Question

1. The FOCM has set the target Fed Funds rate at a range of 0% to .25% in reaction to the economic contraction caused by the COVID-19 health/economic crisis. In order to achieve this target, the Federal Reserve Bank of New York must be actively engaged in buying money market securities.

True

False

2. This would be a sensible monetary policy:

In reaction to the COVID-19 health/economic crisis of the FOMC has decided to expand only the asset side of the Federal Reserve balance sheet.

True

False

3. The following statement makes sense:

In reaction to the COVID-19 crisis, the FOMC has made a commitment to reduce the SOMA of the Federal Reserve in order to pump more money into the financial system.

True

False

4. The actions the Federal Reserve has taken in response to the COVID-19 pandemic is inconsistent with the Federal Reserve mandate of maximum employment and price stability.

True

False

5. When the prices of Treasury securities increase the yield on these securities will decline.

True

False

Answer 1

Question 1,

The FOCM has set the target Fed Funds rate at a range of 0% to .25% in reaction to the economic contraction caused by the COVID-19 health/economic crisis. In order to achieve this target, the Federal Reserve Bank of New York must be actively engaged in buying money market securities. - TRUE

Because, Due to the corona outbreak, the Federal Reserve feels that it could cause major disruption to world economy. It was on March 15th. The first and last time interest rate were zero in the US was in December 2008 at the peak of the global financial crisis.

Question 2,

In reaction to the COVID-19 health/economic crisis of the FOMC has decided to expand only the asset side of the Federal Reserve balance sheet - TRUE

On March 15th the FED announced that it would increase its Treasury securities holdings and mortgage-backed securities holdings. This purchase of assets popularly referred to as Quantitative Easing (QE).

Question 3,

In reaction to the COVID-19 crisis, the FOMC has made a commitment to reduce the SOMA of the Federal Reserve in order to pump more money into the financial system. - FALSE

Because, On March 12, the Fed announced it would offer a three-month repo of $500 billion and a one-month repo of $500 billion on a weekly basis through the end of the month in addition to the shorter-term repos it had already been offering. It will maintain the liquidity.

Question 4,

The actions the Federal Reserve has taken in response to the COVID-19 pandemic is inconsistent with the Federal Reserve mandate of maximum employment and price stability. - FALSE

According to Fed’s full monetary policy statement, Consistent with its statutory mandate, the Federal Open Market Committee (FOMC) seeks to foster maximum employment and price stability.

Question 5,

When the prices of Treasury securities increase the yield on these securities will decline - FALSE

If the demand for Treasuries is low, the Treasury yield increases to compensate for the lower demand.