Question

1. The most commonly used tool of monetary policy in the U.S. is the reserve requirement commercial banks must keep on hand at the Fed. TRUE/FALSE?

2. Open market operations take place when the central bank sells or buys U.S. Treasury bonds in order to influence the quantity of bank reserves and the level of interest rates. The specific interest rate targeted in open market operations is the discount rate.  TRUE/FALSE?

3. The Federal Reserve System is run by the government, and is controlled by Congress TRUE/FALSE?

4. A monetary policy that lowers interest rates and stimulates borrowing is known as an _____________________monetary policy or loose monetary policy. Conversely, a monetary policy that raises interest rates and reduces borrowing in the economy is contractionary monetary policy.

5. Customers are covered for $100,000 by the Federal Deposit Insurance Corporation. TRUE/FALSE?

6. When describing the monetary policy actions taken by a central bank, it is common to hear that the central bank “raised interest rates” or “lowered interest rates.” We need to be clear about this: more precisely, through open market operations the central bank changes bank reserves in a way which affects the supply curve of loanable funds. As a result, interest rates change, as shown in Figure 15.7. If they do not meet the Fed’s target, the Fed can supply more or less reserves until interest rates do. Recall that the specific interest rate the Fed targets is the___________________________ rate.

		reserve requirement
		discount
		market
		federal funds

7. Fed decided to adopt an innovative and nontraditional policy known as ______________________________ . This is the purchase of long-term government and private mortgage-backed securities by central banks to make credit available so as to stimulate aggregate demand.

		quality assurance (QA)
		quantitative easing (QE)
		qualified lending (QL)
		quintessential borrowing (QB) 8. In practice, large changes in reserve requirements are rarely used to execute monetary policy. A sudden demand that all banks increase their reserves would be extremely disruptive and difficult to comply with, while loosening requirements too much would create a danger of banks being unable to meet the demand for withdrawals. TRUE/FALSE?

Answer 1