Title: Monetary Policy
Course: TEST Course

Q: A decision by the Federal Reserve to change reserve requirements for banks is an example of:
- fiscal policy.
- federal budget policy.
- monetary policy.
A: monetary policy.

Q: The Federal Reserve’s monetary policies include changes in
- government spending.
- tax rates.
- reserve requirements.
A: reserve requirements.

Q: The Federal Reserve’s monetary policy tools include all the following EXCEPT
- setting reserve requirements.
- varying the discount rate.
- printing money.
A: printing money.

Q: Which of the following is considered a Federal Reserve monetary policy tool?
- printing money
- setting household deposit requirements
- varying the discount rate
A: varying the discount rate

Q: The Fed’s efforts to manage interest rates and thus the availability of credit is known as
- fiscal policy.
- federal budget policy.
- monetary policy
A: monetary policy

Q: By changing interest rates and credit through ________, the Fed addresses economic concerns such as low GDP or high unemployment.
- fiscal policy
- federal budget policy.
- monetary policy
A: monetary policy

Q: During a recession, what is a traditional tool used by the Fed to boost the economy?
- higher interest rates
- coins and paper currency
- open market operations
A: open market operations

Q: What tool might the Fed use to boost the economy during a recession?
- raising interest rates
- paper currency and coins
- open market operations
A: open market operations

Q: The discount rate is:
- the interest on overnight inter-bank loans.
- interest rate that banks charge their very best corporate customers.
- interest rate charged by the Federal Reserve for discount loans.
A: interest rate charged by the Federal Reserve for discount loans.

Q: What term is used to describe the interest rate charged by the central bank when it makes loans to commercial banks?
- reserve requirement
- Fed rate
- discount rate
A: discount rate

Q: The interest rate charged by the central bank when it makes loans to commercial banks is called the
- reserve requirement
- open market rate
- discount rate
A: discount rate

Q: When the central bank decides to increase the discount rate, the
- money supply increases.
- interest rates decrease.
- interest rates increase.
A: interest rates increase.

Q: How do central bank policies affect interest rates?
- When the central bank decides to decrease the discount rate, then interest rates decrease.
- When the central bank decides to increase the discount rate, interest rates will initially increase, and then decrease in the long run.
- When the central bank decides to increase the discount rate, then interest rates increase.
A: When the central bank decides to increase the discount rate, then interest rates increase.

Q: If the Fed ultimately wants to lower interest rates in the economy, then it should
- raise the discount rate.
- raise the federal funds rate.
- lower the discount rate.
A: lower the discount rate.

Q: If the Fed ultimately wants to raise interest rates in the economy, then it should
- lower the discount rate.
- raise the federal funds rate.
- raise the discount rate.
A: raise the discount rate.

Q: If the Fed increases the discount rate, then Key Bank will
- increase its reserves.
- make more loans.
- decrease its reserves.
A: decrease its reserves.

Q: Atlantic Bank is required to hold 10% of deposits as reserves. If the central bank increases the discount rate, how would Atlantic Bank respond?
- By noting a decrease in net worth.
- It can make more loans with increased loan assets.
- By increasing its reserves.
A: By increasing its reserves.

Q: Read through the following scenarios and select the one that would most likely compel the Fed to lower the discount rate.
- There has an increased demand in the federal funds market which triggered interest rates increasing far above the discount rate.
- There has been a surge in loan demand from customers, but banks have be unable to secure enough money on the federal funds market to meet the new demand level.
- For the last three months there is a decline in the federal funds market which triggered interest rates dipping below the discount rate.
A: For the last three months there is a decline in the federal funds market which triggered interest rates dipping below the discount rate.

Q: Which of the following settings would induce the Fed into raising the discount rate?
- There has been a surge in loan demand from customers, but banks have be unable to secure enough money on the federal funds market to meet the new demand level.
- For the last three months there is a decline in the federal funds market which triggered interest rates dipping below the discount rate.
- There has an increased demand in the federal funds market which triggered interest rates increasing far above the discount rate.
A: There has an increased demand in the federal funds market which triggered interest rates increasing far above the discount rate.

