Question 1

When the Fed wishes to increase the reserves of the member banks,it

Accepted Answer

A) Buys securities. 
B) Raises the reserve requirement. 
C) Raises the discount rate. 
D) Sells securities. 
A) Buys securities. 
B) Raises the reserve requirement. 
C) Raises the discount rate. 
D) Sells securities.

Question 2

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: On the basis of the information in Table 14.3,the required reserve ratio is

Accepted Answer

A) 5 percent. 
B) 15 percent. 
C) 25 percent. 
D) 20 percent. 
A) 5 percent. 
B) 15 percent. 
C) 25 percent. 
D) 20 percent.

Question 3

If market interest rates rise,the selling price of existing bonds in the market will,ceteris paribus,

Accepted Answer

A) Rise. 
B) Fall. 
C) Not change. 
D) Change unpredictably. 
A) Rise. 
B) Fall. 
C) Not change. 
D) Change unpredictably.

Question 4

The Federal Reserve holds deposits from

Accepted Answer

A) Consumers. 
B) Banks. 
C) The U.S.Treasury. 
D) Large corporations. 
A) Consumers. 
B) Banks. 
C) The U.S.Treasury. 
D) Large corporations.

Question 5

Open market operations are the principal mechanism for directly altering the reserves of the banking system.

Accepted Answer

A) True 
 B)False

Question 6

The government uses ________ to regulate the amount of money banks lend.

Accepted Answer

A) monetary policy 
B) fiscal policy 
C) banking policy 
D) tax cuts 
A) monetary policy 
B) fiscal policy 
C) banking policy 
D) tax cuts

Question 7

Suppose the Federal Reserve System has a required reserve ratio of 0.20.If the Open Market Committee sells $10 billion of securities to the commercial banking system,then before the money multiplier takes effect,initially excess reserves

Accepted Answer

A) Decrease by $10 billion. 
B) Increase by $50 billion. 
C) Increase by $10 million. 
D) Decrease by $50 billion. 
A) Decrease by $10 billion. 
B) Increase by $50 billion. 
C) Increase by $10 million. 
D) Decrease by $50 billion.

Question 8

As the price of a bond rises,its yield rises.

Accepted Answer

A) True 
 B)False

Question 9

If market interest rates fall,the selling price of existing bonds in the market will,ceteris paribus,

Accepted Answer

A) Rise. 
B) Fall. 
C) Not change. 
D) Rise or fall based on other market conditions. 
A) Rise. 
B) Fall. 
C) Not change. 
D) Rise or fall based on other market conditions.

Question 10

A bond is a

Accepted Answer

A) Ownership share in a private company. 
B) Promise to repay borrowed funds. 
C) Certification that a bank has met the Fed's reserve requirement. 
D) License to use the Fed's discount window. 
A) Ownership share in a private company. 
B) Promise to repay borrowed funds. 
C) Certification that a bank has met the Fed's reserve requirement. 
D) License to use the Fed's discount window.

Question 11

All of the following would be true for the banking system if there was no government regulation except

Accepted Answer

A) The money supply would be determined by individual banks. 
B) Depositors would bear all the risks of bank failures. 
C) The money supply would be subject to abrupt changes. 
D) The banking system would be regulated by consumers. 
A) The money supply would be determined by individual banks. 
B) Depositors would bear all the risks of bank failures. 
C) The money supply would be subject to abrupt changes. 
D) The banking system would be regulated by consumers.

Question 12

If a bank does not have enough reserves to satisfy the reserve requirement,it is likely to do any of the following except

Accepted Answer

A) Borrow additional reserves in the federal funds market. 
B) Sell securities. 
C) Borrow from the discount window at the Federal Reserve Bank. 
D) Buy securities. 
A) Borrow additional reserves in the federal funds market. 
B) Sell securities. 
C) Borrow from the discount window at the Federal Reserve Bank. 
D) Buy securities.

Question 13

Which of the following services is performed by the regional Federal Reserve banks?

Accepted Answer

A) Holding deposits for individuals. 
B) Providing loans to individuals. 
C) Providing currency to private banks. 
D) Check cashing for large nonbank corporations. 
A) Holding deposits for individuals. 
B) Providing loans to individuals. 
C) Providing currency to private banks. 
D) Check cashing for large nonbank corporations.

