ECON 2411 Lecture Notes - Lecture 16: Interest Rate Swap, Alan Blinder, Term Auction Facility

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11 Dec 2016
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Copyright © 2013 Pearson Education
Economics of Money, Banking, and Fin. Markets, 10e, Global Edition (Mishkin)
Chapter 16 Tools of Monetary Policy
16.1 The Market for Reserves and the Federal Funds Rate
1) The interest rate charged on overnight loans of reserves between banks is the
A) prime rate.
B) discount rate.
C) federal funds rate.
D) Treasury bill rate.
Answer: C
Ques Status: Previous Edition
AACSB: Reflective thinking skills
2) The primary indicator of the Fed's stance on monetary policy is
A) the discount rate.
B) the federal funds rate.
C) the growth rate of the monetary base.
D) the growth rate of M2.
Answer: B
Ques Status: Previous Edition
AACSB: Reflective thinking skills
3) The quantity of reserves demanded equals
A) required reserves plus borrowed reserves.
B) excess reserves plus borrowed reserves.
C) required reserves plus excess reserves.
D) total reserves minus excess reserves.
Answer: C
Ques Status: Previous Edition
AACSB: Reflective thinking skills
4) 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 ________.
A) above, rises
B) above, falls
C) below, rises
D) below, falls
Answer: B
Ques Status: Previous Edition
AACSB: Analytic skills
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Copyright © 2013 Pearson Education
5) The opportunity cost of holding excess reserves is the federal funds rate
A) minus the discount rate.
B) plus the discount rate.
C) plus the interest rate paid on excess reserves.
D) minus the interest rate paid on excess reserves.
Answer: D
Ques Status: Previous Edition
AACSB: Analytic skills
6) 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
A) vertical.
B) horizontal.
C) positively sloped.
D) negatively sloped.
Answer: D
Ques Status: Previous Edition
AACSB: Analytic skills
7) When the federal funds rate equals the interest rate paid on excess reserves
A) the supply curve of reserves is vertical.
B) the supply curve of reserves is horizontal.
C) the demand curve for reserves is vertical.
D) the demand curve for reserves is horizontal.
Answer: D
Ques Status: Previous Edition
AACSB: Analytic skills
8) Which of the following is NOT an argument for the Federal Reserve paying interest on excess
reserve holdings?
A) Paying interest reduces the effective tax on deposits.
B) Paying interest will help in the implementation of monetary policy.
C) Paying interest will help the Federal Reserve have more control of the amount of discount
loans.
D) Paying interest increases the capacity of the Fed's balance sheet which will make it easier to
address financial crises.
Answer: C
Ques Status: Previous Edition
AACSB: Reflective thinking skills
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Copyright © 2013 Pearson Education
9) The quantity of reserves supplied equals
A) nonborrowed reserves minus borrowed reserves.
B) nonborrowed reserves plus borrowed reserves.
C) required reserves plus borrowed reserves.
D) total reserves minus required reserves.
Answer: B
Ques Status: Previous Edition
AACSB: Reflective thinking skills
10) In the market for reserves, when the federal funds interest rate is below the discount rate, the
supply curve of reserves is
A) vertical.
B) horizontal.
C) positively sloped.
D) negatively sloped.
Answer: A
Ques Status: Previous Edition
AACSB: Reflective thinking skills
11) When the federal funds rate equals the discount rate
A) the supply curve of reserves is vertical.
B) the supply curve of reserves is horizontal.
C) the demand curve for reserves is vertical.
D) the demand curve for reserves is horizontal.
Answer: B
Ques Status: Previous Edition
AACSB: Reflective thinking skills
12) In the market for reserves, if the federal funds rate is above the interest rate paid on excess
reserves, then an open market ________ the supply of reserves, raising the federal funds interest
rate, everything else held constant.
A) sale decreases
B) sale increases
C) purchase increases
D) purchase decreases
Answer: A
Ques Status: Previous Edition
AACSB: Analytic skills
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