Question 1

The ability of the banking system to make loans depends on excess reserves and the reserve requirement.

Accepted Answer

A) True 
 B)False

Question 2

When the Fed buys bonds from the public,it

Accepted Answer

A) Decreases the flow of reserves to the banking system. 
B) Increases the flow of reserves to the banking system. 
C) Decreases the money supply. 
D) Decreases the discount rate. 
A) Decreases the flow of reserves to the banking system. 
B) Increases the flow of reserves to the banking system. 
C) Decreases the money supply. 
D) Decreases the discount rate.

Question 3

Regional Fed banks

Accepted Answer

A) Hold deposits for individuals. 
B) Clear checks between private banks. 
C) Participate in open market operations. 
D) Insure the deposits in private banks. 
A) Hold deposits for individuals. 
B) Clear checks between private banks. 
C) Participate in open market operations. 
D) Insure the deposits in private banks.

Question 4

If the Fed buys $150 billion of U.S.bonds in the open market and the reserve requirement is 5 percent,M1 will eventually

Accepted Answer

A) Increase by $3,000 billion. 
B) Decrease by $3,000 billion. 
C) Increase by $300 billion. 
D) Decrease by $300 billion. 
A) Increase by $3,000 billion. 
B) Decrease by $3,000 billion. 
C) Increase by $300 billion. 
D) Decrease by $300 billion.

Question 5

If banks do not have enough reserves to satisfy the reserve requirement,they can borrow additional reserves in the federal funds market.

Accepted Answer

A) True 
 B)False

Question 6

If the Fed wants to sell more government bonds than people are willing to buy,then the Fed should

Accepted Answer

A) Decrease the price it asks for the bonds. 
B) Switch to another type of monetary policy lever. 
C) Switch to fiscal policy. 
D) Encourage a government agency to buy the bonds. 
A) Decrease the price it asks for the bonds. 
B) Switch to another type of monetary policy lever. 
C) Switch to fiscal policy. 
D) Encourage a government agency to buy the bonds.

Question 7

Suppose the Federal Reserve System has a required reserve ratio of 0.20 and there are no excess reserves in the system.If the Open Market Committee buys $20 million of securities from the commercial banking system,the total lending capacity of the system

Accepted Answer

A) Increases by $20 million. 
B) Decreases by $20 million. 
C) Increases by $100 million. 
D) Decreases by $100 million. 
A) Increases by $20 million. 
B) Decreases by $20 million. 
C) Increases by $100 million. 
D) Decreases by $100 million.

Question 8

If the Fed sells $5 billion of U.S.bonds in the open market and the reserve requirement is 5 percent,M1 will eventually

Accepted Answer

A) Increase by $25 billion. 
B) Increase by $100 billion. 
C) Decrease by $25 billion. 
D) Decrease by $100 billion. 
A) Increase by $25 billion. 
B) Increase by $100 billion. 
C) Decrease by $25 billion. 
D) Decrease by $100 billion.

Question 9

Table 14.1 Monetary Aggregates of the U.S.Financial System
$\begin{array}{|l|r|}
\hline\text { Item } & \text { Amount } \
\hline \text { Cash held by public } & \text { \$250billion } \
\hline\text { Transactions deposits } & \text { \$1,000billion } \
\hline\text { Required reserves } & \text { \$150billion } \
\hline\text { Excess reserves } & \text { \$0billion } \
\hline \text { U.S. bonds held by public } & \$ 1,000 \text { billion }\
\hline 
\end{array}$

Assume an original balance sheet: The level of total reserves in Table 14.1 is

Accepted Answer

A) $1,150 billion. 
B) $150 billion. 
C) $250 billion. 
D) $400 billion. 
A) $1,150 billion. 
B) $150 billion. 
C) $250 billion. 
D) $400 billion.

Question 10

The federal funds rate is the interest rate charged when

Accepted Answer

A) One bank lends reserves to another bank. 
B) The Fed lends to banks. 
C) The Fed lends to individuals. 
D) Individual banks lend to the Fed. 
A) One bank lends reserves to another bank. 
B) The Fed lends to banks. 
C) The Fed lends to individuals. 
D) Individual banks lend to the Fed.

Question 11

Which of the following is responsible for the Fed's daily activity in financial markets?

Accepted Answer

A) The Board of Governors. 
B) The House of Representatives Ways and Means Committee. 
C) Bank of America. 
D) The FOMC. 
A) The Board of Governors. 
B) The House of Representatives Ways and Means Committee. 
C) Bank of America. 
D) The FOMC.

Question 12

Which of the following is the principal mechanism used by the Federal Reserve to directly alter the reserves of the banking system?

Accepted Answer

A) Changes in the discount rate. 
B) Changes in the required reserve ratio. 
C) Open market operations. 
D) Foreign exchange operations. 
A) Changes in the discount rate. 
B) Changes in the required reserve ratio. 
C) Open market operations. 
D) Foreign exchange operations.