Q: A central bank that desires to reduce the quantity of money in the economy can:
- lower the discount rate.
- lower the reserve requirement.
- raise the reserve requirement.
A: raise the reserve requirement.

Q: If the Fed wants to increase the quantity of money in the economy, it can
- raise the reserve requirement.
- lower the discount rate.
- lower the reserve requirement.
A: lower the reserve requirement.

Q: Which of the following terms is used to describe the proportion of deposits that banks are legally required to deposit with the central bank?
- discount requirement
- deposit requirement
- reserve requirement
A: reserve requirement

Q: The proportion of deposits that banks are legally required to deposit with the central bank are called
- discount requirements.
- deposit requirements.
- reserve requirements.
A: reserve requirements.

Q: If the Fed raises the reserve requirement, then banks will
- make more loans.
- increase the availability of credit.
- make fewer loans.
A: make fewer loans.

Q: If the Fed lowers the reserve requirement, then the results will be
- a decrease in the amount of loans a bank can make.
- a decrease in the availability of credit.
- an increase the availability of credit.
A: an increase the availability of credit.

Q: If the Fed raises reserves requirements, then interest rates will ________ and the money supply will ________.
- fall; increase
- be unaffected; decrease
- rise; decrease
A: rise; decrease

Q: Lower reserves requirements, lead to a ________ in interest rates and a/an ________ in the money supply.
- rise; decrease
- fall; decrease
- fall; increase
A: fall; increase

Q: Say that Fed policy requires all banks to hold 8% of deposits in reserves. If Ventura Bank does not hold any excess reserves and the Fed increases the reserve requirement to 10%, what will be the result?
- An increase in Ventura Bank’s net worth.
- An increase Ventura Bank’s ability to make loans.
- The money supply in the economy decreases.
A: The money supply in the economy decreases.

Q: Central bank policy requires all banks to hold 10% of deposits as reserves. Pacific Bank policy prevents it from holding excess reserves. Suppose banks cannot trade any of the bonds they already have. If the central bank decides to lower the reserve requirement to 9%, which of the following will result?
- The money supply in the economy decreases.
- A decrease in Pacific's net worth.
- An increase Pacific's ability to make loans.
A: An increase Pacific's ability to make loans.

Q: When the central bank lowers the reserve requirement on deposits
- the money supply and interest rates decrease.
- the money supply decreases and interest rates increase.
- the money supply increases and interest rates decrease.
A: the money supply increases and interest rates decrease.

Q: If the central bank raises the reserve requirement on deposits
- the money supply increases and interest rates decrease.
- the money supply and interest rates decrease.
- the money supply decreases and interest rates increase.
A: the money supply decreases and interest rates increase.

Q: An open market operation increases the money supply when the Federal Reserve
- sells bonds to banks, which increases bank reserves.
- buys bonds from banks, which decreases bank reserves.
- buys bonds from banks, which increases bank reserves.
A: buys bonds from banks, which increases bank reserves.

Q: An open market operation decreases the money supply when the Federal Reserve
- sells bonds to banks, which increases bank reserves.
- buys bonds from banks, which increases bank reserves.
- buys bonds from banks, which decreases bank reserves.
A: buys bonds from banks, which decreases bank reserves.

Q: A central bank that wants to increase the quantity of money in the economy will
- raise the discount rate.
- sell bonds in open market operations.
- buy bonds in open market operations.
A: buy bonds in open market operations.

Q: If the Fed wants to decrease the quantity of money in the economy, it can
- buy bunds.
- lower the reserve requirement.
- sell bonds.
A: sell bonds.

Q: When the central bank decides it will sell bonds using open market operations:
- interest rates decrease.
- the money supply increases.
- the money supply decreases.
A: the money supply decreases.

Q: When the central bank decides it will buy bonds using open market operations
- interest rates decrease.
- the money supply decreases.
- the money supply increases.
A: the money supply increases.

Q: An open market purchase of US Treasury bonds by the central bank will ________ credit conditions for private firms.
- restrict
- not change
- ease
A: ease

Q: An open market sale of US Treasury bonds by the central bank will ________ credit conditions for private firms.
- ease
- not change
- restrict
A: restrict