Chapter 10

Question 1

Assets on the Fed’s balance sheet include
A)
government securities and currency in circulation.
B)
discount loans and reserves.
C)
government securities and discount loans.
D)
currency in circulation and reserves.

Answer 1

Government securities and discount loans

Question 2

The monetary base consists of 
A) 
currency in circulation and reserves. 
B) 
government securities held by the Fed and discount loans. 
C) 
government securities held by the Fed and currency in circulation. 
D) 
discount loans and reserves.

Answer 2

Currency circulation and reserves

Question 3

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

Answer 3

D) have no effect on..

Question 4

If the Federal Reserve wants to expand reserves in the banking system, it will 
A) 
purchase government securities. 
B) 
raise the discount rate. 
C) 
sell government securities. 
D) 
raise reserve requirements.

Answer 4

Purchase government securities

Question 5

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.

Answer 5

C) the interest rate on loans

Question 6

The demand curve for reserves shifts to the left and the federal funds rate falls when the Fed
A)
decreases reserve requirements or does an open market purchase.
B)
lowers the discount rate.
C)
lowers the discount rate or does an open market purchase.
D)
decreases reserves requirements.
E)
does an open market sale.

Answer 6

Decreases reserve requirements

Question 7

When the Federal Reserve was created, its most important role was intended to be 
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.

Answer 7

A lender of last resort

Question 8

Which of the following is not a requirement in selecting an intermediate target? 
A) 
measurability 
B) 
controllability
 C) 
flexibility 
D) 
predictability

Answer 8

Flexibility

Question 9

The first country to mandate that its central bank adopt inflation targeting was
 A) 
the United States. 
B) 
the United Kingdom. 
C) 
Canada. 
D) 
New Zealand.

Answer 9

New Zealand

Question 10

In response to an asset-price bubble, macroprudential regulation appears to be the right tool. What is macroprudential regulation?
A)
Increasing the federal funds rate across the macroeconomy.
B)
The use of tax incentives to capture some of the gains from bubbles.
C)
Regulatory policy to affect what is happening in credit markets in the aggregate.
D)
None of the above is correct.

Answer 10

C) Regulatory policy..