Practice Quiz for Chapter 151. The interest rate charged on overnight loans of reserves between banks is theA. prime rate. B. discount rate.C. federal funds rate. D. Treasury bill rate.2. In the market for reserves, if the federal funds rate is above the interest rate paid on reserves, an open market purchase ___________ the supply of reserves and causes the federal funds interest rate to _________, everything else held constant.A. decreases; fall B. increases; fallC. increases; rise D. decreases; rise3. In the market for reserves, a lower interest rate paid on reservesA. decreases the supply of reserves.B. increases the supply of reserves.C. decreases the effective floor for the federal funds rate.D. increases the effective floor for the federal funds rate.4. 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.5. In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on reserves, an increase in the reserve requirement ________ the demand for reserves and causes the federal funds interest rate to ________, everything else held constant.A. decreases; fall B. increases; fallC. increases; rise D. decreases; rise6. There are two types of open market operations: __________ open market operations are intended tochange the target federal funds rate, and ___________ open market operations are intended to maintainthe target federal funds rate.A. defensive; dynamic B. defensive; staticC. dynamic; defensive D. dynamic static7. The Federal Reserve uses a repurchase agreement when it wants to __________ reserves ______________ in the banking system.A. increase; permanently B. increase; temporarilyC. decrease; temporarily D. decrease; permanently8. The discount rate isA. the interest rate the Fed charges on loans to banks.B. the price the Fed pays for government securities.C. the interest rate that banks charge their most preferred customers.D. the price banks pay the Fed for government securities.9. 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 are in financial trouble and have severe liquidity problems.A. seasonal credit; secondary credit; primary creditB. secondary credit; seasonal credit; primary creditC. primary credit; seasonal credit; secondary creditD. seasonal credit; primary credit; secondary credit10. The most important advantage of discount policy is that the Fed can use it toA. precisely control the monetary base.B. perform its role as lender of last resort.C. control the money supply.D. punish banks that have deficient reserves.Answers to practice quiz for Chapter 15.1. C2. B3. C4. A5. C6. C7. B8. A9. C10.
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