FIN 322 Final Exam | Answered with complete solutions

FIN 322 Final Exam | Answered with complete solutions The ____ is directly responsible for setting reserve requirements. a. Federal Advisory Council b. FOMC c. Board of Governors d. President of the United States When the Fed initiated a program to purchase commercial paper, one of its primary goals was to a. prevent financial institutions from holding commercial paper. b. require that financial institutions increase their holdings of commercial paper. c. increase activity in the market for commercial paper and boost the confidence of investors in commercial paper. d. prevent financial institutions from issuing commercial paper in the future. When the Fed buys Treasury bills as a means of increasing the money supply, it places ____ pressure on their prices and ____ pressure on their yields. a. upward; upward b. downward; downward c. upward; downward d. downward; upward The ________ the reserve requirement ratio, the _______ the ultimate effect of any initial increase in the money supply. a. lower; less b. lower; greater c. greater; less d. lower; greater AND greater; less As a result of the Financial Reform Act of 2010, the ______ was established to regulate financial products and services. a. Federal Advisory Committee b. Federal Open Market Committee c. Consumer Financial Protection Bureau d. Board of Governors As the supply of funds in the banking system ____, the federal funds rate ____. a. increases; declines b. increases; increases c. declines, declines d. None of these are correct. When the Fed purchases _______, it is attempting to directly stimulate the housing market. a. commercial paper b. short-term Treasury securities c. mortgage-backed securities d. consumer loans With regard to monetary policy, which of the following is under the direct control of the Federal Reserve's Board of Governors? a. revising reserve requirements for depository institutions b. authorizing changes in the amount of borrowing by the Treasury c. monitoring the stock market for insider trading d. monitoring the derivatives market for illegal trading strategies Which of the following is NOT a major component of the Federal Reserve System? a. member banks b. Federal Open Market Committee c. Securities and Exchange Commission d. Board of Governors Which of the following is currently a main role of the Federal Reserve's Board of Governors? a. regulating commercial banks b. regulating foreign trade c. controlling monetary policy d. regulating commercial banks AND controlling monetary policy To decrease the money supply, the Fed could _______ the reserve requirement ratio. a. increase b. stabilize c. reduce d. eliminate The term "quantitative easing" refers to the Fed's a. purchases of only short-term Treasury securities. b. sales of only short-term Treasury securities. c. purchases of various types of debt securities, including risky debt securities. d. purchases of only commodities such as gold. When the Fed sells securities, the total funds of commercial banks ______ by the market value of the securities sold by the Fed. This activity initiated by the FOMC's policy directive is referred to as a ______ of money supply growth. a. increase; loosening b. decrease; loosening c. increase; tightening d. decrease; tightening e. None of these are correct. The ______ rate is the interest rate charged on the Fed's short-term loans to depository institutions. a. federal funds b. prime c. primary credit d. real ____ includes currency held by the public and checking deposits as well as savings accounts and small time deposits, money market deposit accounts, and some other items. a. M1 b. M2 c. M3 d. None of these are correct. The ____ is directly responsible for conducting monetary policy. a. Federal Advisory Council b. FOMC c. Senate d. President of the United States Repurchase agreements are purchased by the Fed to _________ the aggregate level of bank funds. a. temporarily decrease b. permanently increase c. permanently decrease d. temporarily increase To increase money supply growth, the Fed could a. sell government securities in the secondary market. b. increase the primary credit rate. c. increase the reserve requirement ratio. d. All of these are correct. e. None of these are correct. Which of the following is the most likely effect when the Fed increases the supply of funds to the banking system? a. higher interest rates offered on bank deposits b. lower yields on debt securities c. higher interest rates on home mortgages d. higher interest rates on loans to businesses ____ open market operations offset the impact of other conditions that affect the level of funds. a. Active b. Passive c. Dynamic d. Defensive Which of the following were purchased by the Fed as part of its quantitative easing during the credit crisis? a. mortgage-backed securities b. commercial paper c. bonds backed by consumer loans, automobile loans, and credit card loans d. All of the above were purchased as part of quantitative easing. The form of money consisting of currency held by the public and checking deposits at depository institutions is called _______. a. M1. b. M2. c. M3. d. MMDA. The Fed's purchases of long-term Treasury securities during the credit crisis were intended to a. reduce long-term interest rates. b. reduce interest rates on credit cards and consumer loans. c. increase the federal funds rate. d. restore confidence in the market for Treasury securities. If the Fed initiates a program to purchase long-term Treasury securities, it is most likely attempting to a. reduce