Question 1

Tom decides to withdraw $300 out of his checking account.The impact of this transaction on the Fed's balance sheet will be:

Accepted Answer

A) No change in total assets or total liabilities, but an increase in the liability of currency and a decrease in the liability of reserves by $300 respectively 
B) No change in total assets but the liability of currency increases by $300 
C) Total assets decrease by $300 and the liability of currency increases by $300 
D) No change in either total assets or total liabilities 
A) No change in total assets or total liabilities, but an increase in the liability of currency and a decrease in the liability of reserves by $300 respectively 
B) No change in total assets but the liability of currency increases by $300 
C) Total assets decrease by $300 and the liability of currency increases by $300 
D) No change in either total assets or total liabilities

Question 2

Vault cash is:

Accepted Answer

A) Equal to the total amount of reserves and is an asset of the central bank 
B) Not reserves but is a liability of the central bank 
C) A part of reserves and an asset of commercial banks 
D) Not reserves but is an asset of central banks 
A) Equal to the total amount of reserves and is an asset of the central bank 
B) Not reserves but is a liability of the central bank 
C) A part of reserves and an asset of commercial banks 
D) Not reserves but is an asset of central banks

Question 3

The formula for required reserves is:

Accepted Answer

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

Question 4

You receive a $1,000 gift from your grandmother when you graduate from college.Your grandmother withdrew the $1,000 from her checking account and gave you ten $100 bills.You deposit the ten bills into your checking account.Discuss the impact of these transactions on your grandmother's balance sheet, your balance sheet, and the Fed's balance sheet.

Accepted Answer

Let's start with the grandmother.The onl

Question 5

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 RR would equal:

Accepted Answer

A) MB 
B) D - C 
C) M/MB 
D) R - ER 
A) MB 
B) D - C 
C) M/MB 
D) R - ER

Question 6

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

Accepted Answer

When a bank borrows in the federal bunds

Question 7

Explain the impact on the Fed's balance sheet from a $10 million open market purchase of U.S.Treasury Securities.Be sure to identify which categories of assets and liabilities change and by what amounts.

Accepted Answer

The purchase of the Treasury securities

Question 8

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

Accepted Answer

The Fed flooded the banking system with

Question 9

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 purchase by the Fed will result in what change in loans?

Accepted Answer

A) No change 
B) A decrease of $1 million 
C) An increase of $10 million 
D) An increase of $1 million 
A) No change 
B) A decrease of $1 million 
C) An increase of $10 million 
D) An increase of $1 million

Question 10

What is deposit sweeping and how does it affect the amount of required reserves that banks must hold?

Accepted Answer

Since 1994 the Fed has allowed banks to

Question 11

In dollar amounts:

Accepted Answer

A) The monetary base is larger than M2 and M1 is less than M2 
B) M1 is smaller than the monetary base and M2 is larger than both 
C) The monetary base is larger than M1 and M2 
D) The monetary base is smaller than M1 and M2 is larger than M1 
A) The monetary base is larger than M2 and M1 is less than M2 
B) M1 is smaller than the monetary base and M2 is larger than both 
C) The monetary base is larger than M1 and M2 
D) The monetary base is smaller than M1 and M2 is larger than M1

Question 12

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 13

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 14

To obtain a discount loan from the Fed, a commercial bank must:

Accepted Answer

A) Prove that it will fail if it does not obtain the loan 
B) Prove that the loan will be used to make loans 
C) Provide collateral 
D) Agree to more frequent examinations 
A) Prove that it will fail if it does not obtain the loan 
B) Prove that the loan will be used to make loans 
C) Provide collateral 
D) Agree to more frequent examinations

Question 15

Reserves are:

Accepted Answer

A) Assets of the central bank and liabilities of the commercial bank 
B) Assets of the commercial banks and liabilities of the central bank 
C) Liabilities of the commercial and central banks 
D) Assets and liabilities for the central bank 
A) Assets of the central bank and liabilities of the commercial bank 
B) Assets of the commercial banks and liabilities of the central bank 
C) Liabilities of the commercial and central banks 
D) Assets and liabilities for the central bank

Question 16

Consider a $2 billion open market purchase of U.S.Treasury securities by the Federal Reserve.The Fed's balance sheet will specifically 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 17

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

Accepted Answer

A) R - ER 
B) rD D 
C) (MB -
C)  - ER 
D) All of the answers given are correct 
A) R - ER 
B) rD D 
C) (MB -
C)  - ER 
D) All of the answers given are correct

Question 18

If required reserves are expressed by RR; the required reserve rate by rD and deposits by D, the simple deposit expansion multiplier is expressed as:

Accepted Answer

A) RDD 
B) (1/rD ) D 
C) RD 
D) 1/rD 
A) RDD 
B) (1/rD ) D 
C) RD 
D) 1/rD

Question 19

What was the main reason the Fed stopped announcing growth targets for money aggregates in the early 2000s?

Accepted Answer

The main reason is that the link between

Question 20

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

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

Tom decides to withdraw $300 out of his checking account.The impact of this transaction on the Fed's balance sheet will be:

Vault cash is:

The formula for required reserves is:

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 RR would equal:

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

Explain the impact on the Fed's balance sheet from a $10 million open market purchase of U.S.Treasury Securities.Be sure to identify which categories of assets and liabilities change and by what amounts.

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

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 purchase by the Fed will result in what change in loans?

What is deposit sweeping and how does it affect the amount of required reserves that banks must hold?

In dollar amounts:

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

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

To obtain a discount loan from the Fed, a commercial bank must:

Reserves are:

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

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

If required reserves are expressed by RR; the required reserve rate by rD and deposits by D, the simple deposit expansion multiplier is expressed as:

What was the main reason the Fed stopped announcing growth targets for money aggregates in the early 2000s?

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:

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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