Question 13

If the required reserve ratio is 25 percent and the Federal Reserve sells $100,000 worth of bonds,the money supply can potentially

Accepted Answer

A) Decrease by $75,000. 
B) Increase by $75,000. 
C) Decrease by $400,000. 
D) Increase by $400,000. 
A) Decrease by $75,000. 
B) Increase by $75,000. 
C) Decrease by $400,000. 
D) Increase by $400,000.

Question 14

The use of money and credit controls to achieve macroeconomic goals is

Accepted Answer

A) Fiscal policy. 
B) Monetary policy. 
C) Supply-side policy. 
D) Eclectic policy. 
A) Fiscal policy. 
B) Monetary policy. 
C) Supply-side policy. 
D) Eclectic policy.

Question 15

Monetary policy involves the use of money and credit controls to

Accepted Answer

A) Shift the aggregate demand curve. 
B) Shift the aggregate supply curve. 
C) Move the economy along the aggregate demand curve. 
D) Move the economy along the aggregate supply curve. 
A) Shift the aggregate demand curve. 
B) Shift the aggregate supply curve. 
C) Move the economy along the aggregate demand curve. 
D) Move the economy along the aggregate supply curve.

Question 16

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: In Table 14.3,if the Fed changes the required reserve ratio to 10 percent,the lending capacity of the system would eventually

Accepted Answer

A) Increase by $12 billion. 
B) Increase by $120 billion. 
C) Decrease by $12 billion. 
D) Decrease by $120 billion. 
A) Increase by $12 billion. 
B) Increase by $120 billion. 
C) Decrease by $12 billion. 
D) Decrease by $120 billion.

Question 17

The minimum amount of reserves a bank is required to hold is

Accepted Answer

A) Required reserves. 
B) Excess reserves. 
C) Total reserves. 
D) Legal reserves. 
A) Required reserves. 
B) Excess reserves. 
C) Total reserves. 
D) Legal reserves.

Question 18

Open market operations involve the Fed

Accepted Answer

A) Buying or selling government bonds. 
B) Buying or selling shares of stock. 
C) Borrowing money from a bank. 
D) Lending money to individuals. 
A) Buying or selling government bonds. 
B) Buying or selling shares of stock. 
C) Borrowing money from a bank. 
D) Lending money to individuals.

Question 19

One of the major functions performed by the Federal Reserve district banks is

Accepted Answer

A) Providing loans to private banks. 
B) Providing loans to hopeful start-ups. 
C) Underwriting bank stock issuances. 
D) Buying and selling bank shares. 
A) Providing loans to private banks. 
B) Providing loans to hopeful start-ups. 
C) Underwriting bank stock issuances. 
D) Buying and selling bank shares.

Question 20

The Fed now targets the federal funds rate rather than the money supply.

Accepted Answer

A) True 
 B)False

Exam 14: The Federal Reserve System

The ability of the banking system to make loans depends on excess reserves and the reserve requirement.

When the Fed buys bonds from the public,it

Regional Fed banks

If the Fed buys $150 billion of U.S.bonds in the open market and the reserve requirement is 5 percent,M1 will eventually

If banks do not have enough reserves to satisfy the reserve requirement,they can borrow additional reserves in the federal funds market.

If the Fed wants to sell more government bonds than people are willing to buy,then the Fed should

Suppose the Federal Reserve System has a required reserve ratio of 0.20 and there are no excess reserves in the system.If the Open Market Committee buys $20 million of securities from the commercial banking system,the total lending capacity of the system

If the Fed sells $5 billion of U.S.bonds in the open market and the reserve requirement is 5 percent,M1 will eventually

The federal funds rate is the interest rate charged when

Which of the following is responsible for the Fed's daily activity in financial markets?

Which of the following is the principal mechanism used by the Federal Reserve to directly alter the reserves of the banking system?

If the required reserve ratio is 25 percent and the Federal Reserve sells $100,000 worth of bonds,the money supply can potentially

The use of money and credit controls to achieve macroeconomic goals is

Monetary policy involves the use of money and credit controls to

The minimum amount of reserves a bank is required to hold is

Open market operations involve the Fed

One of the major functions performed by the Federal Reserve district banks is

The Fed now targets the federal funds rate rather than the money supply.

Economics: the Core Issues

The Useconomy: a Global View

Supply and Demand

The Role of Government

National Income Accounting

Unemployment

Inflation

The Business Cycle

Aggregate Demand

Self-Adjustment or Instability

Fiscal Policy

Deficits and Debt

Money and Banks

Monetary Policy

Supply-Side Policy: Short-Run Options

Growth and Productivity: Long-Run Possibilities

Theory Versus Reality

Consumer Choice

Elasticity

The Costs of Production

The Competitive Firm

Competitive Markets

Monopoly

Oligopoly

Monopolistic Competition

Natural Monopolies: Deregulation

Environmental Protection

The Farm Problem

The Labor Market

Labor Unions

Financial Markets

Taxes: Equity Versus Efficiency

Transfer Payments: Welfare and Social Security

International Trade

International Finance

Global Poverty

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