Question 1

A change in the discount rate changes the size of the money multiplier.

Accepted Answer

A) True 
 B)False

Question 2

The current chairman of the Federal Reserve is

Accepted Answer

A) Alan Greenspan. 
B) Timothy Geithner. 
C) Janet Yellen. 
D) Hank Paulson 
A) Alan Greenspan. 
B) Timothy Geithner. 
C) Janet Yellen. 
D) Hank Paulson

Question 3

Which of the following represents the money multiplier?

Accepted Answer

A) Required reserve ratio × total deposits. 
B) Total reserves - required reserves. 
C) (Total reserves - required reserves)× multiplier. 
D) 1 ÷ (required reserve ratio). 
A) Required reserve ratio × total deposits. 
B) Total reserves - required reserves. 
C) (Total reserves - required reserves)× multiplier. 
D) 1 ÷ (required reserve ratio).

Question 4

Suppose all of the banks in the Federal Reserve System have $100 billion in transactions accounts,the required reserve ratio is 0.25,and there are no excess reserves in the system.If the required reserve ratio is changed to 0.20,the total lending capacity of the system is increased by

Accepted Answer

A) $25 billion. 
B) $20 billion. 
C) $10 billion. 
D) $750 million. 
A) $25 billion. 
B) $20 billion. 
C) $10 billion. 
D) $750 million.

Question 5

Which of the following is the tool used most frequently by the Fed?

Accepted Answer

A) The reserve requirement. 
B) Open market operations. 
C) The discount rate. 
D) The fed funds rate. 
A) The reserve requirement. 
B) Open market operations. 
C) The discount rate. 
D) The fed funds rate.

Question 6

Excess reserves are

Accepted Answer

A) Legal reserves in excess of total reserves. 
B) Required reserves plus minimal reserves. 
C) Bank reserves in excess of required reserves. 
D) Total reserves minus deficient reserves. 
A) Legal reserves in excess of total reserves. 
B) Required reserves plus minimal reserves. 
C) Bank reserves in excess of required reserves. 
D) Total reserves minus deficient reserves.

Question 7

________ can be altered to change the lending capacity of the banking system.

Accepted Answer

A) Points charged on a typical first mortgage 
B) Gold reserves 
C) The reserve requirement 
D) The dollar exchange rate 
A) Points charged on a typical first mortgage 
B) Gold reserves 
C) The reserve requirement 
D) The dollar exchange rate

Question 8

Samantha buys a bond in the amount of $1,000 with a promised interest rate of 18 percent.If the market interest rate decreases to 3 percent,Samantha can sell his bond for up to

Accepted Answer

A) $5,000. 
B) $6,000. 
C) $3,000. 
D) $2,000. 
A) $5,000. 
B) $6,000. 
C) $3,000. 
D) $2,000.

Question 9

By raising the required reserve ratio,the Fed can immediately reduce the lending capacity of the banking system.

Accepted Answer

A) True 
 B)False

Question 10

If the Fed sells $7.5 billion of U.S.bonds in the open market and the reserve requirement is 15 percent,M1 will eventually

Accepted Answer

A) Decrease by $50 billion. 
B) Increase by $7.5 billion. 
C) Increase by $50 billion. 
D) Increase by $1.125 billion. 
A) Decrease by $50 billion. 
B) Increase by $7.5 billion. 
C) Increase by $50 billion. 
D) Increase by $1.125 billion.

Question 11

When the Fed raises the discount rate,all of the following result except

Accepted Answer

A) The cost of borrowing reserves for member banks increases. 
B) It sends a signal that it is moving toward a slower growth rate for the money supply. 
C) It sends a signal that it is reluctant to lend reserves. 
D) It expands the lending capacity of the banking system. 
A) The cost of borrowing reserves for member banks increases. 
B) It sends a signal that it is moving toward a slower growth rate for the money supply. 
C) It sends a signal that it is reluctant to lend reserves. 
D) It expands the lending capacity of the banking system.

Question 12

Suppose the required reserve ratio is 20 percent,and the Fed buys $1 million worth of bonds from the public.If the public deposits this amount into transactions accounts,the money supply will

Accepted Answer

A) Increase directly by $1 million in reserve deposits,with an additional lending capacity of $3 million created for the banking system. 
B) Increase directly by $1 million in reserve deposits,with an additional lending capacity of $4 million created for the banking system. 
C) Not be affected directly,but an additional lending capacity of $5 million will be created for the banking system. 
D) None of the choices are correct. 
A) Increase directly by $1 million in reserve deposits,with an additional lending capacity of $3 million created for the banking system. 
B) Increase directly by $1 million in reserve deposits,with an additional lending capacity of $4 million created for the banking system. 
C) Not be affected directly,but an additional lending capacity of $5 million will be created for the banking system. 
D) None of the choices are correct.

Question 13

One World View article is titled "China Cuts Reserve Requirements." All of the following are consistent with this headline except

Accepted Answer

A) A change in excess reserves. 
B) A change in the money multiplier. 
C) A change in the lending capacity of the banking system. 
D) A change in marginal tax rates. 
A) A change in excess reserves. 
B) A change in the money multiplier. 
C) A change in the lending capacity of the banking system. 
D) A change in marginal tax rates.

Question 14

The primary method for controlling the money supply in the United States is to limit the

Accepted Answer

A) Amount of currency that is printed. 
B) Amount of money that is spent by changing tax policy. 
C) Amount of money that is spent by changing income transfers. 
D) Volume of loans the banking system can make. 
A) Amount of currency that is printed. 
B) Amount of money that is spent by changing tax policy. 
C) Amount of money that is spent by changing income transfers. 
D) Volume of loans the banking system can make.

