Question 1

Consider a $2 billion open market purchase of U.S.Treasury securities by the Federal Reserve.The Fed's balance sheet will show:

Accepted Answer

A) only an increase in the asset of securities of $2 billion. 
B) only show an increase in the liability of reserves of $2 billion. 
C) no change in the size of the balance sheet, just the composition of assets will change from cash to securities. 
D) an increase in the asset category of securities and the liability category of reserves by $2 billion. 
A) only an increase in the asset of securities of $2 billion. 
B) only show an increase in the liability of reserves of $2 billion. 
C) no change in the size of the balance sheet, just the composition of assets will change from cash to securities. 
D) an increase in the asset category of securities and the liability category of reserves by $2 billion.

Question 2

What happens to the monetary base if people, fearing a bank run, convert their checking deposits into currency holdings?

Accepted Answer

The monetary base itself does not change

Question 3

Mary decides to withdraw $500 out of her checking account.The impact of this transaction on the Banking System's balance sheet will be to:

Accepted Answer

A) only reduce checkable deposits by $500. 
B) increase reserves and reduce checkable deposits by $500 respectively. 
C) decrease reserves and checkable deposits by $500 respectively. 
D) only reduce reserves by the required reserve rate times $500. 
A) only reduce checkable deposits by $500. 
B) increase reserves and reduce checkable deposits by $500 respectively. 
C) decrease reserves and checkable deposits by $500 respectively. 
D) only reduce reserves by the required reserve rate times $500.

Question 4

A central bank holds foreign exchange reserves for:

Accepted Answer

A) diversification purposes. 
B) foreign exchange interventions. 
C) safekeeping. 
D) diversification and safekeeping. 
A) diversification purposes. 
B) foreign exchange interventions. 
C) safekeeping. 
D) diversification and safekeeping.

Question 5

A customer of Bank A writes a $20,000 check for a new car, which the car dealer deposits in his bank, Bank B.Which of the following statements pertaining to this transaction is most true?

Accepted Answer

A) Banks A's reserves will decrease by the required reserve rate times $20,000 and Banks B's reserves will increase by (1 - required reserve rate) times $20,000 
B) Bank A's reserves decrease by $20,000 and Bank B's reserves increase by $20,000 
C) Neither Bank A's nor B's reserves will change 
D) Bank B's reserves will decrease and Bank A's reserves will increase by $20,000 
A) Banks A's reserves will decrease by the required reserve rate times $20,000 and Banks B's reserves will increase by (1 - required reserve rate) times $20,000 
B) Bank A's reserves decrease by $20,000 and Bank B's reserves increase by $20,000 
C) Neither Bank A's nor B's reserves will change 
D) Bank B's reserves will decrease and Bank A's reserves will increase by $20,000

Question 6

Consider a $2 billion open market purchase of U.S.Treasury securities by the Federal Reserve.The Banking System's balance sheet will specifically show:

Accepted Answer

A) only an increase in liabilities of $2 billion. 
B) only a decrease in assets of $2 billion. 
C) no net change in assets or liabilities, only a change in the composition of assets with securities decreasing and reserves increasing by $2 billion respectively. 
D) no net change in assets or liabilities, only a change in the composition of assets with securities increasing and reserves decreasing by $2 billion respectively. 
A) only an increase in liabilities of $2 billion. 
B) only a decrease in assets of $2 billion. 
C) no net change in assets or liabilities, only a change in the composition of assets with securities decreasing and reserves increasing by $2 billion respectively. 
D) no net change in assets or liabilities, only a change in the composition of assets with securities increasing and reserves decreasing by $2 billion respectively.

Question 7

If the Fed were to decrease the required reserve rate from ten percent to five percent, the simple deposit expansion multiplier would:

Accepted Answer

A) double. 
B) decrease by 5 percent. 
C) increase by a factor of five. 
D) be half as large as it was before the reduction. 
A) double. 
B) decrease by 5 percent. 
C) increase by a factor of five. 
D) be half as large as it was before the reduction.

Question 8

The Treasury usually requires most businesses to regularly deposit taxes withheld from employees into accounts at designated commercial banks.On a regular basis, the funds in these accounts are transferred to the Treasury's account at the Fed.Discuss what is happening to the balance sheet of the banking system as the businesses are making deposits and these tax accounts are increasing.What happens to the Banking system's balance sheet when the funds are transferred to the Fed?

Accepted Answer

As the deposits are made by businesses t

Question 9

Which of the following best completes the statement? If people increase their currency holdings, all else the same, the monetary base:

Accepted Answer

A) does not change but the quantity of M2 will decrease. 
B) increases as does the quantity of M2. 
C) decreases as does the quantity of M2. 
D) does not change and neither does M2. 
A) does not change but the quantity of M2 will decrease. 
B) increases as does the quantity of M2. 
C) decreases as does the quantity of M2. 
D) does not change and neither does M2.

Question 10

If there were an increase in the number of bank failures, we should expect the amount of excess reserves in the banking system to:

Accepted Answer

A) decrease. 
B) increase. 
C) not change. 
D) decrease since failing banks lost theirs. 
A) decrease. 
B) increase. 
C) not change. 
D) decrease since failing banks lost theirs.

