Which of the following activities of the central bank do not constitute monetary
ID: 1107490 • Letter: W
Question
Which of the following activities of the central bank do not constitute monetary policy?
A.
Monitoring financial institutions.
B.
Controlling certain key interest rates.
C.
Monitoring key stock prices.
D.
Indirectly controlling the money supply.
The Fed's dual mandate includes maintaining
A. maximum and sustainable levels of unemployment
B. maximum and sustainable levels of money supply
C. low and predictable levels of inflation
.
The Fed engages in different types of activities to achieve its dual mandate. In the following examples, identify the type of activity being carried out by the Fed.
Example
Activity
The Fed transfers $1 million from Santander Bank's reserves(on deposit at the Fed) to Deutsche Bank's reserves whenAlice, a customer of Deutsche Bank, goes to clear a check written to her by April, a customer of Santander Bank.
A. Regulation
B. Management of macroeconomic fluctuations
C. Management of interbank transfers
The Fed increases the quantity of bank reserves to stimulate the economy by increasing inflation and lowering unemployment.
A. Regulation
B. Management of interbank transfers
C. Management of macroeconomic fluctuations
The Fed fails Morgan Stanley in its stress test and orders the bank to improve its balance sheet by adding more capital.
A. Management of interbank transfers
B. Management of macroeconomic fluctuations
C. Regulation
Example
Activity
The Fed transfers $1 million from Santander Bank's reserves(on deposit at the Fed) to Deutsche Bank's reserves whenAlice, a customer of Deutsche Bank, goes to clear a check written to her by April, a customer of Santander Bank.
A. Regulation
B. Management of macroeconomic fluctuations
C. Management of interbank transfers
The Fed increases the quantity of bank reserves to stimulate the economy by increasing inflation and lowering unemployment.
A. Regulation
B. Management of interbank transfers
C. Management of macroeconomic fluctuations
The Fed fails Morgan Stanley in its stress test and orders the bank to improve its balance sheet by adding more capital.
A. Management of interbank transfers
B. Management of macroeconomic fluctuations
C. Regulation
Explanation / Answer
Which of the following activities of the central bank do not constitute monetary policy? C.Monitoring key stock prices.
This is because controlling the money supply while using rates of interest like FFR and DR are more common tools, and perhaps stocks are traded this trade determines their prices.
The Fed's dual mandate includes maintaining C. low and predictable levels of inflation
It has a dual mandate in stabilizing the level of output and the stabilize the level of prices so that they do not fluctutate too much
The first function is transfering function as funds are transfered.
The second function is macroeconomic because the Fed is increasing money supply to correct a disequilibrium
The third function is regulation because the Fed acts as a regulatory body asking a bank to operate within banking norm and standards.
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