Question 1

If the Federal Reserve eliminated all reserve requirements the most likely result would be

Accepted Answer

A)  a large number of depository institution failures because they would not have enough liquidity. 
B)  the Federal reserve would be unable to control the money supply. 
C)  banks would no longer be able to clear checks at the Federal Reserve because there would be no required reserves. 
D)  the size of the money multiplier might fluctuate considerably making the Federal Reserve's job of controlling the money supply more difficult. 
A)  a large number of depository institution failures because they would not have enough liquidity. 
B)  the Federal reserve would be unable to control the money supply. 
C)  banks would no longer be able to clear checks at the Federal Reserve because there would be no required reserves. 
D)  the size of the money multiplier might fluctuate considerably making the Federal Reserve's job of controlling the money supply more difficult.

Question 2

__________ the required reserve ratio will __________ the potential for multiple expansion.

Accepted Answer

A)  Raising; increase 
B)  Lowering; decrease 
C)  Raising; decrease 
D)  None of the above. 
A)  Raising; increase 
B)  Lowering; decrease 
C)  Raising; decrease 
D)  None of the above.

Question 3

The price of reserves that are borrowed from the Federal Reserve is called the

Accepted Answer

A)  discount rate. 
B)  federal funds rate. 
C)  LIBOR. 
D)  prime rate. 
A)  discount rate. 
B)  federal funds rate. 
C)  LIBOR. 
D)  prime rate.

Question 4

The primary function of reserve requirements is to serve as

Accepted Answer

A)  a source of bank liquidity. 
B)  an instrument of monetary control. 
C)  a means of reducing bank profits. 
D)  a means of controlling the amount of currency in the banking system. 
A)  a source of bank liquidity. 
B)  an instrument of monetary control. 
C)  a means of reducing bank profits. 
D)  a means of controlling the amount of currency in the banking system.

Question 5

Assume that the M1 multiplier is 4. If the Federal Reserve purchases $200 worth of government securities, the money supply will

Accepted Answer

A)  rise by $200. 
B)  rise by $800. 
C)  fall by $200. 
D)  fall by $800. 
A)  rise by $200. 
B)  rise by $800. 
C)  fall by $200. 
D)  fall by $800.

Question 6

A sign that the Federal Reserve is moving to raise interest rates would be

Accepted Answer

A)  an increase in bank reserves. 
B)  large purchases of Treasury securities by the Federal Reserve. 
C)  a widening gap between the Treasury bill yield and the discount rate. 
D)  a narrowing gap between the Treasury bill yield and the discount rate. 
A)  an increase in bank reserves. 
B)  large purchases of Treasury securities by the Federal Reserve. 
C)  a widening gap between the Treasury bill yield and the discount rate. 
D)  a narrowing gap between the Treasury bill yield and the discount rate.

Question 7

The ultimate source of liquidity in a modern industrial economy is the

Accepted Answer

A)  government Treasury. 
B)  central bank. 
C)  capital market. 
D)  liquidity market. 
A)  government Treasury. 
B)  central bank. 
C)  capital market. 
D)  liquidity market.

Question 8

Reserve requirements apply to

Accepted Answer

A)  life insurance companies. 
B)  investment banks. 
C)  credit unions. 
D)  stock brokers. 
A)  life insurance companies. 
B)  investment banks. 
C)  credit unions. 
D)  stock brokers.

Question 9

A sign that the Federal Reserve is moving to lower interest rates would be

Accepted Answer

A)  a reduction in bank reserves. 
B)  an increase in margin requirements. 
C)  a widening gap between the Treasury bill yield and the discount rate. 
D)  a narrowing gap between the Treasury bill yield and the discount rate. 
A)  a reduction in bank reserves. 
B)  an increase in margin requirements. 
C)  a widening gap between the Treasury bill yield and the discount rate. 
D)  a narrowing gap between the Treasury bill yield and the discount rate.

Question 10

Which of the following institutions is eligible to borrow from the Federal Reserve at the discount rate?

Accepted Answer

A)  Federal government 
B)  Savings and loan institutions 
C)  Money market mutual funds 
D)  Life insurance companies 
A)  Federal government 
B)  Savings and loan institutions 
C)  Money market mutual funds 
D)  Life insurance companies

Question 11

Assume that the M1 multiplier is 2.5. If the Federal Reserve purchases $200 worth of government securities, the money supply will

Accepted Answer

A)  rise by $200. 
B)  rise by $500. 
C)  fall by $200. 
D)  fall by $500. 
A)  rise by $200. 
B)  rise by $500. 
C)  fall by $200. 
D)  fall by $500.

