Finance

Card Set Information

Author:
fuaafa
ID:
45334
Filename:
Finance
Updated:
2010-10-27 11:36:12
Tags:
finance
Folders:

Description:
Markets - Exam 2
Show Answers:

Home > Flashcards > Print Preview

The flashcards below were created by user fuaafa on FreezingBlue Flashcards. What would you like to do?


  1. An open market purchase of securities by the Fed will
    A) increase assets of the nonbank public and increase assets of the banking system.
    B) decrease assets of the nonbank public and increase assets of the Fed
    C) decrease assets of the banking system and increase assets of the Fed
    D) have no effect on assets of the nonbank public but increase assets of the Fed
    E) increase assets of the banking system and decrease assets of the Fed.
    D.
  2. An open market sale of securities by the Fed will
    A) decrease liabilities of the Fed and decrease assets of the banking system
    B) decrease assets of the nonbank public and decrease assets of the Fed
    C) increase liabilities of the banking system and increase assets of the Fed
    D) have no effect on assets of the nonbank public but increase liabilities of the Fed
    E) decrease assets of the banking system and increase assets of the Fed
    A
  3. If the Federal Reserve wants to expand reserves in the banking system, it will
    A) purchase government securities
    B) lower the discount rate
    C) sell government securities
    D) raise reserve requirements
    A
  4. If the Federal Reserve wants to lower the monetary base and the money supply, it will
    A) purchase government securities
    B) raise the discount rate
    C) sell government securities
    D) lower reserve requirements
    C
  5. A discount loan by the Fed to a bank causes
    A) an increase in reserves in the banking system and a decrease in the monetary base
    B) a decrease in reserves at the Fed and a decrease in the monetary base
    C) a decrease in reserves in the banking system and a decrease in the monetary base
    D) an increase in reserves in the banking system and an increase in the monetary base
    D
  6. An open market purchase
    A) shifts the supply curve for reserves to the right and causes the federal funds rate to fall
    B) shifts the demand curve for reserves to the right and causes the federal funds rate to rise
    C) shifts the supply curve for reserves to the left and causes the federal funds rate to rise
    D) shifts the demand curve for reserves to the left and causes the federal funds rate to fall
    A
  7. The supply curve for reserves shifts to the left and the federal funds rate rises when
    A) the Fed raises reserves requirements or does an open market sale
    B) the Fed raises the discount rate or does an open market purchase
    C) the Fed raises the discount rate or does an open market sale
    D) the Fed raises reserves requirements or raises the discount rate
    C. disc rate or open mkt sale
  8. The demand curve for reserves shifts to the left and federal funds rate falls when
    A) the Fed decreases reserve requirements or does an open market purchase
    B) the Fed lowers the discount rate
    C) the Fed lowers the discount rate or does an open market purchase
    D) the Fed decreases reserves requirements
    E) the Fed does an open market sale
    D. decreases res reqs.
  9. The actual execution of open market operations is done at
    A) the Board of Governors in Washington, D.C.
    B) the Federal Reserve Bank of New York
    C) the Federal Reserve Bank of Philadelphia
    D) the Federal Reserve Bank of Boston
    B. New York
  10. The Federal Open Market Committee makes the Fed's decisions on the purchase or sale of government securities, but these purchases or sales are executed by the Federal Reserve Bank of
    A) Chicago
    B) Boston
    C) New York
    D) San Francisco
    C. New York
  11. The most common type of discount loan that the Fed extends to banks is called
    A) seasonal credit
    B) extended credit
    C) adjustment credit
    D) installment credit
    C. adjust
  12. The most common type of discount loan, _____ credit loans, are intended to help banks with ____-term liquidity problems that often result from _____ deposit outflows
    A) extended; short; temporary
    B) adjustment; short; temporary
    C) extended; long; permanent
    D) seasonal; long; permanent
    B
  13. A bank faces three costs when it borrows from the discount window:
    A) the interest cost; the cost of complying with Fed investigations of the soundness of the bank; the cost of being turned down for a discount loan in the future
    B) the interest cost; the administrative cost to the bank; the cost of being turned down for a discount loan in the future
    C) the interest cost; the origination fee charged by the Fed; the administrative cost to the bank
    D) only A and B
    A
  14. A financial panic was averted in October 1987 following "Black Monday" when the Fed announced that
    A) it was lowering the discount rate on extended credit
    B) it would provide discount loans to any bank that would make loans to the security industry
    C) it stood ready to purchase common stocks to prevent a further slide in stock prices
    D) all of the above
    B. any bank
  15. Discount policy
    A) can be used to signal the Fed's intentions about future monetary policy
    B) can be important in preventing financial panics
    C) is the Fed's preferred method for changing the level of reserves in the banking system
    D) all of the above
    E) only A and B
    E
  16. Changes in the reserve requirement are an infrequently used monetary policy tool since
    A) this tool is too blunt
    B) this tool is too weak
    C) banks find it costly to adjust to such changes
    D) both A and C
    D. blunt, costly
  17. Open market operations as a monetary policy tool have the advantage that
    A) they are flexible and precise
    B) they are easily reversed if mistakes are made
    C) they can be implemented quickly without administrative delays
    D) all of the above
    D) only A and B
    D.
