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 To hit the target federal funds rate given in the FOMC's policy directive, Does the manager of the Trading Desk adjust the demand for reserves, the supply of reserves, or both? What monetary policy tool does the manager of the Trading Desk use to hit the target federal funds rate? On most days, does the Trading Desk carry out open dynamic open market operations or defensive open market operations?

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Chika Ilonah
Chika IlonahLv10
28 Sep 2019

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Related questions

Imagine working at the Trading Desk at the New York Fed. Explain whether you would conduct open market purchases or sales in response to each of the following events. Justify your recommendation.

a. The latest FOMC Directive calls for an increase in the target value of the federal funds rate.

b. For a reason unrelated to monetary policy, the Fed

Each Federal Reserve Bank is

Answer

a corporation.

a government owned enterprise.

a government subsidized entity.

a government-sponsored enterprise.

A transaction in which the Fed agrees to buy a security one day and sell it back the next day is

Answer

an overnight securitization operation.

a repurchase agreement.

a legal tender.

a rebate sale.

The Federal Reserve document that states the goals of the FOMC and the target for the federal funds rate is known as the

Answer

Directive.

Beige

book.

Bluebook.

Green book.

How long is the normal term in office for a Governor of the Federal Reserve Board?

Answer

Five years

Seven years

Fourteen years

Life

The federal funds rate is the interest rate on

Answer

loans to banks from the Fed.

loans by banks to the Fed.

short-term loans between banks.

Treasury bills.

Expenditures of each Federal Reserve Bank are approved by

Answer

the U.S. Senate.

the President of the United States.

the U.S. Treasury Department.

the Federal Reserve Board of Governors.

Federal Reserve Banks pay for their central banking operations through

Answer

government tax revenue.

interest on the securities they own.

fees charged to banks that use their services.

dividends paid by local banks.

When the Fed engages in open-market operations, the transactions are conducted by

Answer

the Open Market Desk at the Federal Reserve Bank of New York.

the Open Market Desk at the Federal Reserve Board in Washington, D.C.

the National Bureau of Economic Research.

the Federal Open Market Committee.

In 2006, Chairman Greenspan left the Fed because

Answer

President Bush wanted him to resign.

he reached mandatory retirement age.

his term as Governor expired.

his term as Chairman expired.

The Federal Reserve publication that discusses forecasts for the economy is known as the

Answer

Redbook.

Beigebook.

Bluebook.

Greenbook.

The FOMC directive

Answer

describes forecasts for the economy.

states the target for the federal funds rate.

discusses the regional economies around the country.

shows the Fed's balance sheet.

The chairman of the Federal Reserve Board who reduced the inflation rate from over 10 percent to about 3 percent in the early 1980s was

Answer

Arthur Burns.

G. William Miller.

Paul Volcker.

Alan Greenspan.

Which Fed chairman ensured the independence of the Federal Reserve in the 1950s?

Answer

William McChesney Martin

Arthur Burns

Paul Volcker

G. William Miller

There are ____ Federal Reserve Banks.

Answer

seven

ten

twelve

fifteen

Purchases and sales of government securities in the secondary market are known as

Answer

discount borrowing and lending.

federal funds purchases and sales.

discounting.

open-market operations.

The monetary base can be divided into

Answer

currency plus transactions deposits.

vault cash plus reserves held at the Fed.

required clearing balances plus currency.

reserves plus currency.

The Fed does not generally change reserve requirements to affect the money supply because

Answer

the impact is too large.

the Fed needs the approval of Congress to do so.

it's not legal for the Fed to do so.

the Fed needs the approval of the President of the United States to do so.

The Fed has decided to tighten monetary policy, so it decreases the money supply through

Answer

defensive open-market operations.

dynamic open-market operations.

reduced discount loans for profit.

reduced discount loans for business needs.

A haircut is

Answer

the extra collateral the Fed requires above the value of a discount loan.

the extra principal a commercial bank requires the Fed to pay when making a discount loan.

the difference between what an investor pays for a bond and what the investor sells the bond for.

expected personal grooming for a member of the Board of Governors.

Currency held by the nonbank public plus banks' vault cash plus banks' deposits at the Fed equals

Answer

the Fed's capital stock.

discount loans.

the monetary base.

required clearing balances.

The extra collateral the Fed requires above the value of a discount loan is known as

Answer

the term premium.

a haircut.

a covenant.

secondary credit.

Currency held by the nonbank public plus banks' reserves equals

Answer

the Fed's capital stock.

discount loans.

the monetary base.

required clearing balances.

The money supply divided by the monetary base equals

Answer

the reserve ratio.

velocity.

high-powered money.

the money multiplier.

The main liability on the Federal Reserve's balance sheet is

Answer

discount loans.

securities.

monetary base.

capital.

A bank in good condition may take out a loan without the Fed questioning the purpose or nature of the loan. Such a loan is known as

Answer

a no documentation discount loan.

a haircut.

a covenant.

a primary credit discount loan.

If the Open-Market Desk at the Fed buys securities when the federal funds rate is below the primary credit discount rate, the most likely effect is that the

Answer

federal funds rate decreases.

primary credit discount rate decreases.

primary credit discount rate increases.

federal funds rate increases.

In November and December, people use more currency than usual, so the Fed increases the money supply through

Answer

defensive open-market operations.

dynamic open-market operations.

discount loans for profit.

discount loans for business needs.

Reserves held by banks at the Fed that earn implicit interest payments in the form of earnings credits for Fed services are known as

Answer

required clearing balances.

reserve requirements.

excess reserves.

non-transaction deposits.

Required clearing balances

Answer

pay interest in the form of earnings credits.

count as reserves and can be used to meet reserve requirements.

pay interest equal to the federal funds rate minus one percent.

are required to be held against transactions deposits.

  1. If the Fed lowers the federal funds rate using an open market sale, what will be the effect on other interest rates? The exchange rate? Money and bank loans? Long-term real interest rate? Expenditure plans? Aggregate demand?

  1. What limits the Fed's ability to steer the economy to avoid both recession and inflation?

  1. Why is there a difference between the short-run and long-run effects from an increase in the quantity of money?

  1. Why must the Fed decide to target either the interest rate or the monetary base? Why can't the Fed determine acceptable values for both and then use open market operations to hit both targets?

  1. What are the benefits of using rules to conduct monetary policy?

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