the rate on short-term Treasury securities. b. reduce the rate on commercial paper. c. reduce inflation. d. reduce long-term interest rates. The Trading Desk's open market operations to either reduce or increase the federal funds rate are classified as ________ because they are intended to have a lasting impact on economic conditions. a. defensive b. stimulative c. substantive d. dynamic The Trading Desk is sometimes directed to ____ a sufficient amount of Treasury securities to ____ the federal funds rate to a new targeted level set by the FOMC. a. buy; lower b. sell; increase c. buy; increase d. sell; lower e. Both A and B If the Trading Desk is instructed to increase the federal funds rate, its traders _________ securities dealers, and those dealers' bank account balances are __________. a. sell Treasury securities to; reduced b. sell Treasury securities to; increased c. buy Treasury securities from; reduced d. buy Treasury securities from; increased The time between when the Fed adjusts the money supply and when the adjustment has an effect on the economy is the a. recognition lag. b. implementation lag. c. impact lag. d. open-market lag. According to the theory of rational expectations, if the Fed uses open market operations to increase the supply of loanable funds, the ultimate effect on interest rates a. is a reduction in interest rates. b. is an increase in interest rates. c. is no effect on interest rates. d. cannot be determined because the effects may be offsetting. The ____ indicators tend to rise or fall at the same time as a business cycle. a. leading b. lagging c. coincident d. None of these are correct. The intent of the Fed's strategy to resolve the credit crisis in was to a. increase long-term interest rates. b. require corporations to issue more commercial paper. c. require bond rating agencies to impose higher standards on their ratings. d. reduce interest rates. Which of the following is NOT an indicator of inflation? a. housing price indexes b. wage rates c. oil prices d. consumer confidence surveys The ____ indicators tend to rise or fall after a business cycle. a. leading b. lagging c. coincident d. None of these are correct. Global crowding out refers to the impact that a. excessive U.S. population growth can have on interest rates. b. excessive global population growth can have on interest rates. c. an excessive budget deficit in one country can have on interest rates of other countries. d. an excessive budget deficit in one country can have on exchange rates. A ____-money policy can reduce unemployment, and a ____-money policy can reduce inflation. a. tight; loose b. loose; tight c. tight; tight d. loose; loose The Fed can ____ the level of spending as a means of stimulating the economy by ____ the money supply. a. increase; decreasing b. decrease; increasing c. decrease; decreasing d. increase; increasing Inflation is commonly the result of a a. large budget deficit. b. high level of interest rates. c. high level of unemployment. d. high level of aggregate demand. The Federal Reserve would be most inclined to use a simulative monetary policy to cure a recession if oil prices are a. low and steady. b. low, but rising. c. very high, but declining slightly. d. very high and rising. Which of the following is NOT a disadvantage of inflation targeting? a. If the U.S. inflation rate deviates substantially from the Fed's target inflation rate, the Fed could lose credibility. b. The Fed's focus on inflation could result in a much higher unemployment level. c. The Fed's focus on inflation will likely lead to a higher government budget deficit. d. All of these are disadvantages of inflation targeting. Which of the following might be monitored as an indicator of inflation? a. consumer price index b. gold prices c. oil prices d. All of these may be indicators of inflation. If the Fed uses a passive monetary policy during weak economic conditions, a. it increases the money supply substantially. b. it reduces the money supply substantially. c. it allows the economy to fix itself. d. it purchases commercial paper and mortgage-backed securities. The Fed's monetary policy is commonly intended to alter the supply of funds in the banking system in order to achieve a specific targeted a. discount rate. b. required reserve requirement. c. federal funds rate. d. prime rate. Which of the following is true with respect to inflation targeting? a. Inflation targeting would allow the Fed more control over inflation caused by excessive aggregate demand. b. Inflation targeting would require the Fed to maintain very strong economic growth. c. Inflation targeting could control the inflation caused by higher oil prices. d. Inflation targeting would allow the Fed to have more control over the unemployment rate. Which of the following is true about an increase in the U.S. government's budget deficit? a. It will lead to global crowding out if U.S. interest rates fall below the level of interest rates in other countries. b. It will cause outflows of foreign funds from the United States as foreign investors move their funds to other countries. c. It will cause an inward shift in the aggregate demand for loanable funds curve. d. None of these are correct. A ____ dollar tends to exert inflationary pressure in the United States. a. stable b. strong c. weak d. stable AND strong A weak dollar can stimulate ____, discourage ____, and ____ the U.S. economy. a. U.S. exports; U.S. imports; weaken b. U.S. exports; U.S. imports; stimulate c. U.S. imports; U.S. exports; stimulate d. None of these are correct.