Question 12

When the Federal Reserve sells $500 worth of government securities, the money supply

Accepted Answer

A)  rises by $500. 
B)  rises by more than $500. 
C)  falls by $500. 
D)  falls by more than $500. 
A)  rises by $500. 
B)  rises by more than $500. 
C)  falls by $500. 
D)  falls by more than $500.

Question 13

A matched sale-purchase agreement of government securities by the Fed

Accepted Answer

A)  permanently increases bank reserves. 
B)  temporarily increases bank reserves. 
C)  permanently reduces bank reserves. 
D)  temporarily reduces bank reserves. 
A)  permanently increases bank reserves. 
B)  temporarily increases bank reserves. 
C)  permanently reduces bank reserves. 
D)  temporarily reduces bank reserves.

Question 14

A sound policy to combat a temporary liquidity shortage in the banking system would be

Accepted Answer

A)  a reduction in the discount rate. 
B)  a decrease in the discount rate. 
C)  the purchase of government securities by the Fed under a repurchase agreement. 
D)  the sale of government securities by the Fed under a repurchase agreement. 
A)  a reduction in the discount rate. 
B)  a decrease in the discount rate. 
C)  the purchase of government securities by the Fed under a repurchase agreement. 
D)  the sale of government securities by the Fed under a repurchase agreement.

Question 15

Reserve requirements apply to

Accepted Answer

A)  FDIC-insured banks only. 
B)  nationally chartered banks only. 
C)  Federal Reserve member banks only. 
D)  all commercial banks. 
A)  FDIC-insured banks only. 
B)  nationally chartered banks only. 
C)  Federal Reserve member banks only. 
D)  all commercial banks.

Question 16

A __________ discount rate makes it __________ advantageous to sell securities to obtain additional reserves.

Accepted Answer

A)  higher; less 
B)  lower; more 
C)  higher; more 
D)  None of the above. 
A)  higher; less 
B)  lower; more 
C)  higher; more 
D)  None of the above.

Exam 19: The Instruments of Central Bankin

If the Federal Reserve eliminated all reserve requirements the most likely result would be

__________ the required reserve ratio will __________ the potential for multiple expansion.

The price of reserves that are borrowed from the Federal Reserve is called the

The primary function of reserve requirements is to serve as

Assume that the M1 multiplier is 4. If the Federal Reserve purchases $200 worth of government securities, the money supply will

A sign that the Federal Reserve is moving to raise interest rates would be

The ultimate source of liquidity in a modern industrial economy is the

Reserve requirements apply to

A sign that the Federal Reserve is moving to lower interest rates would be

Which of the following institutions is eligible to borrow from the Federal Reserve at the discount rate?

Assume that the M1 multiplier is 2.5. If the Federal Reserve purchases $200 worth of government securities, the money supply will

When the Federal Reserve sells $500 worth of government securities, the money supply

A matched sale-purchase agreement of government securities by the Fed

A sound policy to combat a temporary liquidity shortage in the banking system would be

Reserve requirements apply to

A __________ discount rate makes it __________ advantageous to sell securities to obtain additional reserves.

Introducing Money, Banking, and Financial Markets

The Role of Money in the Macroeconomy

Financial Instruments, Markets, and Institutions

Interest Rate Measurement and Behavior

The Term and Risk Structure of Interest Rates

The Structure and Performance of Securities Markets

The Pricing of Risky Financial Assets

Money and Capital Markets

Demystifying Derivatives

Understanding Foreign Exchange

The Nature of Financial Intermediation

Depository Financial Institutions

Nondepository Financial Institutions

Understanding Financial Contracts

The Regulation of Markets and Institutions

Financial System Design

Who's in Charge Here?

Bank Reserves and the Money Supply

Understanding Movements in Bank Reserves

Monetary Policy Strategy

The Classical Foundations

The Keynesian Framework

The ISLM World

Money and Economic Stability in the ISLM World

An Aggregate Supply and Demand Perspective on Money and Economic Stability

Rational Expectations: Theory and Policy Implications

Empirical Evidence on the Effectiveness of Monetary Policy

Tying It All Together

Filters

the required reserve ratio will the potential for multiple expansion.

A discount rate makes it advantageous to sell securities to obtain additional reserves.