Question 11

When a business purchases a $25,000 computer system by writing a check, the business's balance sheet will:

Accepted Answer

A) show an increase in assets and liabilities of $25,000. 
B) only show an increase in assets of $25,000. 
C) only show an increase in liabilities of $25,000. 
D) still show the same total amount of assets as before the purchase. 
A) show an increase in assets and liabilities of $25,000. 
B) only show an increase in assets of $25,000. 
C) only show an increase in liabilities of $25,000. 
D) still show the same total amount of assets as before the purchase.

Question 12

Liabilities of commercial banks show up on the Fed's balance sheet as part of its:

Accepted Answer

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

Question 13

Harry gets $1000 in currency from his grandfather when he graduates from college.He deposits these funds into his checking account.What is the impact on the monetary base of Harry's deposit?

Accepted Answer

A) The monetary base did not change 
B) The monetary base increased by $1000 
C) The monetary base decreased by $1000 
D) The monetary base increases by more than a $1000 
A) The monetary base did not change 
B) The monetary base increased by $1000 
C) The monetary base decreased by $1000 
D) The monetary base increases by more than a $1000

Question 14

If reserves pay interest below the market federal funds rate, why would a bank hold any excess reserves?

Accepted Answer

There can be an opportunity cost to not

Question 15

The formula for required reserves is:

Accepted Answer

A) (1/r
D) D 
B) 1/rD. 
C) rD. 
D) D/rD. 
A) (1/r
D) D 
B) 1/rD. 
C) rD. 
D) D/rD.

Question 16

Bank A has checkable deposits of $140 million, vault cash equaling $1 million and deposits at the Fed equaling $14 million.If the required reserve rate is ten percent what is the amount of excess reserves Bank A is holding?

Accepted Answer

A) It does not have any excess reserves 
B) $15 million 
C) $2 million 
D) $1 million 
A) It does not have any excess reserves 
B) $15 million 
C) $2 million 
D) $1 million

Question 17

When the Federal Reserve purchases a U.S.Treasury bond for $1 million by writing a check, when the check returns, the Fed's balance sheet will show:

Accepted Answer

A) an increase in assets and a decrease in liabilities of $1 million. 
B) only an increase in assets of $1 million. 
C) only an increase in liabilities of $1 million. 
D) an increase in assets and liabilities of $1 million. 
A) an increase in assets and a decrease in liabilities of $1 million. 
B) only an increase in assets of $1 million. 
C) only an increase in liabilities of $1 million. 
D) an increase in assets and liabilities of $1 million.

Question 18

If the Fed sells euros valued at $100 million to commercial banks, will this change the size of the Fed's liabilities and assets? Explain.

Accepted Answer

The liabilities of the Fed will decrease

Question 19

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

Accepted Answer

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

Question 20

The authors open Chapter 17 with a contrast between the Fed's actions in response to the terrorist attacks of September, 2001 and its response to the financial crisis of the Great Depression.Why was the Fed successful at dealing with the crisis in 2001, and not as successful with the crisis of the early 1930s?

Accepted Answer

The primary difference is that in the ea

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

Consider a $2 billion open market purchase of U.S.Treasury securities by the Federal Reserve.The Fed's balance sheet will show:

What happens to the monetary base if people, fearing a bank run, convert their checking deposits into currency holdings?

Mary decides to withdraw $500 out of her checking account.The impact of this transaction on the Banking System's balance sheet will be to:

A central bank holds foreign exchange reserves for:

A customer of Bank A writes a $20,000 check for a new car, which the car dealer deposits in his bank, Bank B.Which of the following statements pertaining to this transaction is most true?

Consider a $2 billion open market purchase of U.S.Treasury securities by the Federal Reserve.The Banking System's balance sheet will specifically show:

If the Fed were to decrease the required reserve rate from ten percent to five percent, the simple deposit expansion multiplier would:

Which of the following best completes the statement? If people increase their currency holdings, all else the same, the monetary base:

If there were an increase in the number of bank failures, we should expect the amount of excess reserves in the banking system to:

When a business purchases a $25,000 computer system by writing a check, the business's balance sheet will:

Liabilities of commercial banks show up on the Fed's balance sheet as part of its:

Harry gets $1000 in currency from his grandfather when he graduates from college.He deposits these funds into his checking account.What is the impact on the monetary base of Harry's deposit?

If reserves pay interest below the market federal funds rate, why would a bank hold any excess reserves?

The formula for required reserves is:

Bank A has checkable deposits of $140 million, vault cash equaling $1 million and deposits at the Fed equaling $14 million.If the required reserve rate is ten percent what is the amount of excess reserves Bank A is holding?

When the Federal Reserve purchases a U.S.Treasury bond for $1 million by writing a check, when the check returns, the Fed's balance sheet will show:

If the Fed sells euros valued at $100 million to commercial banks, will this change the size of the Fed's liabilities and assets? Explain.

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

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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