Question 1

Which of the following statements is most correct?

Accepted Answer

A) Reserves are assets of the central bank and liabilities of the U.S.Treasury. 
B) Reserves are assets of the central bank and liabilities of the commercial banks. 
C) Reserves are liabilities of the commercial banks and assets of the U.S.Treasury. 
D) Reserves are assets of the commercial banks and liabilities of the central bank. 
A) Reserves are assets of the central bank and liabilities of the U.S.Treasury. 
B) Reserves are assets of the central bank and liabilities of the commercial banks. 
C) Reserves are liabilities of the commercial banks and assets of the U.S.Treasury. 
D) Reserves are assets of the commercial banks and liabilities of the central bank. D

Question 2

Bonds issued by a foreign government in its own currency would:

Accepted Answer

A) not be held by the Fed. 
B) be held by the Fed as part of its securities. 
C) be held by the Fed as part of its foreign exchange reserves. 
D) be held by the Fed as part of its loans. 
A) not be held by the Fed. 
B) be held by the Fed as part of its securities. 
C) be held by the Fed as part of its foreign exchange reserves. 
D) be held by the Fed as part of its loans. C

Question 3

The Federal Reserve's Balance sheet would include an item labeled Currency.Is this an asset or a liability of the Fed, and does it include all currency that is printed? Explain.

Accepted Answer

The currency is a liability since it is an asset of whoever is holding it.As a result, the currency in this category only includes non-bank currency, or the currency that is in the hands of the public, and does not include vault cash, which is part of the banking system's reserves.

Question 4

The main asset held by a central bank in its role as the Banker's Bank is:

Accepted Answer

A) foreign exchange reserves. 
B) currency. 
C) loans. 
D) securities. 
A) foreign exchange reserves. 
B) currency. 
C) loans. 
D) securities.

Question 5

Considering changes to the monetary base, are discount loans and federal funds borrowing equivalent? Explain.

Accepted Answer

When a bank borrows in the federal funds

Question 6

If Bank A sells a $100,000 U.S.Treasury bond to the Fed, Bank A's reserves will:

Accepted Answer

A) increase by $100,000. 
B) increase by less than $100,000. 
C) not change. 
D) decrease. 
A) increase by $100,000. 
B) increase by less than $100,000. 
C) not change. 
D) decrease.

Question 7

The money multiplier is much lower today than it was twenty-five years ago because:

Accepted Answer

A) people are holding less currency today. 
B) the currency-to-deposit ratio is much higher today. 
C) there is less currency available today. 
D) credit cards are more widely used. 
A) people are holding less currency today. 
B) the currency-to-deposit ratio is much higher today. 
C) there is less currency available today. 
D) credit cards are more widely used.

Question 8

Suppose a student writes a check in the amount of $300 to the college bookstore for textbooks.Discuss briefly the impact on the student's balance sheet, his/her bank's balance sheet and the balance sheet of the Fed.

Accepted Answer

For the check writer, the balance sheet

Question 9

During the financial crisis of 2007-2009, the deposit expansion multiplier plummeted to a fraction of its normal value.Why?

Accepted Answer

Banks dramatically increased their exces

Question 10

If Bank A sells a $100,000 U.S.Treasury bond to the Fed, Bank A's excess reserves will:

Accepted Answer

A) increase by less than $100,000. 
B) not change. 
C) decrease by less than $100,000. 
D) increase by $100,000. 
A) increase by less than $100,000. 
B) not change. 
C) decrease by less than $100,000. 
D) increase by $100,000.

Question 11

In terms of foreign exchange reserve holdings, how does the Fed's balance sheet compare to that of the European Central Bank (ECB)?

Accepted Answer

Compared to the Fed, the ECB has much hi

Question 12

As a portion of total assets measured in billions of dollars, the most important asset on the Fed's balance sheet is:

Accepted Answer

A) gold. 
B) securities. 
C) foreign exchange reserves. 
D) loans. 
A) gold. 
B) securities. 
C) foreign exchange reserves. 
D) loans.

Question 13

Most responsible central banks publish their balance sheet:

Accepted Answer

A) at least once a year. 
B) quarterly. 
C) at least monthly. 
D) semi-annually. 
A) at least once a year. 
B) quarterly. 
C) at least monthly. 
D) semi-annually.

Question 14

You are given the following information: Reserves (R) in the banking system amount to $48 billion, of which $45.8 billion are required.Currency in the hands of the public amounts to $692.5 billion while checkable deposits amount to $650 billion.Calculate the money multiplier.

Accepted Answer

We can answer this one by using the foll

Question 15

Explain why the Fed making more discount loans to banks, or an open market purchase, or an increase in foreign exchange reserves all have the same effect on its balance sheet.What is that effect on the monetary base?

