Question 1

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 2

Bonds denominated in the currency of the nation that issued them 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.

Question 3

Monetary policy operations for central banks are run through changes in the liability category of:

Accepted Answer

A) Government's accounts 
B) Currency 
C) Reserves 
D) Gold 
A) Government's accounts 
B) Currency 
C) Reserves 
D) Gold

Question 4

If the required reserve rate is ten percent and banks do not hold any excess reserves and there are no changes in currency holdings, a $1 million open market purchased by the Fed will result in deposit creation of:

Accepted Answer

A) $9 million 
B) $90 million 
C) $10 million 
D) $900,000 
A) $9 million 
B) $90 million 
C) $10 million 
D) $900,000

Question 5

The author opens 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

Question 6

Over ninety percent of the Fed's liabilities is in:

Accepted Answer

A) Government accounts 
B) Treasury certificates 
C) Commercial bank reserves 
D) Currency 
A) Government accounts 
B) Treasury certificates 
C) Commercial bank reserves 
D) Currency

Question 7

Vault cash is not included in the central bank's liability category of currency because:

Accepted Answer

A) Only non-bank currency is in the liability category of currency 
B) Vault cash really is only electronic funds 
C) Vault cash is in the asset category of reserves 
D) It is the liability of the U.S.Treasury 
A) Only non-bank currency is in the liability category of currency 
B) Vault cash really is only electronic funds 
C) Vault cash is in the asset category of reserves 
D) It is the liability of the U.S.Treasury

Question 8

The monetary base is also known as:

Accepted Answer

A) M1 
B) M2 
C) High-powered money 
D) Free reserves 
A) M1 
B) M2 
C) High-powered money 
D) Free reserves

Question 9

A central bank's balance sheet will categorize the following as liabilities:

Accepted Answer

A) Currency 
B) Loans 
C) Securities 
D) Foreign exchange reserves 
A) Currency 
B) Loans 
C) Securities 
D) Foreign exchange reserves

Question 10

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

Question 11

A central bank's balance sheet would categorize each of the following as liabilities, except:

Accepted Answer

A) Currency 
B) Loans 
C) The government's account 
D) Accounts of the commercial banks 
A) Currency 
B) Loans 
C) The government's account 
D) Accounts of the commercial banks

Question 12

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 13

Which of the following statements is most correct?

Accepted Answer

A) Discount loans are initiated by the Federal Reserve 
B) Discount loans are made when banks need relatively small amounts of cash for the long term 
C) Discount loans are made when banks need relatively large amounts of cash for the long term 
D) Discount loans are made when banks need relatively small amounts of cash for the short term 
A) Discount loans are initiated by the Federal Reserve 
B) Discount loans are made when banks need relatively small amounts of cash for the long term 
C) Discount loans are made when banks need relatively large amounts of cash for the long term 
D) Discount loans are made when banks need relatively small amounts of cash for the short term

Question 14

The term for turning reserves into bank deposits is called:

Accepted Answer

A) Discounting 
B) Balance sheet adjustment 
C) Multiple deposit creation 
D) Spreading 
A) Discounting 
B) Balance sheet adjustment 
C) Multiple deposit creation 
D) Spreading

Question 15

If we focus on the banking system and assume no change in the public's currency holdings, a loss of reserves by any one bank must:

Accepted Answer

A) Equal the loss of reserves by the entire system 
B) Be equal to the net loss of reserves for the banking system 
C) Result in no change in reserves for the banking system 
D) Result in a multiple loss to the banking system 
A) Equal the loss of reserves by the entire system 
B) Be equal to the net loss of reserves for the banking system 
C) Result in no change in reserves for the banking system 
D) Result in a multiple loss to the banking system

Question 16

When an individual withdraws funds from a checking account the:

Accepted Answer

A) Bank's balance sheet shrinks but the size of the Fed's balance sheet is not affected 
B) Bank's balance sheet shrinks and so does the Fed's balance sheet 
C) Bank's balance sheet shrinks but the size of the Fed's balance sheet increases 
D) Size of the bank's balance sheet stays the same but the size of the Fed's balance sheet shrinks 
A) Bank's balance sheet shrinks but the size of the Fed's balance sheet is not affected 
B) Bank's balance sheet shrinks and so does the Fed's balance sheet 
C) Bank's balance sheet shrinks but the size of the Fed's balance sheet increases 
D) Size of the bank's balance sheet stays the same but the size of the Fed's balance sheet shrinks

Question 17

A liability of the central bank in functioning as the bankers' bank is:

Accepted Answer

A) Accounts of commercial banks 
B) Securities 
C) Loans 
D) Currency 
A) Accounts of commercial banks 
B) Securities 
C) Loans 
D) Currency

Question 18

The required reserve rate set by the Fed is ten percent of all checkable deposits.A bank sells $1 million of U.S.Treasury securities it owns to the Fed.Describe what this transaction does to the bank's total reserves, its required reserves and its excess reserves.

Accepted Answer

The sale of the securities will immediat

Question 19

Why is it more correct to say that the Fed (the central bank) controls the monetary base than to say it controls the amount of reserves?

Accepted Answer

The Fed, or any central bank, can create

Question 20

Considering a central bank's balance sheet, when the value of a liability decreases:

Accepted Answer

A) Nothing happens to its balance sheet 
B) Either the value of another liability increases or an asset must decrease 
C) The value of another liability must increase 
D) An asset must decrease 
A) Nothing happens to its balance sheet 
B) Either the value of another liability increases or an asset must decrease 
C) The value of another liability must increase 
D) An asset must decrease

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

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

Bonds denominated in the currency of the nation that issued them would:

Monetary policy operations for central banks are run through changes in the liability category of:

If the required reserve rate is ten percent and banks do not hold any excess reserves and there are no changes in currency holdings, a $1 million open market purchased by the Fed will result in deposit creation of:

Over ninety percent of the Fed's liabilities is in:

Vault cash is not included in the central bank's liability category of currency because:

The monetary base is also known as:

A central bank's balance sheet will categorize the following as liabilities:

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.

A central bank's balance sheet would categorize each of the following as liabilities, except:

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

Which of the following statements is most correct?

The term for turning reserves into bank deposits is called:

If we focus on the banking system and assume no change in the public's currency holdings, a loss of reserves by any one bank must:

When an individual withdraws funds from a checking account the:

A liability of the central bank in functioning as the bankers' bank is:

The required reserve rate set by the Fed is ten percent of all checkable deposits.A bank sells $1 million of U.S.Treasury securities it owns to the Fed.Describe what this transaction does to the bank's total reserves, its required reserves and its excess reserves.

Why is it more correct to say that the Fed (the central bank) controls the monetary base than to say it controls the amount of reserves?

Considering a central bank's balance sheet, when the value of a liability decreases:

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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