Question 1

The currency-to-deposit ratio will rise when

Accepted Answer

A) the fear of bank runs declines. 
B) the expected return on deposits rises. 
C) the anonymity premium declines. 
D) the level of underground activity increases. 
A) the fear of bank runs declines. 
B) the expected return on deposits rises. 
C) the anonymity premium declines. 
D) the level of underground activity increases.

Question 2

The largest liability of the Fed is

Accepted Answer

A) currency in circulation. 
B) reserves. 
C) discount loans to banks. 
D) vault cash. 
A) currency in circulation. 
B) reserves. 
C) discount loans to banks. 
D) vault cash.

Question 3

In managing the monetary base, the Fed most often uses

Accepted Answer

A) open market purchases. 
B) printing money. 
C) discount loans. 
D) tax increases. 
A) open market purchases. 
B) printing money. 
C) discount loans. 
D) tax increases.

Question 4

If the Fed sells securities worth $10 million to a commercial bank, the Fed's balance sheet will show

Accepted Answer

A) an increase in securities held of $10 million and an increase in bank reserves of $10 million. 
B) an increase in securities held of $10 million and a decrease in bank reserves of $10 million. 
C) a decrease in securities held of $10 million and an increase in bank reserves of $10 million. 
D) a decrease in securities held of $10 million and a decrease in bank reserves of $10 million. 
A) an increase in securities held of $10 million and an increase in bank reserves of $10 million. 
B) an increase in securities held of $10 million and a decrease in bank reserves of $10 million. 
C) a decrease in securities held of $10 million and an increase in bank reserves of $10 million. 
D) a decrease in securities held of $10 million and a decrease in bank reserves of $10 million.

Question 5

During a banking panic

Accepted Answer

A) the nominal return on currency is positive. 
B) the nominal return on currency is negative. 
C) the return on checkable deposits may be negative. 
D) the return on checkable deposits must be greater than the return on currency, as long as market interest rates are positive. 
A) the nominal return on currency is positive. 
B) the nominal return on currency is negative. 
C) the return on checkable deposits may be negative. 
D) the return on checkable deposits must be greater than the return on currency, as long as market interest rates are positive.

Question 6

Fed watchers are

Accepted Answer

A) members of Congress who serve on committees that oversee the Fed. 
B) members of the Securities and Exchange Commission who are involved in overseeing the Fed. 
C) members of the President's Council of Economic Advisors who are assigned to oversee the Fed. 
D) analysts who follow Fed decisions in order to predict changes in the federal funds rate. 
A) members of Congress who serve on committees that oversee the Fed. 
B) members of the Securities and Exchange Commission who are involved in overseeing the Fed. 
C) members of the President's Council of Economic Advisors who are assigned to oversee the Fed. 
D) analysts who follow Fed decisions in order to predict changes in the federal funds rate.

Question 7

Reserve deposits are

Accepted Answer

A) assets for financial institutions, but liabilities for the Fed. 
B) liabilities for financial institutions, but assets for the Fed. 
C) assets for both financial institutions and the Fed. 
D) liabilities for both financial institutions and the Fed. 
A) assets for financial institutions, but liabilities for the Fed. 
B) liabilities for financial institutions, but assets for the Fed. 
C) assets for both financial institutions and the Fed. 
D) liabilities for both financial institutions and the Fed.

Question 8

When the Fed holds U.S. government securities, it

Accepted Answer

A) pays interest to the government. 
B) earns interest from the government. 
C) declines to receive interest from the government. 
D) defers receiving interest from the government. 
A) pays interest to the government. 
B) earns interest from the government. 
C) declines to receive interest from the government. 
D) defers receiving interest from the government.

Question 9

The money multiplier

Accepted Answer

A) equals 1 over the required reserve ratio. 
B) is an expression that converts the monetary base to the money supply. 
C) is larger than the simple deposit multiplier. 
D) is completely controlled by the Fed. 
A) equals 1 over the required reserve ratio. 
B) is an expression that converts the monetary base to the money supply. 
C) is larger than the simple deposit multiplier. 
D) is completely controlled by the Fed.

Question 10

The currency of the United States is issued by

Accepted Answer

A) state governments and the Fed. 
B) state governments and the U.S. Treasury. 
C) the U.S. Congress. 
D) the Fed and the U.S. Treasury. 
A) state governments and the Fed. 
B) state governments and the U.S. Treasury. 
C) the U.S. Congress. 
D) the Fed and the U.S. Treasury.

Question 11

When the Fed lends to depository institutions, the loans are called

Accepted Answer

A) federal funds. 
B) discount loans. 
C) repurchase agreements. 
D) reverse repurchase agreements. 
A) federal funds. 
B) discount loans. 
C) repurchase agreements. 
D) reverse repurchase agreements.

Question 12

All of the following are likely to lead to a decrease in the currency-deposit ratio EXCEPT

Accepted Answer

A) higher risk of deposits. 
B) increased wealth. 
C) increased expected return on deposits. 
D) reduction in anonymity value of cash. 
A) higher risk of deposits. 
B) increased wealth. 
C) increased expected return on deposits. 
D) reduction in anonymity value of cash.