Accepted Answer

If the Fed increases its discount loans

Question 16

One thing the Fed has learned over the past twenty-five years is:

Accepted Answer

A) the money multiplier is fairly constant no matter what changes are made to the monetary base. 
B) the money multiplier is unstable over time. 
C) the money multiplier has a trend rate of growth that is fairly constant. 
D) it should focus its attention on targeting M2. 
A) the money multiplier is fairly constant no matter what changes are made to the monetary base. 
B) the money multiplier is unstable over time. 
C) the money multiplier has a trend rate of growth that is fairly constant. 
D) it should focus its attention on targeting M2.

Question 17

An open market sale of U.S.Treasury securities by the Fed will cause the Banking System's balance sheet to show:

Accepted Answer

A) only an increase in liabilities. 
B) only a decrease in assets. 
C) no net change in assets or liabilities, only a change in the composition of assets with securities decreasing and reserves increasing. 
D) no net change in assets or liabilities, only a change in the composition of assets with securities increasing and reserves decreasing. 
A) only an increase in liabilities. 
B) only a decrease in assets. 
C) no net change in assets or liabilities, only a change in the composition of assets with securities decreasing and reserves increasing. 
D) no net change in assets or liabilities, only a change in the composition of assets with securities increasing and reserves decreasing.

Question 18

If M = the quantity of money, m, the money multiplier, MB, the Monetary Base, C = Currency, D = Deposits, R = Reserves, RR = required reserves, and ER = Excess reserves, then C + R would equal:

Accepted Answer

A) M. 
B) R. 
C) MB. 
D) ER. 
A) M. 
B) R. 
C) MB. 
D) ER.

Question 19

During the Great Depression, the monetary base in the U.S.:

Accepted Answer

A) decreased significantly. 
B) increased. 
C) remained constant. 
D) was highly erratic. 
A) decreased significantly. 
B) increased. 
C) remained constant. 
D) was highly erratic.

Question 20

An open market sale of U.S.Treasury securities by the Fed will cause the Fed's balance sheet to show:

Accepted Answer

A) a decrease in the asset of securities and a decrease in the liability of reserves. 
B) an increase in the liability of reserves. 
C) no change in the size of the balance sheet, just the composition of assets will change from securities to cash. 
D) an increase in the asset category of securities and the liability category of reserves. 
A) a decrease in the asset of securities and a decrease in the liability of reserves. 
B) an increase in the liability of reserves. 
C) no change in the size of the balance sheet, just the composition of assets will change from securities to cash. 
D) an increase in the asset category of securities and the liability category of reserves.

Exam 17: The Central Bank Balance Sheet and the Money Supply Process

Which of the following statements is most correct?

Bonds issued by a foreign government in its own currency would:

The Federal Reserve's Balance sheet would include an item labeled Currency.Is this an asset or a liability of the Fed, and does it include all currency that is printed? Explain.

The main asset held by a central bank in its role as the Banker's Bank is:

Considering changes to the monetary base, are discount loans and federal funds borrowing equivalent? Explain.

If Bank A sells a $100,000 U.S.Treasury bond to the Fed, Bank A's reserves will:

The money multiplier is much lower today than it was twenty-five years ago because:

Suppose a student writes a check in the amount of $300 to the college bookstore for textbooks.Discuss briefly the impact on the student's balance sheet, his/her bank's balance sheet and the balance sheet of the Fed.

During the financial crisis of 2007-2009, the deposit expansion multiplier plummeted to a fraction of its normal value.Why?

If Bank A sells a $100,000 U.S.Treasury bond to the Fed, Bank A's excess reserves will:

In terms of foreign exchange reserve holdings, how does the Fed's balance sheet compare to that of the European Central Bank (ECB)?

As a portion of total assets measured in billions of dollars, the most important asset on the Fed's balance sheet is:

Most responsible central banks publish their balance sheet:

You are given the following information: Reserves (R) in the banking system amount to $48 billion, of which $45.8 billion are required.Currency in the hands of the public amounts to $692.5 billion while checkable deposits amount to $650 billion.Calculate the money multiplier.

Explain why the Fed making more discount loans to banks, or an open market purchase, or an increase in foreign exchange reserves all have the same effect on its balance sheet.What is that effect on the monetary base?

One thing the Fed has learned over the past twenty-five years is:

An open market sale of U.S.Treasury securities by the Fed will cause the Banking System's balance sheet to show:

If M = the quantity of money, m, the money multiplier, MB, the Monetary Base, C = Currency, D = Deposits, R = Reserves, RR = required reserves, and ER = Excess reserves, then C + R would equal:

During the Great Depression, the monetary base in the U.S.:

An open market sale of U.S.Treasury securities by the Fed will cause the Fed's balance sheet to show:

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value, and Interest Rates

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets, and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: The Federal Reserve and the European Central Bank

Monetary Policy: Stabilizing the Domestic Economy

Exchange-Rate Policy and the Central Bank

Money Growth, Money Demand, and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

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