Question 1

The demand for reserves curve in the federal funds market is

Accepted Answer

A) horizontal. 
B) vertical. 
C) upward sloping. 
D) downward sloping. 
A) horizontal. 
B) vertical. 
C) upward sloping. 
D) downward sloping.

Question 2

Suppose the Fed forecasts a reduction in excess reserve holdings by banks. It might offset the effect of this on the money supply by

Accepted Answer

A) buying government securities. 
B) lowering the required reserve ratio. 
C) lowering the discount rate. 
D) selling government securities. 
E) a, b, and c 
A) buying government securities. 
B) lowering the required reserve ratio. 
C) lowering the discount rate. 
D) selling government securities. 
E) a, b, and c

Question 3

List and describe the three major monetary policy tools the Federal Reserve can use to increase the money supply. Be specific in your response regarding which direction the tool would need to change in order for the money supply to grow.

Accepted Answer

Open market operations are when the Fed

Question 4

Which of the following is not a responsibility of the Fed?

Accepted Answer

A) supervising member banks 
B) serving as the lender of last resort 
C) determining the level of government spending 
D) providing check-clearing services 
E) supplying the economy with Federal Reserve Notes 
A) supervising member banks 
B) serving as the lender of last resort 
C) determining the level of government spending 
D) providing check-clearing services 
E) supplying the economy with Federal Reserve Notes

Question 5

If the Fed wants to increase the money supply through open market operations, it will

Accepted Answer

A) purchase government securities. 
B) sell government securities. 
C) first purchase, then sell, government securities. 
D) lend more reserves to commercial banks. 
A) purchase government securities. 
B) sell government securities. 
C) first purchase, then sell, government securities. 
D) lend more reserves to commercial banks.

Question 6

The Fed can change the federal funds rate by issuing an order, but it cannot change the discount rate this way.

Accepted Answer

A) True 
 B)False

Question 7

If the Fed purchases government securities from a commercial bank, which of the following will happen?

Accepted Answer

A) The Fed will increase the bank's reserves on deposit at the Fed. 
B) The Fed will decrease the bank's reserves on deposit at the Fed. 
C) The assets (government securities) of the Fed will decrease. 
D) The assets (government securities) of the Fed will increase. 
E) a and d 
A) The Fed will increase the bank's reserves on deposit at the Fed. 
B) The Fed will decrease the bank's reserves on deposit at the Fed. 
C) The assets (government securities) of the Fed will decrease. 
D) The assets (government securities) of the Fed will increase. 
E) a and d

Question 8

A required reserve ratio of 12 percent gives rise to a simple deposit multiplier of

Accepted Answer

A) 12. 
B) 83.33. 
C) 6.67. 
D) 8.33. 
A) 12. 
B) 83.33. 
C) 6.67. 
D) 8.33.

Question 9

Which of the following is not a major responsibility of the Fed?

Accepted Answer

A) supplying the economy with paper money 
B) providing check-clearing services 
C) supervising member banks 
D) serving as fiscal agent for the Treasury 
E) All of the above are major responsibilities of the Fed. 
A) supplying the economy with paper money 
B) providing check-clearing services 
C) supervising member banks 
D) serving as fiscal agent for the Treasury 
E) All of the above are major responsibilities of the Fed.

Question 10

When the federal government incurs a budget deficit, it will

Accepted Answer

A) mint more coins and spend them. 
B) create money out of thin air. 
C) impose a special tax on all income earners. 
D) borrow money from the Federal Reserve System by issuing securities. 
E) borrow money from the public by issuing government securities. 
A) mint more coins and spend them. 
B) create money out of thin air. 
C) impose a special tax on all income earners. 
D) borrow money from the Federal Reserve System by issuing securities. 
E) borrow money from the public by issuing government securities.

Question 11

An open market sale by the Fed will

Accepted Answer

A) increase bank reserves. 
B) increase currency held by the public or vault cash. 
C) increase the money supply. 
D) reduce the money supply. 
A) increase bank reserves. 
B) increase currency held by the public or vault cash. 
C) increase the money supply. 
D) reduce the money supply.

Question 12

Lowering the required reserve ratio raises the simple deposit multiplier.

