hich of the following statements is most correct?ÊA.ÊThe Fed can control the amount of reserves, but cannot control the monetary baseB.ÊThe Fed can control the make up of the monetary base, but cannot affect the market interest rateC.ÊThe Fed can control the size of the monetary base but not the price of its componentsD.ÊThe Fed can control either the size of the monetary base or the price of its componentsÊAACSB: AnalyticBLOOM'S: RememberDifficulty: MediumTopic: The Federal Reserve's Conventional Policy ToolboxÊ5.ÊThe tools of monetary policy available to the Fed include each of the following, except the:ÊA.ÊCurrency-to-deposit ratioB.ÊDiscount rateC.ÊTarget federal funds rateD.ÊReserve requirementÊAACSB: AnalyticBLOOM'S: RememberDifficulty: EasyTopic: The Federal Reserve's Conventional Policy ToolboxÊ6.ÊThe tools of monetary policy include:ÊA.ÊThe target federal funds rateB.ÊThe excess reserve rateC.ÊThe currency-to-deposit ratioD.ÊBoth the excess reserve rate and the target federal funds rateÊAACSB: AnalyticAACSB: Reflective ThinkingBLOOM'S: RememberDifficulty: EasyTopic: The Federal Reserve's Conventional Policy ToolboxÊ7.ÊThe primary policy instrument of the Federal Open Market Committee (FOMC) is:ÊA.ÊThe required reserve rateB.ÊThe discount rateC.ÊThe target federal funds rateD.ÊThe exchange rateÊAACSB: AnalyticAACSB: Reflective ThinkingBLOOM'S: RememberDifficulty: EasyTopic: The Federal Reserve's Conventional Policy ToolboxÊ8.ÊWhich of the following statements is most correct?ÊA.ÊThe FOMC sets the federal funds rateB.ÊThe discount rate is the primary policy tool of the FOMCC.ÊThe FOMC sets the target federal funds rateD.ÊThe difference between the target and actual federal funds rate is the dealer's spreadÊAACSB: AnalyticBLOOM'S: RememberDifficulty: EasyTopic: The Federal Reserve's Conventional Policy ToolboxÊ9.ÊThe market for reserves derives from the fact that:ÊA.ÊReserves pay a relatively high returnB.ÊDesired reserves don't always equal actual reservesC.ÊThe Fed refuses to lend to banksD.ÊBanks do not want excess reservesÊAACSB: AnalyticBLOOM'S: RememberDifficulty: MediumTopic: The Federal Reserve's Conventional Policy ToolboxÊ10.ÊThe fact that there is a market for federal funds enables banks to:ÊA.ÊMake fewer loans than they would otherwiseB.ÊBorrow more from the FedC.ÊHold a lower level of excess reserves than they would otherwise holdD.ÊHold less in required reservesÊAACSB: AnalyticBLOOM'S: RememberDifficulty: MediumTopic: The Federal Reserve's Conventional Policy ToolboxÊ11.ÊWhich of the following would be categorized as an unconventional monetary policy tool?ÊA.ÊDiscount window lendingB.ÊLending to nonbanksC.ÊFederal funds rate targetD.ÊDeposit rateÊAACSB: AnalyticBLOOM'S: RememberDifficulty: EasyTopic: Unconventional Policy ToolsÊ12.ÊDuring the financial crisis of 2007 - 2009 it became difficult for the Fed to hit their target federal funds rate because:ÊA.Êof the number of bank failuresB.Êof the Federal government stimulus packageC.Êof the loss of liquidity in the interbank lending marketD.Êof the instability in the stock marketÊAACSB: AnalyticBLOOM'S: RememberDifficulty: MediumTopic: Linking Tools to Objectives: Making ChoicesÊ13.ÊFederal funds loans are:ÊA.ÊSecured loans between banks and the FedB.ÊUnsecured loansC.ÊCollateralized loans between banksD.ÊGuaranteed by the FDICÊAACSB: AnalyticAACSB: Reflective ThinkingBLOOM'S: RememberDifficulty: EasyTopic: The Federal Reserve's Conventional Policy ToolboxÊ14.ÊThe Fed could make the market federal funds rate equal the target rate by:ÊA.ÊMandating that all loans be transacted at the target rateB.ÊSetting the discount rate below the federal funds rateC.ÊEntering the federal funds market as a borrower or a lenderD.ÊPaying higher interest on reservesÊAACSB: AnalyticBLOOM'S: RememberDifficulty: MediumTopic: The Federal Reserve's Conventional Policy ToolboxÊ15.ÊIf the Fed entered the federal funds market as a borrower or a lender to make sure the market rate always equals the target rate, they would be doing all of the following except:ÊA.ÊMaking unsecured loansB.ÊIn essence paying interest on excess reservesC.ÊEliminating a lot of valuable information coming from the marketD.ÊFollowing the directives issued by CongressÊAACSB: AnalyticBLOOM'S: RememberDifficulty: MediumTopic: The Federal Reserve's Conventional Policy ToolboxÊ16.ÊOne outcome that would result if the Fed paid interest on reserves would be:ÊA.ÊBanks would hold less excess reservesB.ÊThe federal government's deficit would be larger (or surplus smaller)C.ÊBanks would no longer hold excess reservesD.ÊThe target federal funds rate would have to be fixed at a constant rateÊAACSB: AnalyticBLOOM'S: RememberDifficulty: MediumTopic: The Federal Reserve's Conventional Policy ToolboxÊ17.ÊThe tool the Fed uses to keep the federal funds rate close to the target is:ÊA.ÊThe required reserve rateB.ÊDiscount lendingC.ÊOpen market operationsD.ÊThey can set the rate by lawÊAACSB: AnalyticBLOOM'S: RememberDifficulty: EasyTopic: The Federal Reserve's Conventional Policy ToolboxÊ18.ÊIf the market federal funds rate were below the target rate, the response from the Fed would likely be to:ÊA.ÊRaise the required reserve rateB.ÊPurchase U.S. Treasury securitiesC.ÊSell U.S. Treasury securitiesD.ÊRaise the discount rateÊAACSB: AnalyticBLOOM'S: RememberDifficulty: MediumTopic: The Federal Reserve's Conventional Policy ToolboxÊ19.ÊIf the market federal funds rate were above the target rate, the response from the Fed would likely be to:ÊA.ÊPurchase U.S. Treasury securitiesB.ÊSell U.S. Treasury securitiesC.ÊLower the required reserve rateD.ÊLower the discount rateÊAACSB: AnalyticBLOOM'S: RememberDifficulty: MediumTopic: The Federal Reserve's Conventional Policy ToolboxÊ20.ÊIf the demand for reserves remains constant and the market federal funds rate is below the target rate, the Fed would:ÊA.ÊIncrease the supply of reservesB.ÊDecrease the supply of reservesC.ÊDo nothing; the Fed will let the market workD.ÊAlter the demand for reserves