  18. What actions did the Fed take following the terrorist attacks of September 11, 2001?
    A) It increased discount lending and conducted open market purchases to meet the liquidity needs of the financial system
    B) It decreased discount lending and conducted open market sales to meet the liquidity needs of the financial system
    C) It suspended monetary policy actions so as to avoid taking hasty actions which might ultimately prove to be unwise
    D) It reduced its monetary liabilities in order to stabilize the financial system
    A.
  19. Price stability is desirable because
    A) inflation creates uncertainty, making it difficult to plan for the future
    B) everyone is better of when prices are stable
    C) price stability increases the profitability of the Fed
    D) it guarantees full employment
    A. inflation
  20. The Federal Reserve desires interest rate stability because
    A) it allows for less uncertainty about future planning
    B) interest rate volatility often leads to demands to curtail the Fed's power
    C) it guarantees full employment
    D) of both A and B
    D
  21. When workers voluntarily leave work while they look for better jobs, the resulting unemployment is called
    A) structural unemployment
    B) frictional unemployment
    C) cyclical unemployment
    D) underemployment
    B. frictional
  22. If the Fed's strategy for conducting monetary policy is thought of as a game plan that proceeds in stages, then the game plan can be summarized as follows:
    A) The Fed selects its policy goals, then the intermediate targets consistent with achieving its policy goals, then the operating targets consistent with its intermediate targets. Finally, it adjusts its policy tools to effect the desired targets and goals
    B) The Fed selects its policy goals, then the operating targets consistent with achieving its policy goals, then the intermediate targets consistent with its operating targets. Finally, it adjusts its policy tools to effect the desired targets and goals.
    C) The Fed selects its policy goals, then the operating targets consistent with achieving its policy goals, then the intermediate targets consistent with its operating targets. Finally, it adjusts its policy tools to effect the desired targets and goals
    D) The Fed selects its policy tools, then the operating targets consistent with achieving its policy tools, then the intermediate targets consistent with its operating targets. Finally, it adjusts its policy goals to effect the desired targets and tools
    E) none of the above
    A.
