Question 1

The discount rate is the interest rate:

Accepted Answer

A)  commercial banks charge their low-risk customers for a loan. 
B)  savings and loan associations pay for using savings deposit funds. 
C)  the U.S. Treasury pays individuals who buy Treasury bonds in denominations of $10,000 or more. 
D)  the Federal Reserve charges banking institutions for borrowing its funds. 
A)  commercial banks charge their low-risk customers for a loan. 
B)  savings and loan associations pay for using savings deposit funds. 
C)  the U.S. Treasury pays individuals who buy Treasury bonds in denominations of $10,000 or more. 
D)  the Federal Reserve charges banking institutions for borrowing its funds.

Question 2

Which of the following is an appropriate monetary policy if the Fed wants to increase the money supply?

Accepted Answer

A)  An increase in the required reserve ratio. 
B)  An increase in the discount rate. 
C)  Purchases of bonds in open market operations. 
D)  Higher taxes on interest income. 
A)  An increase in the required reserve ratio. 
B)  An increase in the discount rate. 
C)  Purchases of bonds in open market operations. 
D)  Higher taxes on interest income.

Question 3

Exhibit 19-7  Lower Walloon National Bank   In Exhibit 19-7, if the required reserve ratio is increased to 25 percent, the Lower Walloon National bank needs to keep:

Accepted Answer

A)  $2,000 on reserve at all times. 
B)  $2,500 on reserve at all times. 
C)  $10,000 on reserve at all times. 
D)  $0 on reserve at all times. 
E)  legal and excess reserves equal to each other at all times. 
A)  $2,000 on reserve at all times. 
B)  $2,500 on reserve at all times. 
C)  $10,000 on reserve at all times. 
D)  $0 on reserve at all times. 
E)  legal and excess reserves equal to each other at all times.

Question 4

Describe the three basic tools used by the Fed to change the money supply. Which of these tools is most relied on in practice? Least relied on? Why?

Accepted Answer

The Fed can use open market operations,

Question 5

Which of the following policy actions by the Fed would cause the money supply to decrease?

Accepted Answer

A)  An open market purchase of government securities. 
B)  A decrease in required reserve ratios. 
C)  A decrease in the discount rate. 
D)  An open-market sale of government securities. 
A)  An open market purchase of government securities. 
B)  A decrease in required reserve ratios. 
C)  A decrease in the discount rate. 
D)  An open-market sale of government securities.

Question 6

Which of the following would cause the money supply to increase?

Accepted Answer

A)  An open market purchase by the Fed. 
B)  A reduction in the discount rate. 
C)  A reduction in required ratios. 
D)  All of the above. 
A)  An open market purchase by the Fed. 
B)  A reduction in the discount rate. 
C)  A reduction in required ratios. 
D)  All of the above.

Question 7

An individual bank can lend out at most its:

Accepted Answer

A)  actual reserves. 
B)  fractional reserves. 
C)  legal reserves. 
D)  checkable deposits. 
E)  excess reserves. 
A)  actual reserves. 
B)  fractional reserves. 
C)  legal reserves. 
D)  checkable deposits. 
E)  excess reserves.

Question 8

Exhibit 19-7  Lower Walloon National Bank   In Exhibit 19-7, if Lower Walloon National bank loans out all of its excess reserves to James Brown so that Mr. Brown can upgrade his restaurant, and the money is put into Mr. Brown's account at the Lower Walloon National bank, then the bank will have reserves of:

Accepted Answer

A)  $10,000, loans of $8,000, and checkable deposits of $18,000. 
B)  $2,000, loans of $4,000, and checkable deposits of $14,000. 
C)  $6,000, loans of $4,000, and checkable deposits of $10,000. 
D)  $10,000, loans of $8,000, and checkable deposits of $10,000. 
E)  $0, loans of $8,000, and checkable deposits of $18,000. 
A)  $10,000, loans of $8,000, and checkable deposits of $18,000. 
B)  $2,000, loans of $4,000, and checkable deposits of $14,000. 
C)  $6,000, loans of $4,000, and checkable deposits of $10,000. 
D)  $10,000, loans of $8,000, and checkable deposits of $10,000. 
E)  $0, loans of $8,000, and checkable deposits of $18,000.

Question 9

When the Fed raises the required reserve ratio, then the:

Accepted Answer

A)  ability of banks to make loans is restricted. 
B)  ability of banks to make loans is enhanced. 
C)  ability of banks to make loans is unaffected. 
D)  interest rate that banks pay to the Fed to borrow money is increased. 
E)  interest rate that banks pay to other banks to borrow money is increased. 
A)  ability of banks to make loans is restricted. 
B)  ability of banks to make loans is enhanced. 
C)  ability of banks to make loans is unaffected. 
D)  interest rate that banks pay to the Fed to borrow money is increased. 
E)  interest rate that banks pay to other banks to borrow money is increased.

Question 10

A bank has $100 million of checkable deposits, $6 million of required reserves, and $2 million of excess reserves. What is the required reserve ratio?

Accepted Answer

A)  2 percent. 
B)  3 percent. 
C)  6 percent. 
D)  12 percent. 
A)  2 percent. 
B)  3 percent. 
C)  6 percent. 
D)  12 percent.

The discount rate is the interest rate:

Which of the following is an appropriate monetary policy if the Fed wants to increase the money supply?

Exhibit 19-7 Lower Walloon National Bank In Exhibit 19-7, if the required reserve ratio is increased to 25 percent, the Lower Walloon National bank needs to keep:

Describe the three basic tools used by the Fed to change the money supply. Which of these tools is most relied on in practice? Least relied on? Why?

Which of the following policy actions by the Fed would cause the money supply to decrease?

Which of the following would cause the money supply to increase?

An individual bank can lend out at most its:

When the Fed raises the required reserve ratio, then the:

A bank has $100 million of checkable deposits, $6 million of required reserves, and $2 million of excess reserves. What is the required reserve ratio?

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets and Income Distribution

Gross Domestic Product

Business Cycles and Unemployment

Inflation

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits, Surpluses, and the National Debt

Money and the Federal Reserve System

Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

Filters

Exam 19: Money Creation

The discount rate is the interest rate:

Which of the following is an appropriate monetary policy if the Fed wants to increase the money supply?

Exhibit 19-7 Lower Walloon National Bank In Exhibit 19-7, if the required reserve ratio is increased to 25 percent, the Lower Walloon National bank needs to keep:

Describe the three basic tools used by the Fed to change the money supply. Which of these tools is most relied on in practice? Least relied on? Why?

Which of the following policy actions by the Fed would cause the money supply to decrease?

Which of the following would cause the money supply to increase?

An individual bank can lend out at most its:

When the Fed raises the required reserve ratio, then the:

A bank has $100 million of checkable deposits, $6 million of required reserves, and $2 million of excess reserves. What is the required reserve ratio?

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets and Income Distribution

Gross Domestic Product

Business Cycles and Unemployment

Inflation

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits, Surpluses, and the National Debt

Money and the Federal Reserve System

Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

Filters