Question 1

The Federal Open Market Committee impacts the economy through open market operations.

Accepted Answer

A) True 
 B)False  True

Question 2

If the Fed sells $10 billion of U.S.bonds in the open market and the reserve requirement is 10 percent,M1 will eventually

Accepted Answer

A) Increase by $100 billion. 
B) Increase by $1 billion. 
C) Decrease by $100 billion. 
D) Decrease by $1 billion. 
A) Increase by $100 billion. 
B) Increase by $1 billion. 
C) Decrease by $100 billion. 
D) Decrease by $1 billion. C

Question 3

Assume the reserve requirement is 10 percent,demand deposits are $200 million,and total reserves are $18 million.If the reserve requirement is increased to 14 percent,the banking system will have

Accepted Answer

A) Excess reserves equal to $10 million. 
B) Excess reserves equal to $18 million. 
C) An increase in the money multiplier. 
D) A deficiency of reserves equal to $10 million. 
A) Excess reserves equal to $10 million. 
B) Excess reserves equal to $18 million. 
C) An increase in the money multiplier. 
D) A deficiency of reserves equal to $10 million. D

Question 4

Monetary policy is set by the

Accepted Answer

A) Federal Open Market Committee. 
B) Regional Federal Reserve banks. 
C) Federal Advisory Council. 
D) Board of Governors. 
A) Federal Open Market Committee. 
B) Regional Federal Reserve banks. 
C) Federal Advisory Council. 
D) Board of Governors.

Question 5

Suppose the banks in the Federal Reserve System have $200 billion in transactions accounts,the required reserve ratio is 0.15,and there are no excess reserves in the system.If the required reserve ratio is changed to 0.10,the amount of excess reserves would be

Accepted Answer

A) Negative $10 billion. 
B) Negative $20 billion. 
C) Positive $10 billion. 
D) Positive $20 billion. 
A) Negative $10 billion. 
B) Negative $20 billion. 
C) Positive $10 billion. 
D) Positive $20 billion.

Question 6

What are the expected economic outcomes when the Fed lowers the discount rate and the target for the federal funds rate?

Accepted Answer

By reducing the federal funds rate and t

Question 7

By raising and lowering the discount rate,the Fed changes the

Accepted Answer

A) Level of required reserves held by individuals. 
B) Incentive for banks to buy common stock. 
C) Incentive for banks to borrow reserves. 
D) Money multiplier. 
A) Level of required reserves held by individuals. 
B) Incentive for banks to buy common stock. 
C) Incentive for banks to borrow reserves. 
D) Money multiplier.

Question 8

The most profitable way for a bank to maintain the minimum required reserves is to hold large amounts of excess reserves.

Accepted Answer

A) True 
 B)False

Question 9

The Federal Open Market Committee meets

Accepted Answer

A) Twice per year. 
B) Every four or five weeks. 
C) Every week. 
D) Every three months. 
A) Twice per year. 
B) Every four or five weeks. 
C) Every week. 
D) Every three months.

Question 10

Which of the following serves as the central banker for private banks in the United States?

Accepted Answer

A) The 12 Federal Reserve banks. 
B) The executive branch of government. 
C) The legislative branch of the government. 
D) The Federal Open Market Committee. 
A) The 12 Federal Reserve banks. 
B) The executive branch of government. 
C) The legislative branch of the government. 
D) The Federal Open Market Committee.

Question 11

Members of the Board of Governors are

Accepted Answer

A) Elected by the people and confirmed by the president. 
B) Appointed by the president and confirmed by the Senate. 
C) Selected by each new president at the same time the cabinet is chosen. 
D) Appointed by the Senate and confirmed by the House of Representatives. 
A) Elected by the people and confirmed by the president. 
B) Appointed by the president and confirmed by the Senate. 
C) Selected by each new president at the same time the cabinet is chosen. 
D) Appointed by the Senate and confirmed by the House of Representatives.

Question 12

Assuming a reserve requirement of 10 percent,if the Fed sells $20 billion in bonds to the public,the lending capacity of the system will eventually

Accepted Answer

A) Increase by $200 billion. 
B) Increase by $20 billion. 
C) Decrease by $200 billion. 
D) Decrease by $20 billion. 
A) Increase by $200 billion. 
B) Increase by $20 billion. 
C) Decrease by $200 billion. 
D) Decrease by $20 billion.

Question 13

A banks that has excess reserves can earn additional income by lending the money overnight

Accepted Answer

A) To the Fed at the prime rate minus 1 percent. 
B) To other banks at the prime rate minus 1 percent. 
C) To the Fed in the federal funds market. 
D) To other banks in the federal funds market. 
A) To the Fed at the prime rate minus 1 percent. 
B) To other banks at the prime rate minus 1 percent. 
C) To the Fed in the federal funds market. 
D) To other banks in the federal funds market.

Question 14

What are the three options available to a bank that needs additional reserves?

