Download Econ 353: Money, Banking and Financial Markets Problem Set 7 Solutions and more Assignments Economics in PDF only on Docsity! Econ 353: Money, Banking and Financial Markets Problem Set 7 Solution 1. The money supply is ________ related to the nonborrowed monetary base, and ________ related to the level of borrowed reserves. A) positively; negatively B) negatively; not C) positively; positively D) negatively; negatively 2. Over the long run the primary determinant of movements in the money supply is the A) currency ratio. B) excess reserves ratio. C) required reserve ratio. D) nonborrowed base. 3. The Fed uses three policy tools to manipulate the money supply: open market operations, which affect the ________; changes in borrowed reserves, which affect the ________; and changes in reserve requirements, which affect the ________. A) money multiplier; monetary base; monetary base B) monetary base; money multiplier; monetary base C) monetary base; monetary base; money multiplier D) money multiplier; money multiplier; monetary base 4. Everything else held constant, in the market for reserves, when the federal funds rate is 3%, raising the discount rate from 5% to 6% A) lowers the federal funds rate. B) raises the federal funds rate. C) has no effect on the federal funds rate. D) has an indeterminate effect on the federal funds rate. 5. In the market for reserves, an increase in the reserve requirement ________ the demand for reserves, ________ the federal funds rate, everything else held constant. A) decreases; lowering B) increases; lowering C) increases; raising D) decreases; raising 6. In the channel-corridor system A) control of the overnight interest rate is impossible. B) reserve requirements are essential for monetary control. C) the overnight rate always equals the Lombard rate. D) monetary control can be exercised with no required reserves. 1 7. There are two types of open market operations: ________ open market operations are intended to change the level of reserves and the monetary base, and ________ open market operations are intended to offset movements in other factors that affect the monetary base. A) defensive; dynamic B) defensive; static C) dynamic; defensive D) dynamic; static 8. The Fed's discount lending is of three types: ________ is the most common category; ________ is given to a limited number of banks in vacation and agricultural areas; ________ is given to banks that have experienced severe liquidity problems. A) seasonal credit; secondary credit; primary credit B) secondary credit; seasonal credit; primary credit C) primary credit; seasonal credit; secondary credit D) seasonal credit; primary credit; secondary credit 9. The theory that monetary policy conducted on a discretionary, day-by-day basis leads to poor long-run outcomes is referred to as the A) adverse selection problem. B) moral hazard problem. C) time-inconsistency problem. D) nominal-anchor problem. 10. Which of the following is an advantage of using an implicit nominal anchor for monetary policy? A) It does not rely on the money-inflation relationship. B) It is simplistic and has clarity. C) There is increased accountability of central bankers. D) There is an immediate signal if the target has been achieved. 11. Which of the following is not a requirement in selecting an intermediate target? A) Measurability B) Controllability C) Flexibility D) Predictability 2
