1. Suppose the Federal Reserve reduces its discount rate by a full percentage
point. Which of the following is likely to occur?
A. re increases
B. the monetary base rises
C. Treasury bill yields fall
D. all of the above
2. An advantage of abolishing the discount window is that such a move would eliminate:
A. ambiguous announcement effects
B. the tendency for discounts and advances to behave procyclically
C. the use of the discount window to circumvent Fed policy intent
D. all of the above
3. If one looks at the historical figures, the volume of discounts and advances has typically:
A. been highest when the discount rate is high
B. been highest when the discount rate is above money market yields
C. expanded during recessions
D. done all of the above
4. One reason that more banks decided to give up membership in the Federal Reserve System in the 1970s was that:
A. the Federal Reserve's reserve requirements were too low
B. rising interest rates increased the reserve requirement tax
C. rising reserve requirements increased the reserve requirement tax
D. the Fed only paid interest on reserves to nonmember banks
5. DIDMCA of 1980 did which of the following?
A. forced all banks to join the Federal Reserve System
B. forced the Fed to pay interest to banks on reserves
C. forced all banks to abide by reserve requirements set by the Fed
D. all of the above
6. The text points out that if k = .40, and re = .005, then a decrease in rr from 10 percent to 9 percent will increase the money supply multiplier by approximately:
A. 2 percent
B. 6 percent
C. 10 percent
D. 20 percent
7. A disadvantage of the reserve requirement instrument is its:
A. slow speed of impact
B. lack of flexibility
C. ambiguous announcement effect relative to other tools
D. all of the above are disadvantages
8. Currently, reserve requirements differ for:
A. savings and loan associations and banks
B. very small and very large depository institutions
C. mutual savings banks and commercial banks
D. banks and thrifts
9. Which of the following is the least flexible tool of monetary policy?
A. open market operations
B. discount policy
C. reserve requirement policy
10. In practice, which instrument of Fed policy is employed least frequently?
A. open market operations
B. changes in the discount rate
C. changes in reserve requirements
11. The Federal Reserve's ability to accurately control the money supply (M1) would be enhanced by which of the following measures?
A. elimination of all reserve requirements
B. establishing reserve requirements on savings and time deposits
C. eliminating the small bank subsidy--that is, setting a uniform reserve requirement for all demand deposits in all banks
D. eliminating reserve requirements for S&Ls and mutual savings
banks
Answers:1D, 2D, 3A, 4B, 5C, 6A, 7B, 8B, 9C, 10C, 11C.