Accepted Answer

A) True 
 B)False

Question 13

A Federal Reserve Bank is located in which of the following cities?

Accepted Answer

A) Detroit 
B) Baltimore 
C) Minneapolis 
D) Seattle 
E) Cincinnati 
A) Detroit 
B) Baltimore 
C) Minneapolis 
D) Seattle 
E) Cincinnati

Question 14

The Federal Reserve System came into existence with the Federal Reserve Act of

Accepted Answer

A) 1877. 
B) 1933. 
C) 1965. 
D) 1913. 
E) 1922. 
A) 1877. 
B) 1933. 
C) 1965. 
D) 1913. 
E) 1922.

Question 15

What is the name and make-up of the policymaking group that has the authority to conduct open market operations? Describe how the use of open market operations helps to increase or decrease the money supply.

Accepted Answer

The group responsible for conducting ope

Question 16

If reserves increase by $12 billion, what is the difference in the resulting change in checkable deposits when the required reserve ratio is 10 percent compared to when it is 8 percent?

Accepted Answer

A) $15 billion 
B) $30 billion 
C) $2.4 billion 
D) $24 billion 
A) $15 billion 
B) $30 billion 
C) $2.4 billion 
D) $24 billion

Question 17

The Fed has been called "the lender of last resort" because it

Accepted Answer

A) is the biggest bank in the country. 
B) is the only lender to the federal government. 
C) serves as the last place to acquire loans for banks suffering cash management, or liquidity, problems. 
D) a and b 
E) all of the above 
A) is the biggest bank in the country. 
B) is the only lender to the federal government. 
C) serves as the last place to acquire loans for banks suffering cash management, or liquidity, problems. 
D) a and b 
E) all of the above

Question 18

Suppose that the federal funds rate and the discount rate are equal initially at 3%. If the discount rate is then lowered to 2.5%, to whom will a bank be more likely to go for a loan: the Federal Reserve or another bank? Explain your answer in detail, and be sure to mention the impact that this situation would have on the money supply..

Accepted Answer

When the Fed lowers the discount rate be

Question 19

William Jennings Bryan, Secretary of State at the time of the passage of the Federal Reserve Act, argued in favor of having ______ district banks.

Accepted Answer

A) six 
B) not less than eight nor more than twelve 
C) twelve 
D) fifty 
A) six 
B) not less than eight nor more than twelve 
C) twelve 
D) fifty

Question 20

In controlling the nation's money supply, the Fed is obligated to seek the advice of

Accepted Answer

A) the Congress. 
B) the President of the United States. 
C) the Treasury. 
D) a and b 
E) none of the above 
A) the Congress. 
B) the President of the United States. 
C) the Treasury. 
D) a and b 
E) none of the above

Exam 13: The Federal Reserve System

The demand for reserves curve in the federal funds market is

Suppose the Fed forecasts a reduction in excess reserve holdings by banks. It might offset the effect of this on the money supply by

List and describe the three major monetary policy tools the Federal Reserve can use to increase the money supply. Be specific in your response regarding which direction the tool would need to change in order for the money supply to grow.

Which of the following is not a responsibility of the Fed?

If the Fed wants to increase the money supply through open market operations, it will

The Fed can change the federal funds rate by issuing an order, but it cannot change the discount rate this way.

If the Fed purchases government securities from a commercial bank, which of the following will happen?

A required reserve ratio of 12 percent gives rise to a simple deposit multiplier of

Which of the following is not a major responsibility of the Fed?

When the federal government incurs a budget deficit, it will

An open market sale by the Fed will

Lowering the required reserve ratio raises the simple deposit multiplier.

A Federal Reserve Bank is located in which of the following cities?

The Federal Reserve System came into existence with the Federal Reserve Act of

What is the name and make-up of the policymaking group that has the authority to conduct open market operations? Describe how the use of open market operations helps to increase or decrease the money supply.

If reserves increase by $12 billion, what is the difference in the resulting change in checkable deposits when the required reserve ratio is 10 percent compared to when it is 8 percent?

The Fed has been called "the lender of last resort" because it

William Jennings Bryan, Secretary of State at the time of the passage of the Federal Reserve Act, argued in favor of having ______ district banks.

In controlling the nation's money supply, the Fed is obligated to seek the advice of

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