Question 15

If the Fed buys $25 billion of U.S.bonds in the open market and the reserve requirement is 20 percent,M1 will eventually

Accepted Answer

A) Increase by $25 billion. 
B) Decrease by $25 billion. 
C) Increase by $125 billion. 
D) Decrease by $125 billion. 
A) Increase by $25 billion. 
B) Decrease by $25 billion. 
C) Increase by $125 billion. 
D) Decrease by $125 billion.

Question 16

Changing the reserve requirement is

Accepted Answer

A) A powerful tool that can cause abrupt changes in the money supply. 
B) The most often-used tool on the part of the Fed. 
C) A tool that has little impact on the money supply. 
D) Effective in changing excess reserves but not the money supply. 
A) A powerful tool that can cause abrupt changes in the money supply. 
B) The most often-used tool on the part of the Fed. 
C) A tool that has little impact on the money supply. 
D) Effective in changing excess reserves but not the money supply.

Question 17

Suppose the banks in the Federal Reserve System have $100 billion in transactions accounts,the required reserve ratio is 0.10,and there are no excess reserves in the system.If the required reserve ratio is changed to 0.15,the deficiency of reserves would be

Accepted Answer

A) $15 billion. 
B) $20 billion. 
C) $5 billion. 
D) $10 billion. 
A) $15 billion. 
B) $20 billion. 
C) $5 billion. 
D) $10 billion.

Question 18

When a bank borrows money from the Federal Reserve,

Accepted Answer

A) This is a sign that the bank is insolvent. 
B) Demand deposits increase for the bank. 
C) Reserves increase for the bank. 
D) The ability to lend decreases for the bank. 
A) This is a sign that the bank is insolvent. 
B) Demand deposits increase for the bank. 
C) Reserves increase for the bank. 
D) The ability to lend decreases for the bank.

Question 19

Suppose the required reserve ratio is 10 percent,and the Fed buys $5 million worth of bonds from the public.If the public deposits this amount into transactions accounts,the money supply will

Accepted Answer

A) Increase directly by $5 million in reserve deposits,with an additional lending capacity of $40 million created for the banking system. 
B) Not be affected directly,but an additional lending capacity of $50 million will be created for the banking system. 
C) Increase directly by $5 million in reserve deposits,with an additional lending capacity of $45 million created for the banking system. 
D) None of the choices are correct. 
A) Increase directly by $5 million in reserve deposits,with an additional lending capacity of $40 million created for the banking system. 
B) Not be affected directly,but an additional lending capacity of $50 million will be created for the banking system. 
C) Increase directly by $5 million in reserve deposits,with an additional lending capacity of $45 million created for the banking system. 
D) None of the choices are correct.

Question 20

Regional Fed banks are responsible for all of the following except

Accepted Answer

A) Holding bank reserves. 
B) Providing currency for private banks. 
C) Providing loans to private banks. 
D) Cashing checks for large nonfinancial corporations. 
A) Holding bank reserves. 
B) Providing currency for private banks. 
C) Providing loans to private banks. 
D) Cashing checks for large nonfinancial corporations.

Exam 14: The Federal Reserve System

A change in the discount rate changes the size of the money multiplier.

The current chairman of the Federal Reserve is

Which of the following represents the money multiplier?

Suppose all of the banks in the Federal Reserve System have $100 billion in transactions accounts,the required reserve ratio is 0.25,and there are no excess reserves in the system.If the required reserve ratio is changed to 0.20,the total lending capacity of the system is increased by

Which of the following is the tool used most frequently by the Fed?

Excess reserves are

________ can be altered to change the lending capacity of the banking system.

Samantha buys a bond in the amount of $1,000 with a promised interest rate of 18 percent.If the market interest rate decreases to 3 percent,Samantha can sell his bond for up to

By raising the required reserve ratio,the Fed can immediately reduce the lending capacity of the banking system.

If the Fed sells $7.5 billion of U.S.bonds in the open market and the reserve requirement is 15 percent,M1 will eventually

When the Fed raises the discount rate,all of the following result except

Suppose the required reserve ratio is 20 percent,and the Fed buys $1 million worth of bonds from the public.If the public deposits this amount into transactions accounts,the money supply will

One World View article is titled "China Cuts Reserve Requirements." All of the following are consistent with this headline except

The primary method for controlling the money supply in the United States is to limit the

If the Fed buys $25 billion of U.S.bonds in the open market and the reserve requirement is 20 percent,M1 will eventually

Changing the reserve requirement is

Suppose the banks in the Federal Reserve System have $100 billion in transactions accounts,the required reserve ratio is 0.10,and there are no excess reserves in the system.If the required reserve ratio is changed to 0.15,the deficiency of reserves would be

When a bank borrows money from the Federal Reserve,

Suppose the required reserve ratio is 10 percent,and the Fed buys $5 million worth of bonds from the public.If the public deposits this amount into transactions accounts,the money supply will

Regional Fed banks are responsible for all of the following except

Economics: the Core Issues

The Useconomy: a Global View

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National Income Accounting

Unemployment

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The Business Cycle

Aggregate Demand

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Supply-Side Policy: Short-Run Options

Growth and Productivity: Long-Run Possibilities

Theory Versus Reality

Consumer Choice

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The Costs of Production

The Competitive Firm

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Monopoly

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Monopolistic Competition

Natural Monopolies: Deregulation

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