Question 13

The Fed pays interest on

Accepted Answer

A) both required and excess reserves. 
B) required reserves, but not excess reserves. 
C) neither required nor exess reserves. 
D) excess reserves, but not required reserves. 
A) both required and excess reserves. 
B) required reserves, but not excess reserves. 
C) neither required nor exess reserves. 
D) excess reserves, but not required reserves.

Question 14

Which of the following assumptions made in deriving the simple deposit multiplier is unrealistic?

Accepted Answer

A) The Fed sets the required reserve ratio. 
B) The Fed is able to affect the level of reserves in the banking system. 
C) Banks loan out all of their excess reserves. 
D) The simple deposit multiplier is equal to 1 divided by the required reserve ratio. 
A) The Fed sets the required reserve ratio. 
B) The Fed is able to affect the level of reserves in the banking system. 
C) Banks loan out all of their excess reserves. 
D) The simple deposit multiplier is equal to 1 divided by the required reserve ratio.

Question 15

The size of the money multiplier depends upon all of the following EXCEPT

Accepted Answer

A) the required reserve ratio. 
B) the currency-deposit ratio. 
C) excess reserves relative to deposits. 
D) the discount rate. 
A) the required reserve ratio. 
B) the currency-deposit ratio. 
C) excess reserves relative to deposits. 
D) the discount rate.

Question 16

Which of the following is NOT true of bank holdings of excess reserves?

Accepted Answer

A) They tend to be higher when the nominal market interest rate is low. 
B) They rose in the early 1980s. 
C) Banks earn no interest on excess reserves. 
D) Banks will often hold excess reserves when they expect deposit outflows. 
A) They tend to be higher when the nominal market interest rate is low. 
B) They rose in the early 1980s. 
C) Banks earn no interest on excess reserves. 
D) Banks will often hold excess reserves when they expect deposit outflows.

Question 17

What is the most important factor accounting for changes in the money supply in the long run?

Accepted Answer

In the long run, changes in th

Question 18

The primary assets of the Fed are

Accepted Answer

A) discount loans and reserves. 
B) discount loans and government securities. 
C) government securities and reserves. 
D) discount loans and open market operations. 
A) discount loans and reserves. 
B) discount loans and government securities. 
C) government securities and reserves. 
D) discount loans and open market operations.

Question 19

The Fed's portfolio of securities consists principally of

Accepted Answer

A) municipal bonds. 
B) corporate bonds. 
C) U.S. Treasury obligations. 
D) obligations of foreign governments. 
A) municipal bonds. 
B) corporate bonds. 
C) U.S. Treasury obligations. 
D) obligations of foreign governments.

Question 20

When banks hold excess reserves, the size of the money multiplier

Accepted Answer

A) is less than the simple deposit multiplier would suggest. 
B) is greater than the simple deposit multiplier would suggest. 
C) is equal to the size of the simple deposit multiplier. 
D) becomes infinite. 
A) is less than the simple deposit multiplier would suggest. 
B) is greater than the simple deposit multiplier would suggest. 
C) is equal to the size of the simple deposit multiplier. 
D) becomes infinite.

Exam 17: The Money Supply Process

The currency-to-deposit ratio will rise when

The largest liability of the Fed is

In managing the monetary base, the Fed most often uses

If the Fed sells securities worth $10 million to a commercial bank, the Fed's balance sheet will show

During a banking panic

Fed watchers are

Reserve deposits are

When the Fed holds U.S. government securities, it

The money multiplier

The currency of the United States is issued by

When the Fed lends to depository institutions, the loans are called

All of the following are likely to lead to a decrease in the currency-deposit ratio EXCEPT

The Fed pays interest on

Which of the following assumptions made in deriving the simple deposit multiplier is unrealistic?

The size of the money multiplier depends upon all of the following EXCEPT

Which of the following is NOT true of bank holdings of excess reserves?

What is the most important factor accounting for changes in the money supply in the long run?

The primary assets of the Fed are

The Fed's portfolio of securities consists principally of

When banks hold excess reserves, the size of the money multiplier

Introducing Money and the Financial System

Money and the Payments System

Overview of the Financial System

Interest Rates and Rates of Return

The Theory of Portfolio Allocation

Determining Market Interest Rates

Risk Structure and Term Structure of Interest Rates

The Foreign-Exchange Market and Exchange Rates

Derivative Securities and Derivative Markets

Information and Financial Market Efficiency

Reducing Transactions Costs and Information Costs

What Financial Institutions Do

The Business of Banking

The Banking Industry

Banking Regulation: Crisis and Response

Banking in the International Economy

Changes in the Monetary Base

Organization of Central Banks

Monetary Policy Tools

The Conduct of Monetary Policy

The International Financial System and Monetary Policy

The Demand for Money

Linking the Financial System and the Economy: the Is-Lm-Fe Model

Aggregate Demand and Aggregate Supply

Money and Output in the Short Run

Information Problems and Channels for Monetary Policy

Inflation: Causes and Consequences

Filters