  23. An advantage of an intermediate targeting strategy is that it provides the Fed with
    A) more timely information regarding the effect of monetary policy
    B) a slow adjustment process
    C) a target that is precisely correlated with economic activity
    D) all of the above
    E) only A and B
    A. more timely
  24. Which of the following is not a requirement in selecting an intermediate target?
    A) measurability
    B) controllability
    C) flexibility
    D) predictability
    C. flex
  25. Which of the following is a potential operating target for the Fed?
    A) The monetary base
    B) The MI money supply
    C) Nominal GNP
    D) The discount rate
    A. monetary base
  26. If the Fed focuses on an interest rate target, fluctuations of money demand will cause the _____ to fluctuate
    A) money supply
    B) interest rate
    C) unemployment rate
    D) inflation rate
    A. money supply
  27. The policy that meant the Fed would make loans to member commercial banks whenever they showed up at the discount window with "eligible paper" was known as
    A) free reserves targeting
    B) the real bills doctrine
    C) nonborrowed reserves targeting
    D) leaning against the wind
    B. real bills
  28. The real bills doctrine was the guiding principle for the conduct of monetary policy during the
    A) 1910s
    B) 1940s
    C) 1950s
    D) 1960s
    A. 1910s
  29. By the end of World War I, the Fed's policies of rediscounting eligible paper and keeping interest rates low led to
    A) acceleration inflation
    B) stable prices and strong economic growth, as predicted by the real bills doctrine
    C) recession as reserves were steadily drained from the banking system
    D) none of the above
    A. accelerating inflation
  30. The Fed's operating strategy that led to double-digit inflation following the end of World War I was known as
    A) the free reserves policy
    B) the federal-funds targeting strategy
    C) the real bills doctrine
    D) pegging the money supply
    C. real bills
  31. The Fed accidentally discovered open market operations in the early
    A) 1920s
    B) 1910s
    C) 1900s
    D) 1890s
    A. 1920s
  32. Under the free reserves monetary policy of the 1950s and 1960s, the Fed interpreted an increase in free reserves as
    A) an easing of money market conditions requiring open market sales to withdraw reserves from the banking systems
    B) an easing of money market conditions requiring open market sales to inject reserves into the banking system
    C) a tightening of money market conditions requiring open market sales to withdraw reserves from the banking system
    D) a tightening of money market conditions requiring open market purchases to inject reserves into the banking system
    A.
  33. During the 1950s and 1960s, the Fed considered free reserves to be a particularly good indicator of money market conditions because it thought that free reserves
    A) represented the amount of slack in the banking system
    B) represented the amount of reserves that could be expected to be used to make loans and create deposits
    C) would never be lent by banks
    D) represented both A and B
    E) represented both A and C
    D.
  34. Under the free reserves monetary policy of the 1950s and 1960s, the Fed interpreted an increase in free reserves as a(n) _____ of money market conditions requiring open market ______ to withdraw reserves from the banking system.
    A) tightening; purchases
    B) easing; purchases
    C) tightening; sales
    D) easing; sales
    D. easing; sales
  35. Under the free monetary policy of the 1950s and 1960s, the Fed interpreted a decrease in free reserves as a(n) ______ of money market conditions requiring open market ______ to inject reserves into the banking system.
    A) tightening; purchases
    B) easing; purchases
    C) tightening; sales
    D) easing; sales
    A. tightening; purchases
  36. A procyclical monetary policy causes the money supply to _____ during recessions and to _____ when the economy is growing.
    A) increase; increase
    B) decrease; decrease
    C) increase; decrease
    D) decrease; increase
    D. decrease; increase
  37. The fluctuation in both money supply growth and the federal funds rate during 1979-1982 suggest that the Fed
    A) had shifted to borrowed reserves as an operating target
    B) had shifted to nonborrowed reserves as an operating target
    C) had shifted to the monetary base as an operating target
    D) never intended to target monetary aggregates
    D. never intended
  38. The fluctuations in both money supply growth and the federal funds rate during 1979-1982 suggest that the Fed
    A) never intended to target monetary aggregates
    B) used the announced strategy of targeting nonborrowed reserves as a smoke screen to fight inflation
    C) had shifted to the monetary base as an operating target
    D) both A and B
    D.
  39. Fed policy since 1982 suggest
    A) that it is finally using a monetary aggregate as its intermediate target
    B) that it is less concerned with fluctuations in the federal funds rate than in the 1979-1982 period
    C) that it is more concerned with exchange rates than with interest rates
    D) none of the above
    D.
  40. Fed policy since 1982 suggests that
    A) monetary aggregates continue to be rejected as its intermediate target
    B) it is pursuing a policy of interest rate smoothing
    C) it is now more concerned with exchange rates than with interest rates
    D) all of the abover
    E) only A and B
    E.
  41. By 1985, the strength of the dollar had caused a deterioration in American competitiveness with foreign businesses. In response, the Fed
    A) increased money growth to lower the value of the dollar
    B) decreased money growth to lower the value of the dollar
    C) increased money growth to raise the value of the dollar
    D) decreased money growth to raise the value of the dollar
    A.
  42. The German Bundesbank experience with monetary policy during the 1970s and 1980s is similar to that of Canada's central bank in which respects?
