EC 303 - Tools of Monetary Supply & Bank Mgmt HW

EC 303 - JSU - Tools of Monetary Supply & Bank Mgmt HW

Interest on Reserves (as of 2008) (ior )

The Federal Funds Rate (irr ) (via Open Market Operations)

The Discount Rate (id )

The Required Reserve Ratio (r)(suspended in 2020)

The Federal Reserve has four traditional monetary policy tools. What are those?

exceptional stress

Banks only use the discount tool in times of:

zero

The Required Reserve Ratio (r) was set to ____ in 2020.

excess.

All reserves held by banks can be considered:

increases

When the feds make an open market purchase, it _______ the amount of non borrowed reserves in the banking system.

right

When the feds make an open market purchase, it increases the amount of non borrowed reserves in the banking system, which shifts the supply curve to the _______.

True

True or False:
The Feds cannot push the interest funds rate past the interest paid on reserves.

The federal funds rate would increase to i Subscript f f Superscript 2 .

Use the figure and supply and demand analysis of the market for reserves to answer the following question. What would happen to the federal funds rate if it were initially at i Subscript f f Superscript 1  and there was a switch from deposits into currency​ (holding everything else​ constant)?

Part 2

A.

The federal funds rate would stay at i Subscript f f Superscript 1 .

B.

The federal funds rate would increase to i Subscript f f Superscript 2 .

C.

The federal funds rate would fall to i Subscript f f Superscript 3 .

D.

The federal funds rate would increase to i Subscript f f Superscript 4 .

floor

Interests on reserves serves as a _____ for the federal funds rate.

The federal funds rate would stay at

i1ff

The figure is drawn such that the discount rate font size decreased by 1 font size decreased by 1 i Subscript font size decreased by 1 d is above the federal funds rate i Subscript f f Superscript 1 . What would happen to the federal funds rate if there was a switch from deposits into currency​ (holding everything else​ constant) and the federal funds rate was initially at the discount rate ​(i Subscript f f Superscript 1 Baseline equals font size decreased by 1 font size decreased by 1 i Subscript font size decreased by 1 d​)?

Part 4

A.

The federal funds rate would fall.

B.

The federal funds rate would rise.

C.

The federal funds rate would stay at i Subscript f f Superscript 1 .

D.

The outcome cannot be determined.

left; fall

The graph shows an equilibrium in the market for reserves.

A decrease in the reserve requirement would shift the demand curve to the​ __________ and cause the federal funds rate to​ ________.

Part 2

A.

left, fall

B.

right, rise

C.

left, rise

D.

right, fall

​Hint: Click on the graph to utilize the graph interactions feature. Select a curve to shift and move the slider in the direction of the shift to draw in the new curve.

C. A defensive open market sale.

If the Treasury has just paid a large bill to defense contractors and as a result its deposits with the Fed​ fall, what defensive open market operations will the manager of the open market desk​ undertake?

Part 2

A. A repurchase agreement.

B. A defensive open market purchase.

C. A defensive open market sale.

D. None of the above are correct.

False. The Fed can also limit the amount of discount loans that an individual bank can have.

"The only way that the Fed can affect the level of borrowed reserves is by adjusting the discount​ rate." Is this statement​ true, false, or​ uncertain? Explain your answer.

Part 2

A.

False. The Fed can also limit the amount of discount loans that an individual bank can have.

B.

True. The Fed uses only the discount rate to adjust the amount of discount loans made.

C.

False. The Fed can also engage in open market operations.

D.

Uncertain. It depends on whether the discount rate is set lower than the federal funds rate target.

D. Only A and B are correct.

Why are repurchase agreements used to conduct most​ short-term monetary policy​ operations, rather than simply buying and selling securities​ outright?

A. Repurchase agreements are temporary open market purchases that can be reversed.

B. Repurchase agreements allow the Fed to easily adjust open market operations in response to daily conditions.

C. They are effective in dealing with persistent shortages in​ reserves, and thus have a more permanent impact.

D. Only A and B are correct.

E. All of the above are correct.

D. Dynamic open market operations

____________ are intended to change the level of reserves and the monetary base.

A. Open market sales

B. Open market purchases

C. Defensive open market operations

D. Dynamic open market operations

C. Defensive open market operations

____________ are intended to offset movements in other factors that affect reserves and the monetary base.

A. Dynamic open market operations

B. Open market sales

C. Defensive open market operations

D. Open market purchases

greater than

Because most open market operations are typically repurchase​ agreements, it is likely that the volume of defensive open market operations is

(greater than, the same as, less than)

the volume of dynamic open market operations.

A. monetary base and​ reserves; money supply

Open market sales shrink the​ ________, thereby decreasing the​ _________.

Part 2

A. monetary base and​ reserves; money supply

B. money​ base; money multiplier

C. money​ multiplier; monetary base and reserves

D. money​ multiplier; money supply

C. equal to the distance between B and C.

The graph to the right illustrates how the Fed uses discounting to keep the federal funds rate from rising far above the federal funds target. It shows a rightward shift of the demand curve for reserves from Upper R Subscript 1 Superscript d to Upper R Subscript 2 Superscript d. The initial equilibrium is at point​ 1, where the discount rate ​(id​ ) is above the federal funds​ rate, which is equal to its target​ level, i Subscript f f Superscript Upper T . The shift moves the equilibrium to point​ 2, where the federal funds rate equals the discount rate ​(i Subscript ff Superscript 2 Baseline equals i Subscript d​). According to this​ graph, at point​ 2, borrowed reserves​ are:

Part 2

A. equal to the distance between A and C.

B. equal to the distance between A and B.

C. equal to the distance between B and C.

D. zero.

D. altering the composition of the​ Fed's balance sheet in order to improve the functioning of particular segments of the credit markets.

Credit easing refers​ to:

A. asset sales that can raise interest rates for sellers in particular credit markets.

B. the reserves that become excess reserves instead of being loaned out.

C. providing liquidity to foreign borrowers.

D. altering the composition of the​ Fed's balance sheet in order to improve the functioning of particular segments of the credit markets.

Quantitative easing​: 2
Asset purchases​: 2
Future policy actions: 2
Open Market Operations: 1
Interest on Reserves: 1
Reserve Requirements: 1
Discount Lending: 1

Identify the following monetary policy tools as either conventional or nonconventional.

Part 2

Quantitative easing​:
Asset purchases​:
Future policy actions:
Open Market Operations:
Interest on Reserves:
Reserve Requirements:
Discount Lending:

1- conventional monetary policy tools

2- nonconventional monetary policy tools