Question 1

Which of the following statements is correct?

Accepted Answer

A) The discount rate is determined by market forces. 
B) The Fed's control over discount lending is more complete than its control over open market operations. 
C) Decisions by both banks and the Fed determine the volume of discount loans. 
D) The discount rate is typically greater than other short-term market interest rates. 
A) The discount rate is determined by market forces. 
B) The Fed's control over discount lending is more complete than its control over open market operations. 
C) Decisions by both banks and the Fed determine the volume of discount loans. 
D) The discount rate is typically greater than other short-term market interest rates.

Question 2

Open market operations involve

Accepted Answer

A) the Fed making discount loans to depository institutions. 
B) the Fed buying and selling common stock in order to affect the liquidity of the stock market. 
C) the Fed buying and selling U.S. government securities. 
D) private investors buying and selling securities directly on exchanges, rather than through brokers. 
A) the Fed making discount loans to depository institutions. 
B) the Fed buying and selling common stock in order to affect the liquidity of the stock market. 
C) the Fed buying and selling U.S. government securities. 
D) private investors buying and selling securities directly on exchanges, rather than through brokers.

Question 3

If the Fed purchases securities worth $10 million from a commercial bank, the banking system'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 4

The effect on multiple deposit expansion

Accepted Answer

A) is greater if banks use excess reserves to make loans than if they use them to buy securities. 
B) is greater if banks use excess reserves to buy securities than if they use them to make loans. 
C) is the same whether banks use excess reserves to buy securities or to make loans. 
D) is dependent upon the types of loans banks make and the types of securities banks buy. 
A) is greater if banks use excess reserves to make loans than if they use them to buy securities. 
B) is greater if banks use excess reserves to buy securities than if they use them to make loans. 
C) is the same whether banks use excess reserves to buy securities or to make loans. 
D) is dependent upon the types of loans banks make and the types of securities banks buy.

Question 5

Suppose the Federal Reserve decides to begin conducting open market operations by buying and selling Pokemon cards rather than Treasury securities. What would be the impact on the monetary base if the Fed purchased $100 million worth of Pokemon cards?

Accepted Answer

The monetary base would rise b

Question 6

Required reserves are equal to

Accepted Answer

A) the required reserve ratio divided by checkable deposits. 
B) checkable deposits divided by the required reserve ratio. 
C) excess reserves divided by total reserves. 
D) the required reserve ratio times checkable deposits. 
A) the required reserve ratio divided by checkable deposits. 
B) checkable deposits divided by the required reserve ratio. 
C) excess reserves divided by total reserves. 
D) the required reserve ratio times checkable deposits.

Question 7

The British central bank is known as

Accepted Answer

A) the Bank of the Empire. 
B) the Bank of London. 
C) the Bank of England. 
D) the British Federal Reserve. 
A) the Bank of the Empire. 
B) the Bank of London. 
C) the Bank of England. 
D) the British Federal Reserve.

Question 8

What is the most direct method the Fed uses to change the monetary base?

Accepted Answer

A) Open market operations 
B) Changing the required reserve ratio 
C) Changing the federal funds rate 
D) Changing the level of discount loans 
A) Open market operations 
B) Changing the required reserve ratio 
C) Changing the federal funds rate 
D) Changing the level of discount loans

Question 9

If the Fed makes a discount loan of $2 million to a commercial bank, the Fed's balance sheet will show

Accepted Answer

A) an increase in discount loans of $2 million and an increase in bank reserves of $2 million. 
B) an increase in discount loans of $2 million and a decrease in bank reserves of $2 million. 
C) a decrease in discount loans of $2 million and an increase in bank reserves of $2 million. 
D) a decrease in discount loans of $2 million and a decrease in bank reserves of $2 million. 
A) an increase in discount loans of $2 million and an increase in bank reserves of $2 million. 
B) an increase in discount loans of $2 million and a decrease in bank reserves of $2 million. 
C) a decrease in discount loans of $2 million and an increase in bank reserves of $2 million. 
D) a decrease in discount loans of $2 million and a decrease in bank reserves of $2 million.

Question 10

Evaluate the following argument: "If banks increase their excess reserves, the monetary base will increase. If the monetary base increases, the money supply will increase. Therefore, an increase in excess reserves increases the money supply."

Accepted Answer

The statement is false. An inc

Which of the following statements is correct?

Open market operations involve

If the Fed purchases securities worth $10 million from a commercial bank, the banking system's balance sheet will show

The effect on multiple deposit expansion

Suppose the Federal Reserve decides to begin conducting open market operations by buying and selling Pokemon cards rather than Treasury securities. What would be the impact on the monetary base if the Fed purchased $100 million worth of Pokemon cards?

Required reserves are equal to

The British central bank is known as

What is the most direct method the Fed uses to change the monetary base?

If the Fed makes a discount loan of $2 million to a commercial bank, the Fed's balance sheet will show

Evaluate the following argument: "If banks increase their excess reserves, the monetary base will increase. If the monetary base increases, the money supply will increase. Therefore, an increase in excess reserves increases the money supply."

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

Exam 17: The Money Supply Process

Which of the following statements is correct?

Open market operations involve

If the Fed purchases securities worth $10 million from a commercial bank, the banking system's balance sheet will show

The effect on multiple deposit expansion

Suppose the Federal Reserve decides to begin conducting open market operations by buying and selling Pokemon cards rather than Treasury securities. What would be the impact on the monetary base if the Fed purchased $100 million worth of Pokemon cards?

Required reserves are equal to

The British central bank is known as

What is the most direct method the Fed uses to change the monetary base?

If the Fed makes a discount loan of $2 million to a commercial bank, the Fed's balance sheet will show

Evaluate the following argument: "If banks increase their excess reserves, the monetary base will increase. If the monetary base increases, the money supply will increase. Therefore, an increase in excess reserves increases the money supply."

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