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Question
State whether the following statement is true or false AND explain why: "A decrease in the discount rate will always cause a decrease in the federal reserve funds rate."
Answer
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Related questions
Q:
When good weather speeds the check-clearing process, float tends to ________ causing the Fed to initiate ________ open market ________.
A) decrease; defensive; sales
B) decrease; dynamic; sales
C) decrease; defensive; purchases
D) increase; dynamic; purchases
Q:
The actual execution of open market operations is done at
A) the Board of Governors in Washington, D.C.
B) the Federal Reserve Bank of New York.
C) the Federal Reserve Bank of Philadelphia.
D) the Federal Reserve Bank of Boston.
Q:
Suppose, at a given federal funds rate, there is an excess supply of reserves in the federal funds market. If the Fed wants the federal funds rate to stay at that level, then it should undertake an open market ________ of bonds, everything else held constant. If the Fed does nothing, however, the federal funds rate will ________.
A) sale; increase
B) purchase; increase
C) sale; decrease
D) purchase; decrease
Q:
In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, an increase in the reserve requirement ________ the ________ for reserves and causes the federal funds interest rate to rise, everything else held constant.
A) decreases; demand
B) increases; demand
C) increases; supply
D) decreases; supply
Q:
Everything else held constant, in the market for reserves, when the demand for federal funds intersects the reserve supply curve along the horizontal section, increasing the discount rate
A) increases the federal funds rate.
B) lowers the federal funds rate.
C) has no effect on the federal funds rate.
D) has an indeterminate effect on the federal funds rate.
Q:
Everything else held constant, in the market for reserves, when the federal funds rate equals the discount rate, lowering the discount rate
A) increases the federal funds rate.
B) lowers the federal funds rate.
C) has no effect on the federal funds rate.
D) has an indeterminate effect of the federal funds rate.
Q:
Everything else held constant, in the market for reserves, when the federal funds rate is 5%, lowering the discount rate from 5% to 4%
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.
Q:
Everything else held constant, in the market for reserves, when the federal funds rate is 3%, lowering the discount rate from 5% to 4%
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.
Q:
In the market for reserves, if the federal funds rate is above the interest rate paid on excess reserves, an open market sale ________ the ________ of reserves, causing the federal funds rate to increase, everything else held constant.
A) increases; supply
B) increases; demand
C) decreases; supply
D) decreases; demand
Q:
When the federal funds rate equals the discount rate
A) the supply curve of reserves is vertical.
B) the supply curve of reserves is horizontal.
C) the demand curve for reserves is vertical.
D) the demand curve for reserves is horizontal.
Q:
In the market for reserves, when the federal funds interest rate is below the discount rate, the supply curve of reserves is
A) vertical.
B) horizontal.
C) positively sloped.
D) negatively sloped.
Q:
Which of the following is NOT an argument for the Federal Reserve paying interest on excess reserve holdings?
A) Paying interest reduces the effective tax on deposits.
B) Paying interest will help in the implementation of monetary policy.
C) Paying interest will help the Federal Reserve have more control of the amount of discount loans.
D) Paying interest increases the capacity of the Fed's balance sheet which will make it easier to address financial crises.
Q:
The theory of PPP suggests that if one country's price level rises relative to another's, its currency should
A) depreciate in the long run.
B) appreciate in the long run.
C) depreciate in the short run.
D) appreciate in the short run.
Q:
According to PPP, the real exchange rate between two countries will always equal
A) 0.0.
B) 0.5.
C) 1.0.
D) 1.5.
Q:
The ________ states that exchange rates between any two currencies will adjust to reflect changes in the price levels of the two countries.
A) theory of purchasing power parity
B) law of one price
C) theory of money neutrality
D) quantity theory of money
Q:
Everything else held constant, when a country's currency depreciates, its goods abroad become ________ expensive while foreign goods in that country become ________ expensive.
A) more; less
B) more; more
C) less; less
D) less; more
Q:
If the British pound appreciates from $0.50 per pound to $0.75 per pound, the U.S. dollar depreciates from ________ per dollar to ________ per dollar.
A) 2; 2.5
B) 2; 1.33
C) 2; 1.5
D) 2; 1.25
Q:
On January 25, 2009, one U.S. dollar traded on the foreign exchange market for about 49.0 Indian rupees. Thus, one Indian rupee would have purchased about ________ U.S. dollars.
A) 0.02
B) 1.20
C) 7.00
D) 49.0
Q:
When the exchange rate for the Mexican peso changes from 10 pesos to the U.S dollar to 9 pesos to the U.S. dollar, then the Mexican peso has ________ and the U.S. dollar has ________.
A) appreciated; appreciated
B) depreciated; appreciated
C) appreciated; depreciated
D) depreciated; depreciated
Q:
When the exchange rate for the Mexican peso changes from 9 pesos to the U.S. dollar to 10 pesos to the U.S. dollar, then the Mexican peso has ________ and the U.S. dollar has ________.
A) appreciated; appreciated
B) depreciated; appreciated
C) appreciated; depreciated
D) depreciated; depreciated
Q:
When the value of the dollar changes from 0.5 to 0.75, then the British pound has ________ and the U.S. dollar has ________.
A) appreciated; appreciated
B) depreciated; appreciated
C) appreciated; depreciated
D) depreciated; depreciated
Q:
When the value of the British pound changes from $1.25 to $1.50, the pound has ________ and the U.S. dollar has ________.
A) appreciated; appreciated
B) depreciated; appreciated
C) appreciated; depreciated
D) depreciated; depreciated
Q:
Exchange rates are determined in
A) the money market.
B) the foreign exchange market.
C) the stock market.
D) the capital market.
Q:
Explain and demonstrate graphically how targeting nonborrowed reserves can result in federal funds rate instability.
Q:
If the Fed pursues a strategy of targeting an interest rate when fluctuations in money demand are prevalent,
A) fluctuations of nonborrowed reserves will be small.
B) fluctuations of nonborrowed reserves will be large.
C) the Fed will probably quickly abandon this policy, as it did in the 1960s.
D) the Fed will probably quickly abandon this policy, as it did in the 1950s.
Q:
If the central bank targets a monetary aggregate, it is likely to lose control over the interest rate because
A) of fluctuations in the demand for reserves.
B) of fluctuations in the consumption function.
C) bond values will tend to remain stable.
D) of fluctuations in the business cycle.
Q:
Which of the following is not an operating instrument?
A) Nonborrowed reserves
B) Monetary base
C) Federal funds interest rate
D) Discount rate
Q:
________ bubble is driven entirely by unrealistic optimistic expectations.
A) An irrational exuberance
B) A credit-driven
C) A stock
D) A debt-driven
Q:
If the money supply is $20 trillion and velocity is 2, then nominal GDP is
A) $2 trillion.
B) $10 trillion.
C) $20 trillion.
D) $40 trillion.
Q:
If the money supply is $2 trillion and velocity is 5, then nominal GDP is
A) $1 trillion.
B) $2 trillion.
C) $5 trillion.
D) $10 trillion.