Econ Final 16

A consumer holds money to meet spending needs. This would be an example of the:

Transactions demand for money

A decrease in the interest rate will cause a(n):

Increase in the amount of money held as an asset

A wealthy executive is holding money for a good time to invest in the stock market. This action would be an example of the:

Asset demand for money

There is an asset demand for money primarily because of which function of money?

Store of value

When the interest rate falls, the:

Total amount of money demanded increases

An increase in the money supply is likely to reduce:

Interest rates

Which of the following statements is true?

Bond prices and the interest rate are inversely related

If bond prices decrease, then the:

Interest rate increases

The conduct of monetary policy in the United States is the main responsibility of the:

Federal Reserve System

The fundamental objective of monetary policy is to assist the economy in achieving:

A full-employment, noninflationary level of total output

Which one of the following is a tool of monetary policy for altering the reserves of commercial banks?

Open-market operations

The purchase and sale of government securities by the Fed is called:

Open-market operations

The Fed's lending of reserves to banks through a bidding process is referred to as the:

Term auction facility

Which monetary policy tool was created in response to the Financial Crisis of 2007-2008?

Term auction facility

The interest rate that the Fed charges banks for loans to them through the traditional channel is called:

Discount rate

The tools of monetary policy for altering the reserves of commercial banks are the:

Discount rate, reserve ratio, open-market operations, and term auction facility

The Federal Reserve alters the amount of the nation's money supply by:

Manipulating the size of excess reserves held by commercial banks

If the Fed buys government securities from commercial banks in the open market:

Commercial banks give the securities to the Fed, and the Fed increases the banks' reserves

Which of the following Fed actions increases the excess reserves of commercial banks?

Lower the reserve ratio

Which of the following statements is correct?

The supply of money declines when the public purchases securities from commercial banks

The Federal Reserve could reduce the money supply by:

Selling government bonds in the open market

The major purpose of the Federal Reserve buying government securities in open market operations is to:

Allow banks to increase their lending

The most frequently used monetary device for achieving price stability is:

Open-market operations

Lowering the reserve ratio:

Turns required reserves into excess reserves

If the Board of Governors of the Federal Reserve System increases the legal reserve ratio, this change will:

Decrease the excess reserves of member banks and thus decrease the money supply

Lowering the discount rate has the effect of:

Making it less expensive for commercial banks to borrow from central banks

A television report states: "The Federal Reserve will lower the discount rate for the fourth time this year." This report indicates that the Federal Reserve is most likely trying to:

Stimulate the economy

What policy tool of the Federal Reserve relies on bank borrowing to be effective?

The discount rate

Which of the following statements best describes the relationship between the term auction facility and changes in the discount rate?

The term auction facility guarantees that the amount of reserves the Fed wishes to loan will be borrowed, but changes in the discount rate do not

The interest rate that banks charge one another for the loan of excess reserves is the:

Federal funds rate

When the Fed buys government securities in the open market, it:

Increases the excess reserves of the banking system, raising excess reserves for overnight loan in the Federal funds market, thus lowering the Federal funds rate

If the Federal funds rate:

Increases, the prime interest rate will increase

Which of the following statements is true?

The prime interest rate will be higher than the Federal funds rate

The Federal Reserve can increase aggregate demand by:

Reducing the discount rate