31 Jan an open market

KNOWLEDGE CHECK 10

Question 1

When banks hold excess reserves because they don’t see good lending opportunities:

it negatively affects contractionary monetary policy.

it negatively affects expansionary monetary policy.

expansionary monetary policy is unaffected.

contractionary monetary policy is unaffected.

Question 2

How are the specific interest rates for the lending and borrowing markets determined?

U.S. Treasury Department Board policy

by the forces of supply and demand

through open market operations

by altering the discount rate

Question 3

Atlantic Bank is required to hold 10% of deposits as reserves. If the Central Bank increases the discount rate, how would Atlantic Bank respond?

by noting a decrease in net worth

by increasing its reserves

its balance sheet will be unchanged

it can make more loans with increased loan assets

Question 4

What term is used to describe the interest rate charged by the Central Bank when it makes loans to commercial banks?

discount rate

reserve requirement

Fed rate

open market rate

Question 5

Which of the following is considered to be a relatively weak tool of monetary policy?

quantitative easing

altering the discount rate

reserve requirements

reducing the money supply

Question 6

Regardless of the outcome in the long run, ______________________ always has the effect of stimulating the economy in the short run.

expansionary monetary policy

contractionary monetary policy

reverse quantitative easing policy

tight monetary policy

Question 7

Which of the following institutions oversees the safety and stability of the U.S. banking system?

Office of the Comptroller of the Currency

Federal Financial Institutions Examination Council

Federal Open Market Committee

The Federal Reserve

Question 8

When the Central Bank acts in a way that causes the money supply to increase while aggregate demand remains unchanged, it is:

following a contractionary monetary policy.

following a quantitative easing policy.

following a tight monetary policy.

following an expansionary monetary policy.

Question 9

Which of the following events would cause interest rates to increase?

lower tax rates

a higher discount rate

lower reserve requirements

an open market operation to buy bonds

Question 10

When the Central Bank lowers the reserve requirement on deposits:

the money supply increases and interest rates decrease.

the money supply and interest rates decrease.

the money supply and interest rates increase.

the money supply decreases and interest rates increase