation with the highest GDP
D) the difference between the GDP and it’s forecasted level
A) the percentage difference between GDP and it’s potential
