chp15

Question 1

name the 3 conventional monetary policy tools (hint: dor)

Answer 1

discount leading
open market operations
reserve requirements

Question 2

what do open market operations involve?

Answer 2

the buying and selling of government securities by the federal reserve

Question 3

give 2 types of open market operations

Answer 3

dynamic
defensive

Question 4

dynamic open market operations are actions with the intent of…

Answer 4

…affecting the monetary base and level of reserves

Question 5

defensive open market operations are actions with the intent of…

Answer 5

…controlling effects on the monetary base and level of reserves

Question 6

examples of defensive open market operations

Answer 6

float and change in Treasury deposits

Question 7

how do federal reserves communicate with primary dealers

Answer 7

electronic system: TRAPS (trading room automated processing system)

Question 8

describe TRAPS

Answer 8

secure and near instantaneous system for trading securities

Question 9

types of defensive open market operations

Answer 9

repos
reverse repos

Question 10

repos: aka…

Answer 10

…repurchase agreements

Question 11

reverse repos: aka…

Answer 11

…matched sale purchase transactions

Question 12

difference between repos and reverse repos

Answer 12

repos: temporary SALE of securities by federal reserve

reverse repos: temporary PURCHASE of securities by federal reserve

Question 13

3 classifications of federal reserve bank credit

Answer 13

primary
secondary
seasonal

Question 14

primary credit

Answer 14

overnight credit at discount rate with no limits, used when banks are “good standing”

Question 15

secondary credit

Answer 15

credit issued to banks that are “riskier” and experiencing liquidity problems

Question 16

seasonal credit

Answer 16

credit that occurs for banks that have periods of high transactions and low transaction, going in patterns (Ex: Cape Cod local banks)

Question 17

list nonconventional monetary policy tools (HINT: LANF)

Answer 17

liquidity provision
asset purchases (such as quantitative easing)
negative interest rates on bank deposits at a central bank
forward guidance

Question 18

quantitative easing

Answer 18

purchasing of long-term securities by the Federal Reserve to expand the balance sheet

Question 19

when has quantitative easing happened in the past?

Answer 19

2007/2008 financial crisis

Question 20

forward guidance

Answer 20

the idea that adjusting interest rates in the short-term would affect interest rates in the long-run; so if we lower short-term interest rates, then long-run interest rates as a product of expectations will also fall