SOLVED

11) The Federal Reserve views commercial bank use of the discount window as A) something to be used only by commercial banks. B) completely up to the borrower. C) a privilege, not a right for eligible borrowers. D) something to be used only in financial panics. 12) One method used by the Federal Reserve to prevent abuse of the discount facility is A) higher bank taxes. B) higher reserve requirements. C) tighter bank surveillance. D) selling fewer government securities to the banks involved. 13) As a tool of monetary policy the effectiveness of the discount rate is __________ because __________. A) Limited; banks will not borrow reserves from the Fed as long as they have ample excess reserves no matter how low the discount rate goes B) Limited; banks will borrow reserves from the Fed whenever they need them as long as they have a reserve deficiency no matter how high the discount rate goes C) very effective; changes in the discount rate leads changes in money market rates and thus assures that the injections and withdrawals of reserves from the banking system desired by the Fed will occur D) very effective; banks will predictably increase borrowings from the Federal Reserve when the discount rate decreases and decrease borrowings when the discount rate increases 14) Which of the following interest rates is usually below other money market rates? A) Discount rate B) Prime rate C) Federal funds rate D) Treasury note rate 15) A change in the discount rate is likely to occur A) after a change in the Treasury bill rate. B) after a change in the Treasury bond rate. C) before a change in the federal funds rate. D) before a change in the inflation rate. 16) Recently, new discount window lending procedures set a penalty rate that is normally __________ short-term market interest rates. A) just below B) above C) approximately equal to D) None of the above. 17) A __________ discount rate makes it __________ advantageous to sell securities to obtain additional reserves. A) higher; less B) lower; more C) higher; more D) None of the above. 18) A sign that the Federal Reserve is moving to lower interest rates would be A) a reduction in bank reserves. B) an increase in margin requirements. C) a widening gap between the Treasury bill yield and the discount rate. D) a narrowing gap between the Treasury bill yield and the discount rate. 19) A sign that the Federal Reserve is moving to raise interest rates would be A) an increase in bank reserves. B) large purchases of Treasury securities by the Federal Reserve. C) a widening gap between the Treasury bill yield and the discount rate. D) a narrowing gap between the Treasury bill yield and the discount rate. 20) A good example of using the discount rate to serve the lender of last resort role for the financial system occurred during the A) savings and loan crisis of the 1980s. B) stock market crash of 1987. C) sharp rise in government deficits during the 1980s. D) developing-country debt crisis of the 1980s.