1			In selecting a target for monetary policy, the Fed may control:
			A)	the federal funds rate or the monetary base, but not both.
			B)	the federal funds rate, but not the monetary base.
			C)	both the money supply and the federal funds rate.
			D)	neither the money supply nor the federal funds rate.
2			The Fed's most commonly used monetary policy tool is:
			A)	the reserve requirement.
			B)	open market operations
			C)	the discount rate.
			D)	capital requirements.
3			If the Fed wishes to engage in a contractionary monetary policy, it may:
			A)	raise the target federal funds rate.
			B)	lower the target federal funds rate.
			C)	lower the reserve requirement.
			D)	None of the above is correct.
4			If the Fed raises the target federal funds rate, it may attempt to achieve this by:
			A)	buying government securities.
			B)	selling government securities.
			C)	lowering the reserve requirement
			D)	None of the above is correct.
5			The federal funds market is a market in which:
			A)	banks with excess reserves loan reserves to other banks that have reserve shortfalls.
			B)	Treasury bonds are bought and sold by households, banks, and other financial institutions.
			C)	the government deficit is financed.
			D)	state and local governments borrow from the federal government.
6			If the federal funds rate exceeds the target rate, the Fed:
			A)	actively participates in the federal funds market by buying and selling reserves in the federal funds market.
			B)	uses its policy tools to affect the volume of reserves in the banking system.
			C)	requires that all banks charge the target rate when they make loans to other banks in the federal funds market.
			D)	None of the above is correct.
7			Loans made by banks in the federal funds market are:
			A)	secured by government securities.
			B)	insured by the FDIC.
			C)	unsecured.
			D)	insured by the Fed.
8			If the Fed uses open-market operations to reduce reserves in the banking system, the federal funds rate is expected to:
			A)	rise.
			B)	fall.
			C)	remain unchanged.
			D)	change in an unpredictable manner.
9			For most of the Fed's history, its practice of discouraging discount lending tended to:
			A)	help to stabilize the interbank market for reserves.
			B)	destabilize the interbank market for reserves.
			C)	have no effect on the interbank market for reserves.
			D)	sometimes stabilize, but sometimes destabilize the interbank market for reserves.
10			Short-term discount loans made to sound banks that have temporary reserve shortfalls are referred to as:
			A)	primary credit.
			B)	secondary credit.
			C)	tertiary credit.
			D)	seasonal credit.
11			Today, the primary use of the reserve requirement is to:
			A)	control the size of the money supply.
			B)	stabilize the demand for reserves.
			C)	provide a low-cost source of funds for the Federal Reserve System (since the Fed does not pay interest on reserve deposits).
			D)	None of the above is correct.
12			One difference between the conduct of monetary policy by the European Central Bank (ECB) and the Fed is that:
			A)	the Fed focuses solely on a money supply target while the ECB focuses on an interest-rate target.
			B)	the Fed conducts its monetary policy at one site (the NY Fed) while the ECB conducts monetary policy in a decentralized manner through each member nation's central bank.
			C)	The Fed is independent of the fiscal authorities while ECB policy is dictated by the fiscal policies of the member states.
			D)	None of the above is correct.
13			Desirable characteristics of a monetary policy instrument include:
			A)	it is easily observed.
			B)	it is controllable and may be quickly altered.
			C)	it is tightly linked to the policymakers' objectives.
			D)	All of the above are correct.
14			Interest-rate targets have become more commonly adopted by central banks in recent decades because:
			A)	such a policy tends to be less destabilizing than a monetary aggregate target.
			B)	this policy rule is required by fiscal policymakers in most countries.
			C)	the adoption of a monetary aggregate target always resulted in high rates of money growth.
			D)	None of the above is correct.

Consider the following formula for the Taylor rule:

Target federal funds rate = 2½ + current inflation + ½(inflation gap) + ½(output gap)

15			If the current rate of inflation is 4%, the target rate of inflation is 3%, and output is 2% above its potential, the target federal funds rate would be:
			A)	7.5%.
			B)	10.0%.
			C)	8.0%.
			D)	9.0%.