    A) Both the German and Canadian central banks announced strategies to target monetary aggregates in the 1970s
    B) Both the German and Canadian central banks were willing to abandon monetary targeting due to exchange rate concerns
    C) Although the Canadian central bank abandoned its monetary targeting strategy permanently, the Bundesbank has continued to target money
    D) All of the above
    E) Only A and B
    D.
  43. The Bundesbank experience with monetary policy during the 1970s and 1980s is similar to that of Canada's central bank in which respects?
    A) Both the German and Canadian central banks announced strategies to target monetary aggregates in the 1970s
    B) Both the German and Canadian central banks were willing to abandon monetary targeting due to exchange rate concerns
    C) Although the German central bank abandoned its monetary targeting strategy permanently, the Canadian central bank has continued to target money
    D) Only A and B
    D.
  44. Since 1978, the central bank of Japan has conducted monetary policy
    A) using an interest rate as its operating target
    B) in a way that has produced relatively stable money growth
    C) to successfully lower Japan's inflation rate
    D) to achieve all of the above
    E) to achieve only B and C
    D.
  45. Since 1978, the central bank of Japan has conducted monetary policy
    A) using the monetary base as its operating target
    B) in a way that has produced relatively stable money growth
    C) to help its exporters by lowering the value of the yen
    D) to achieve all of the above
    B. relatively stable
  46. When a bank repays a discount loan to the Fed, there is
    A) an increase in reserves in the banking system and a decrease in the monetary base
    B) a decrease in reserves at the Fed and a decrease in the monetary base
    C) an increase in reserves in the banking system and an increase in the monetary base
    D) an increase in reserves at the Fed and an increase in the monetary base
    B.
  47. The federal funds rate is
    A) the interest rate on loans from the Fed to a bank
    B) the price the Fed pays for government securities
    C) the interest rate on loans of reserves from one bank to another
    D) the price banks pay the Fed for government securities
    E) the interest rate on loans from a bank to the federal government
    C.
  48. The discount rate is
    A) the interest rate on loans from the Fed to a bank
    B) the price the Fed pays for government securities
    C) the interest rate on loans of reserves from one bank to another
    D) the price banks pay the Fed for government securities
    E) the interest rate on loans from a bank to the federal government
    A.
  49. Holding everything else constant, if the federal funds rate rises, then
    A) the demand for excess reserves rises because they have a higher return
    B) the demand for excess reserves falls because they have a higher cost
    C) the demand for required reserves rises because the cost of borrowing from the Fed is relatively lower
    D) the demand for required reserves falls because the cost of borrowing from Fed is relatively higher
    E) demand for reserves will not change because the Fed sets the level of required reserves
    B. higher cost
  50. Holding everything else constant, if the federal funds rate falls, then
    A) the supply of required reserves rises because the cost of borrowing from the Fed is relatively lower
    B) the supply of required reserves falls because the cost of borrowing from the Fed is relatively higher
    C) the supply of excess reserves falls because they have a lower return
    D) the supply of the excess reserves rises because they have a lower cost
    E) the supply of reserves will not change because the Fed sets the level of required reserves
    C. lower return
  51. An open market transaction intended to change the level of bank reserves is a
    A) repurchase agreement
    B) reverse repo
    C) dynamic operation
    D) defensive operation
    C. dynamic operation
  52. If the Federal Reserve wants to drain reserves from the banking system, it will
    A) purchase government securities
    B) lower the discount rate
    C) sell government securities
    D) raise reserve requirements
    C. sell
  53. The Federal Reserve will engage in an outright purchase if it wants to _____ reserves _____ in the banking system.
    A) increase; permanently
    B) increase; temporarily
    C) decrease; temporarily
    D) decrease: permanently
    A. increase; perm
  54. If the Fed wants to temporarily drain reserves from the banking system, it will engage in
    A) a repurchase agreement
    B) a matched sale-purchases transaction
    C) a "pump" agreement
    D) none of the above
    B. matched
  55. The Federal Reserve will engage in a matched sale-purchase transaction when it wants to _____ reserves ______ in the banking system
    A) increase; permanently
    B) increase: temporarily
    C) decrease; temporarily
    D) decrease; permanently
    C.