Question 14

If the Federal Reserve buys government bonds from the public,

Accepted Answer

A) The money supply will contract. 
B) Bank reserves will not change. 
C) Banks will be able to make additional loans. 
D) Demand deposits will decrease. 
A) The money supply will contract. 
B) Bank reserves will not change. 
C) Banks will be able to make additional loans. 
D) Demand deposits will decrease.

Question 15

A reduction in the discount rate

Accepted Answer

A) Signals the Federal Reserve's desire for additional credit expansion. 
B) Increases the cost of borrowing reserves from the Federal Reserve. 
C) Discourages banks from borrowing reserves from the Fed. 
D) Is consistent with a tight monetary policy. 
A) Signals the Federal Reserve's desire for additional credit expansion. 
B) Increases the cost of borrowing reserves from the Federal Reserve. 
C) Discourages banks from borrowing reserves from the Fed. 
D) Is consistent with a tight monetary policy.

Question 16

Currency held by the public plus balances in transactions accounts plus travelers checks is the definition of

Accepted Answer

A) Bank surplus. 
B) M1. 
C) M2. 
D) Bank deficit. 
A) Bank surplus. 
B) M1. 
C) M2. 
D) Bank deficit.

Question 17

The money multiplier is equal to

Accepted Answer

A) 1 ÷ excess reserve ratio. 
B) 1 ÷ required reserve ratio. 
C) 1 × excess reserve ratio. 
D) 1 × required reserve ratio. 
A) 1 ÷ excess reserve ratio. 
B) 1 ÷ required reserve ratio. 
C) 1 × excess reserve ratio. 
D) 1 × required reserve ratio.

Question 18

The Federal Open Market Committee includes

Accepted Answer

A) All 7 governors and 5 of the regional Reserve bank presidents. 
B) 5 of the governors and all of the regional Reserve bank presidents. 
C) 12 of the regional Reserve bank presidents plus the chairman of the Fed. 
D) All 12 of the governors and all 7 of the regional Reserve bank presidents. 
A) All 7 governors and 5 of the regional Reserve bank presidents. 
B) 5 of the governors and all of the regional Reserve bank presidents. 
C) 12 of the regional Reserve bank presidents plus the chairman of the Fed. 
D) All 12 of the governors and all 7 of the regional Reserve bank presidents.

Question 19

When the Fed buys bonds from the public,it decreases the flow of reserves to the banking system.

Accepted Answer

A) True 
 B)False

Question 20

The choice of how and where to hold idle funds is

Accepted Answer

A) An executive Fed decision. 
B) A Fed funds decision. 
C) A discount decision. 
D) A portfolio decision. 
A) An executive Fed decision. 
B) A Fed funds decision. 
C) A discount decision. 
D) A portfolio decision.

Exam 14: The Federal Reserve System

When the Fed wishes to increase the reserves of the member banks,it

If market interest rates rise,the selling price of existing bonds in the market will,ceteris paribus,

The Federal Reserve holds deposits from

Open market operations are the principal mechanism for directly altering the reserves of the banking system.

The government uses ________ to regulate the amount of money banks lend.

Suppose the Federal Reserve System has a required reserve ratio of 0.20.If the Open Market Committee sells $10 billion of securities to the commercial banking system,then before the money multiplier takes effect,initially excess reserves

As the price of a bond rises,its yield rises.

If market interest rates fall,the selling price of existing bonds in the market will,ceteris paribus,

A bond is a

All of the following would be true for the banking system if there was no government regulation except

If a bank does not have enough reserves to satisfy the reserve requirement,it is likely to do any of the following except

Which of the following services is performed by the regional Federal Reserve banks?

If the Federal Reserve buys government bonds from the public,

A reduction in the discount rate

Currency held by the public plus balances in transactions accounts plus travelers checks is the definition of

The money multiplier is equal to

The Federal Open Market Committee includes

When the Fed buys bonds from the public,it decreases the flow of reserves to the banking system.

The choice of how and where to hold idle funds is

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

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