Accepted Answer

A bank can acquire additional reserves b

Question 15

Members of the Federal Reserve Board of Governors are appointed for one 14-year term so that they

Accepted Answer

A) Have time to learn how the Fed operates. 
B) Are more likely to make politically acceptable decisions. 
C) Make their decisions based on economic,rather than political,considerations. 
D) Have enough time to travel to all 12 regional banks. 
A) Have time to learn how the Fed operates. 
B) Are more likely to make politically acceptable decisions. 
C) Make their decisions based on economic,rather than political,considerations. 
D) Have enough time to travel to all 12 regional banks.

Question 16

The Board of Governors consists of

Accepted Answer

A) 7 members,appointed for 14-year terms. 
B) 26 members,appointed for 2-year terms. 
C) 14 members,appointed for 7-year terms. 
D) 50 members,appointed for 7-year terms. 
A) 7 members,appointed for 14-year terms. 
B) 26 members,appointed for 2-year terms. 
C) 14 members,appointed for 7-year terms. 
D) 50 members,appointed for 7-year terms.

Question 17

Assume the reserve requirement is 25 percent,demand deposits are $500 million,and total reserves are $32 million.If the reserve requirement is decreased to 20 percent,the banking system will experience

Accepted Answer

A) Excess reserves equal to $32 million. 
B) Excess reserves equal to $68 million. 
C) No change in the lending capacity. 
D) A deficiency of required reserves equal to $68 million. 
A) Excess reserves equal to $32 million. 
B) Excess reserves equal to $68 million. 
C) No change in the lending capacity. 
D) A deficiency of required reserves equal to $68 million.

Question 18

Table 14.3 Monetary Aggregates of the U.S.Financial System
$\begin{array}{|l|r|}
\hline{\text { Item }} & \text { Amount } \
\hline \text { Cash held by public } & \$ 40 \text { billion } \
\hline\text { Transactions deposits } & \$ 80 \text { billion } \
\hline\text { Required reserves } & \$ 20 \text { billion } \
\hline\text { Excess reserves } & \$ 0 \text { billion } \
\hline\text { U.S. bonds held by public } & \$ 125 \text { billion }\
\hline 
\end{array}$

Assume an original balance sheet: The money supply (M1)in Table 14.3 is

Accepted Answer

A) $20 billion. 
B) $40 billion. 
C) $80 billion. 
D) $120 billion. 
A) $20 billion. 
B) $40 billion. 
C) $80 billion. 
D) $120 billion.

Question 19

Which of the following provides evidence that the Federal Reserve System is politically insulated?

Accepted Answer

A) The Fed governors are appointed by the president of the United States. 
B) The Fed governors are appointed for 14-year terms and cannot be reappointed. 
C) The Board of Governors is located in Washington,D.C. 
D) The Fed acts as a clearinghouse between commercial banks. 
A) The Fed governors are appointed by the president of the United States. 
B) The Fed governors are appointed for 14-year terms and cannot be reappointed. 
C) The Board of Governors is located in Washington,D.C. 
D) The Fed acts as a clearinghouse between commercial banks.

Question 20

All of the following are true if a bank in Los Angeles borrows federal funds from a bank in San Francisco except

Accepted Answer

A) Lending potential goes up for the Los Angeles bank. 
B) Lending potential for the banking system does not change. 
C) Lending potential goes down for the San Francisco bank. 
D) The money multiplier increases for the banking system. 
A) Lending potential goes up for the Los Angeles bank. 
B) Lending potential for the banking system does not change. 
C) Lending potential goes down for the San Francisco bank. 
D) The money multiplier increases for the banking system.

Exam 14: The Federal Reserve System

The Federal Open Market Committee impacts the economy through open market operations.

If the Fed sells $10 billion of U.S.bonds in the open market and the reserve requirement is 10 percent,M1 will eventually

Assume the reserve requirement is 10 percent,demand deposits are $200 million,and total reserves are $18 million.If the reserve requirement is increased to 14 percent,the banking system will have

Monetary policy is set by the

Suppose the banks in the Federal Reserve System have $200 billion in transactions accounts,the required reserve ratio is 0.15,and there are no excess reserves in the system.If the required reserve ratio is changed to 0.10,the amount of excess reserves would be

What are the expected economic outcomes when the Fed lowers the discount rate and the target for the federal funds rate?

By raising and lowering the discount rate,the Fed changes the

The most profitable way for a bank to maintain the minimum required reserves is to hold large amounts of excess reserves.

The Federal Open Market Committee meets

Which of the following serves as the central banker for private banks in the United States?

Members of the Board of Governors are

Assuming a reserve requirement of 10 percent,if the Fed sells $20 billion in bonds to the public,the lending capacity of the system will eventually

A banks that has excess reserves can earn additional income by lending the money overnight

What are the three options available to a bank that needs additional reserves?

Members of the Federal Reserve Board of Governors are appointed for one 14-year term so that they

The Board of Governors consists of

Assume the reserve requirement is 25 percent,demand deposits are $500 million,and total reserves are $32 million.If the reserve requirement is decreased to 20 percent,the banking system will experience

Which of the following provides evidence that the Federal Reserve System is politically insulated?

All of the following are true if a bank in Los Angeles borrows federal funds from a bank in San Francisco except

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National Income Accounting

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Growth and Productivity: Long-Run Possibilities

Theory Versus Reality

Consumer Choice

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The Costs of Production

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Natural Monopolies: Deregulation

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