  56. The major loan extended to Continental Illinois in 1984 is an example of which type of discount loan?
    A) Seasonal credit
    B) Extended credit
    C) Adjustment credit
    D) Installment credit
    B. Extended
  57. Disadvantages of discount policy include
    A) the confusion concerning the Fed's intentions about future monetary policy because of the uncertainty about what a change in the discount rate is intended to signal
    B) large fluctuation in the money supply from even small changes in the discount rate
    C) its powerful effect, when compared to open market operations, on the monetary base
    D) Only A and B
    A. confusion
  58. Disadvantages of using reserve requirements to control the money supply include
    A) their overly-powerful impact on the money supply
    B) creating potential liquidity problems for banks with high lvels of excess reserves
    C) their overly-powerful impact on the monetary base
    D) all of the above
    A.
  59. The Fed is reluctant to use reserve requirements to control the money supply because
    A) of their overly-powerful impact on the money supply
    B) they have the potential to create liquidity problems for banks with low excess reserves
    C) frequent changes in reserve requirements complicate liquidity management for banks
    D) of all of the above
    E) of only A and B
    D.
  60. When the Federal Reserve was created, its most important role was intended to be as
    A) a storage facility for the nation's gold
    B) a lender-of-last-resort
    C) a regulator of bank holding companies
    D) none of the above
    B. lender
  61. At its inception, the Federal Reserve was intended to be
    A) the Treasury's banker
    B) the issuer of government debt
    C) a lender-of-last-resort
    D) a regulator of bank holding companies
    C. lender
  62. When there is a mismatch between job requirements and the skills of available workers, the resulting unemployment is called
    A) structural unemployment
    B) fricitional unemployment
    C) cyclical unemployment
    D) underemployment
    C. cyclical
  63. The goal for high employment should be a level of unemployment at which the demand for labor equals the supply of labor. Economists call this level of unemployment the
    A) frictional level of unemployment
    B) structural level of unemployement
    C) natural rate of unemployment
    D) ideal level of unemployment
    C. natural
  64. Although the goals of high employment and economic growth are closely related, policies can be specifically aimed at encouraging economic growth by
    A) encouraging firms to invest
    B) encouraging people to save
    C) doing both A and B
    D) doing neither A nor B
    C. both
  65. Although the goals of high employment and economic growth are closely related, policies can be specifically aimed at encouraging economic growth by
    A) encouraging firms to invest and people to save
    B) encouraging firms to limit their price increases and people to consume
    C) doing both A and B
    D) doing neither A nor B
    A.
  66. The Fed's game plan can be described as follows:
    A) The Fed uses its policy tools to adjust intermediate targets that directly impact its operating targets in a way that allows the Fed to achieve its goals
    B) The Fed uses its policy tools to adjust operating targets that directly impact its intermediate targets in a way that allows the Fed to achieve its goals
    C) The Fed uses its operating targets to adjust its intermediate targets that directly impact its policy tools in a way that allows the Fed to achieve its goals
    D) none of the above
    B.
  67. Which of the following is a potential operating target for the Fed?
    A) Nonborrowed reserves
    B) The federal funds rate
    C) The monetary base
    D) All of the above
    D.
  68. Which of the following is not an operating target?
    A) Nonborrowed reserves
    B) Monetary base
    C) Federal funds interest rate
    D) Discount rate
    E) All are operating targets
    D.
  69. When it comes to choosing an operating target, both the ____ rate and _____ aggregates are easily controllable using the Fed's policy tools.
    A) federal funds; monetary
    B) federal funds; reserve
    C) three-month T-bill; monetary
    D) thirty-year T-bond; reserve
    B.
  70. If the desired intermediate target is an interest rate, then the preferred operating target will be a(n) _____ variable like the _____.
    A) interest rate; three-month T-bill rate
    B) interest rate; federal funds rate
    C) monetary aggregate; monetary base
    D) monetary aggregate; non-borrowed base
    B.
  71. If the desired intermediate target is a monetary aggregate, then the preferred operating target will be a(n) _____ variable like the _____.
    A) interest rate; three-month T-bill rate
    B) interest rate; federal funds rate
    C) reserve aggregate; monetary base
    D) reserve aggregate; narrow money supply MI
    C.
  72. If the Fed focuses on a money supply target, fluctuation of money demand will cause the ______ to fluctuate
    A) money supply
    B) interest rate
    C) unemployment rate
    D) inflation rate
    B.
