Exercise 9

1.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

2The quantity of reserves demanded equals

A) required reserves plus borrowed reserves.

B) excess reserves plus borrowed reserves.

C) required reserves plus excess reserves.

D) total reserves minus excess reserves.

3. Everything else held constant, when the federal funds rate is ________ the interest rate paid on reserves, the quantity of reserves demanded rises when the federal funds rate ________.

A) above, rises

B) above, falls

C) below, rises

D) below, falls

4.The opportunity cost of holding excess reserves is________.

A)the federal funds rate

B) the discount rate

C) the interest rate paid on excess reserves

D) the interest rate paid onrequiredreserves

5. In the market for reserves, if the federal funds rate is above the interest rate paid on excess reserves, an open market purchase ________ the ________ of reserves which causes the federal funds rate to fall, everything else held constant.

A) increases; supply

B) increases; demand

C) decreases; supply

D) decreases; demand

TRUE OR FALSE:

6. Foreign exchange reserve is the most important asset on the balance sheet of People's bank of China.

7. When the central bank sell T- bills to commercial banks, the asset of central bank will decrease, and the liabilities of commercial bank will increase.

8. The monetary policy goal of the PBC is price stability.

9.The interest rate on excess reserve set a ceiling for the federal funds rate.

10.Discount policy is the most important policy tool for the FED.

Simple answer questions:

1.Howthe PBC use OMO to affect SHIBOR?

2.What are theadvantageous and disadvantagesof the 3 tools?

Analysis questions: