Question 1

Which of the following is not a tool of monetary policy?

Accepted Answer

A)   open market operations
B)   reserve requirements
C)   changing the discount rate
D)   increasing the government budget deficitE) None of the above
F) C) and D)

Question 2

An increase in the money supply might indicate that the Fed had

Accepted Answer

A)   purchased bonds to increase banks reserves.
B)   purchased bonds to decrease banks reserves.
C)   sold bonds to increase banks reserves.
D)   sold bonds to decrease banks reserves.E) B) and D)
F) B) and C)

Question 3

What is the change in the money supply when the Fed purchases $700 worth of bonds and the required reserve ratio is 14 percent assuming banks hold no excess reserves?

Accepted Answer

The answer of What is the change in the money...

Question 4

If the reserve ratio is 10 percent, the money multiplier is

Accepted Answer

A)   100.
B)   10.
C)   9/10.
D)   1/10.E) A) and B)
F) A) and C)

Question 5

Today, bank runs are

Accepted Answer

A)   uncommon because of the high reserve requirement.
B)   uncommon because of FDIC deposit insurance.
C)   common because of the low reserve requirement.
D)   common because the FDIC is nearly bankrupt.E) A) and B)
F) A) and C)

Question 6

The interest rate that the Fed charges banks that borrow reserves from it is the

Accepted Answer

A)   federal funds rate.
B)   discount rate.
C)   reserve requirement.
D)   prime rate.E) A) and B)
F) A) and C)

Question 7

The president of each regional Federal Reserve Bank is appointed by

Accepted Answer

A)   the U.S. president with the approval of the Senate.
B)   the Board of Governors.
C)   the voting members of the Federal Open Market Committee.
D)   the board of directors of that regional Federal Reserve Bank.E) A) and D)
F) C) and D)

Question 8

If $300 of new reserves generates $800 of new money in the economy, then the reserve ratio is

Accepted Answer

A)   2.7 percent.
B)   12.5 percent.
C)   37.5 percent.
D)   40 percent.E) B) and C)
F) None of the above

Question 9

The legal tender requirement means that

Accepted Answer

A)   people are more likely to accept the dollar as a medium of exchange.
B)   the government must hold enough gold to redeem all currency.
C)   people may not make trades with anything else.
D)   All of the above are correct.E) None of the above
F) B) and D)

Question 10

Suppose the Federal Reserve increases bank reserves and banks lend out some of these reserves, but at some point banks still have $5 million more they wish to lend out. If the reserve requirement is 10 percent, how much more money can banks create if they lend out the remaining amount?

Accepted Answer

A)   $55 million
B)   $50 million
C)   $45 million
D)   $40 millionE) B) and D)
F) None of the above

Question 11

When conducting an open-market sale, the Fed

Accepted Answer

A)   buys government bonds, and in so doing increases the money supply.
B)   buys government bonds, and in so doing decreases the money supply.
C)   sells government bonds, and in so doing increases the money supply.
D)   sells government bonds, and in so doing decreases the money supply.E) None of the above
F) A) and B)

Question 12

Which of the following is correct?

Accepted Answer

A)   A bank's deposits at the Federal Reserve counts as part of the bank's reserves. The Federal Reserve pays interest on these deposits.
B)   A bank's deposits at the Federal Reserve counts as part of the bank's reserves. The Federal Reserve does not pay interest on these deposits.
C)   A bank's deposits at the Federal Reserve does not count as part of the bank's reserves. The Federal Reserve pays interest on these deposits.
D)   A bank's deposits at the Federal Reserve does not count as part of the bank's reserves. The Federal Reserve does not pay interest on these deposits.E) All of the above
F) B) and D)

Question 13

The manager of the bank where you work tells you that your bank has $10 million in excess reserves. She also tells you that the bank has $400 million in deposits and $375 million dollars in loans. Given this information you find that the reserve requirement must be

Accepted Answer

A)   10/400.
B)   25/400.
C)   35/400.
D)   15/400.E) A) and B)
F) All of the above

Question 14

In recent years the Federal Open Market Committee has focused on a target for

Accepted Answer

A)   M1 growth.
B)   the federal funds rate.
C)   the number of Treasury Securities issued by the federal government.
D)   total reserves of banks.E) None of the above
F) A) and C)

Question 15

When the Federal Reserve conducts open-market operations to increase the money supply, it

Accepted Answer

A)   redeems Federal Reserve notes.
B)   buys government bonds from the public.
C)   raises the discount rate.
D)   decreases its lending to member banks.E) A) and B)
F) All of the above

Question 16

At any given time, the voting members of the Federal Open Market Committee include

Accepted Answer

A)   five of the presidents of the regional Federal Reserve banks.
B)   the president of the Federal Reserve Bank of New York.
C)   the seven members of the Board of Governors.
D)   All of the above are correct.E) A) and D)
F) C) and D)

Question 17

The Federal Reserve is a privately operated commercial bank.

Accepted Answer

A) True 
 B)False

Question 18

The money supply increases when the Fed

Accepted Answer

A)   buys bonds. The increase will be larger, the smaller is the reserve ratio.
B)   buys bonds. The increase will be larger, the larger is the reserve ratio.
C)   sells bonds. The increase will be larger, the smaller is the reserve ratio.
D)   sells bonds. The increase will be larger, the larger is the reserve ratio.E) A) and C)
F) B) and C)

Question 19

What does the Fed auction at the Term-Auction Facility?

Accepted Answer

A)   government bonds of a quantity it sets
B)   government bonds with the quantity determined at the auction
C)   loans of a quantity it sets
D)   loans with the quantity determined at the auctionE) None of the above
F) C) and D)

Question 20

In a fractional reserve economy where the required reserve ratio is 10%, must it be the case that an initial deposit of $100 increases the total money supply by $1,000? Explain.

Accepted Answer

No, this is not necessarily the case.
It...

Exam 29: The Monetary System

In recent years the Federal Open Market Committee has focused on a target for

Correct AnswerverifiedShow Answer

An increase in the money supply might indicate that the Fed had

Correct AnswerverifiedShow Answer

The legal tender requirement means that

Correct AnswerverifiedShow Answer

What is the change in the money supply when the Fed purchases $700 worth of bonds and the required reserve ratio is 14 percent assuming banks hold no excess reserves?

Correct AnswerverifiedShow Answer

The interest rate that the Fed charges banks that borrow reserves from it is the

Correct AnswerverifiedShow Answer

Which of the following is correct?

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When conducting an open-market sale, the Fed

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Today, bank runs are

Correct AnswerverifiedShow Answer

In a fractional reserve economy where the required reserve ratio is 10%, must it be the case that an initial deposit of $100 increases the total money supply by $1,000? Explain.

Correct AnswerverifiedNo, this is not necessarily the case.It...View AnswerShow Answer

When the Federal Reserve conducts open-market operations to increase the money supply, it

Correct AnswerverifiedShow Answer

If the reserve ratio is 10 percent, the money multiplier is

Correct AnswerverifiedShow Answer

The manager of the bank where you work tells you that your bank has $10 million in excess reserves. She also tells you that the bank has $400 million in deposits and $375 million dollars in loans. Given this information you find that the reserve requirement must be

Correct AnswerverifiedShow Answer

The Federal Reserve is a privately operated commercial bank.

Correct AnswerverifiedShow Answer

Suppose the Federal Reserve increases bank reserves and banks lend out some of these reserves, but at some point banks still have $5 million more they wish to lend out. If the reserve requirement is 10 percent, how much more money can banks create if they lend out the remaining amount?

Correct AnswerverifiedShow Answer

The president of each regional Federal Reserve Bank is appointed by

Correct AnswerverifiedShow Answer

Which of the following is not a tool of monetary policy?

Correct AnswerverifiedShow Answer

If $300 of new reserves generates $800 of new money in the economy, then the reserve ratio is

Correct AnswerverifiedShow Answer

What does the Fed auction at the Term-Auction Facility?

Correct AnswerverifiedShow Answer

The money supply increases when the Fed

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At any given time, the voting members of the Federal Open Market Committee include

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No, this is not necessarily the case.
It...
View Answer

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