  73. The Fed accidentally discovered open market operations when
    A) it came to the rescue of failing banks in the early 1930s and found that its purchases of bank loans injected reserves into the banking system
    B) it purchased securities for income following the 1920-1921 recession
    C) it attempted to slow inflation in 1919 by selling securities and found that its sales drained reserves from the banking system
    D) it reinterpreted a key provision of the Federal Reserve Act
    B.
  74. In the 1930s, the Fed
    A) failed to perform its role as lender of last resort
    B) raised reserve requirements in three steps in 1936-37
    C) was given broad authority over reserve requirements
    D) all of the above
    E) only A and B
    D.
  75. In the 1930s, the Fed
    A) did not have enough power to perform the role of lender of last resort
    B) raised reserve requirements in three steps in 1936-37
    C) was given less authority over reserve requirements
    D) all of the above
    E) only A and B
    B.
  76. During World War II, whenever interest rates would rise and the price of bonds would begin to fall, the Fed would
    A) lower reserve requirements
    B) raise reserve requirements
    C) make open market purchases of government securities
    D) make open market sales of government securities
    C.
  77. During World War II, the Fed in effect relinquished its control of monetary policy through its policy of
    A) continually lowering reserve requirements
    B) continually raising reserve requirements
    C) pegging interest rates
    D) targeting free reserves
    C. pegging
  78. A policy of targeting free reserves is likely to prove to be
    A) procyclical
    B) stabilizing
    C) too difficult to implement practically
    D) none of the above
    A. procyclical
  79. In practice, the Fed's policy of targeting ______ in the 1960s proved to be _____, destabilizing the economy.
    A) money market conditions; countercyclical
    B) money market conditions; procyclical
    C) monetary aggregates; countercyclical
    D) monetary aggregates; procyclical
    B.
  80. Although the Fed professed employment of a monetary aggregate targeting strategy during the 1970s, its behavior suggests that it emphasized
    A) free reserve targeting
    B) interest rate targeting
    C) a real bills doctrine
    D) price index targeting
    B.
  81. The Fed's use of the federal funds rate as an operating target in the 1970s resulted in
    A) countercyclical monetary policy
    B) too slow growth in MI throughout the decade
    C) procyclical monetary policy
    D) too rapid growth in MI throughout the decade
    E) none of the above
    C.
  82. The Fed's operating procedures employed between 1979 and 1982 resulted in _____ swings in the federal funds rate and _____ swings in the MI growth rate.
    A) increase; increased
    B) increase; decreased
    C) decreased; decreased
    D) decreased; increased
    A.
  83. Explanations for the Fed's poor monetary control during 1979-1982 include
    A) the acceleration of financial deregulation
    B) the suspension of credit controls in mid-1979
    C) the Fed's desire to fight inflation without taking all the criticism for the high interest rate policy
    D) only A and B
    E) only A and C
    E.
  84. By 1985, the strength of the dollar had caused a deterioration in American competitiveness with foreign businesses. In response, the Fed _____ money growth to ______ the value of the dollar.
    A) increased; raise
    B) increased; lower
    C) decreased; raise
    D) decreased; lower
    B.
  85. During the period 1985-87, the actions of monetary policy authorities indicate that they were most directly concerned with
    A) stabilizing interest rates, even at the expense of losing control of monetary aggregates
    B) eliminating even moderate inflation
    C) lowering the value of the dollar
    D) none of the above
    C. lowering
  86. Volatile fluctuations in money supply growth in the United Kingdom in the 1970s suggest that the Bank of England
    A) did not pursue its M3 monetary target seriously
    B) did not pursue its M1 monetary target seriously
    C) used the announced strategy of targeting the federal funds rate as a smoke screen to fight inflation
    D) did both A and C
    E) did both B and C
    A. M3
  87. The Canadian experience with monetary policy during the 1970s and 1980s closely parallels that of the United States in which respects?
    A) The Canadian central bank announced a strategy of targeting a monetary aggregate in the 1970s
    B) The Canadian central bank abandoned its monetary targeting strategy because of exchange rate concerns
    C) The Canadian central bank's announced strategy of targeting money was merely a smoke screen to fight inflation
    D) All of the above
    E) Only A and B
    E.

What would you like to do?

Home > Flashcards > Print Preview