Question 1

The goal of an open market sale by the Federal Reserve is to:

Accepted Answer

A)  reduce bank reserves and increase the money supply. 
B)  increase bank reserves and reduce the money supply. 
C)  reduce bank reserves and reduce the money supply. 
D)  increase bank reserves and increase the money supply. 
A)  reduce bank reserves and increase the money supply. 
B)  increase bank reserves and reduce the money supply. 
C)  reduce bank reserves and reduce the money supply. 
D)  increase bank reserves and increase the money supply.

Question 2

The risk that the failure of a few large financial institutions can affect the entire financial system is called:

Accepted Answer

A)  systemic risk. 
B)  moral hazard. 
C)  credit risk. 
D)  solvency risk. 
A)  systemic risk. 
B)  moral hazard. 
C)  credit risk. 
D)  solvency risk.

Question 3

A decrease in the money supply reduces aggregate demand and real GDP growth in the short run.

Accepted Answer

A) True 
 B)False

Question 4

Required reserves are the percent of:

Accepted Answer

A)  reserves that banks are required to return to customers. 
B)  loans that banks are required to hold as reserves. 
C)  deposits banks are required to hold as reserves. 
D)  loans the Fed is required to make to banks. 
A)  reserves that banks are required to return to customers. 
B)  loans that banks are required to hold as reserves. 
C)  deposits banks are required to hold as reserves. 
D)  loans the Fed is required to make to banks.

Question 5

Explain why the existence of the Federal Deposit Insurance Corporation may reduce bank panics.

Accepted Answer

Thus,even when banks fail,depo

Question 6

The money multiplier is greater than 1 because most banks keep more than 100% of any increase in bank deposits as reserves.

Accepted Answer

A) True 
 B)False

Question 7

Money market mutual funds are more liquid than savings deposits.

Accepted Answer

A) True 
 B)False

Question 8

During the financial crisis of 2008,the Federal Reserve worked closely with the U.S.Treasury.

Accepted Answer

A) True 
 B)False

Question 9

To increase the money supply in the economy,the Fed would:

Accepted Answer

A)  increase the discount rate. 
B)  carry out open market sales and/or raise the reserve ratio. 
C)  carry out open market sales. 
D)  carry out open market purchases and/or lower the discount rate. 
A)  increase the discount rate. 
B)  carry out open market sales and/or raise the reserve ratio. 
C)  carry out open market sales. 
D)  carry out open market purchases and/or lower the discount rate.

Question 10

When the Fed wants to increase interest rates,it:

Accepted Answer

A)  instructs banks across the nation that they must raise their rates. 
B)  sells bonds in the open market. 
C)  buys bonds in the open market. 
D)  adjusts the fractional reserve ratio. 
A)  instructs banks across the nation that they must raise their rates. 
B)  sells bonds in the open market. 
C)  buys bonds in the open market. 
D)  adjusts the fractional reserve ratio.

Question 11

The discount rate is the:

Accepted Answer

A)  interest rate banks pay when they borrow directly from the Fed. 
B)  overnight lending rate on loans from one major bank to another. 
C)  interest rate on short-term Treasury securities. 
D)  ratio of reserves to deposits. 
A)  interest rate banks pay when they borrow directly from the Fed. 
B)  overnight lending rate on loans from one major bank to another. 
C)  interest rate on short-term Treasury securities. 
D)  ratio of reserves to deposits.

Question 12

If you owe your banker one million dollars and can't pay,you have a problem.If you owe your banker one billion dollars and can't pay,your banker has a problem.

Accepted Answer

A) True 
 B)False

Question 13

An insolvent bank is one that:

Accepted Answer

A)  borrows in the market for federal funds. 
B)  borrows at the discount window. 
C)  has more liabilities than assets. 
D)  sells in the open market. 
A)  borrows in the market for federal funds. 
B)  borrows at the discount window. 
C)  has more liabilities than assets. 
D)  sells in the open market.

Question 14

Reserves held by banks are mainly held in the form of:

Accepted Answer

A)  currency. 
B)  checkable deposits. 
C)  electronic claims. 
D)  savings accounts. 
A)  currency. 
B)  checkable deposits. 
C)  electronic claims. 
D)  savings accounts.

Question 15

The Term Auction Facility was set up in response to the financial crisis of 2007-2008.

Accepted Answer

A) True 
 B)False

Question 16

For each depositor name on an account,the FDIC guarantees up to:

Accepted Answer

A)  $2,500. 
B)  $25,000. 
C)  $250,000. 
D)  $2,500,000. 
A)  $2,500. 
B)  $25,000. 
C)  $250,000. 
D)  $2,500,000.

Question 17

The United States has a fractional reserve banking system.

Accepted Answer

A) True 
 B)False

Question 18

An open market operation occurs when:

Accepted Answer

A)  banks loan funds to one another. 
B)  banks increase the reserve ratio. 
C)  the Fed buys or sells government bonds. 
D)  the Fed enforces regulations on the banking industry. 
A)  banks loan funds to one another. 
B)  banks increase the reserve ratio. 
C)  the Fed buys or sells government bonds. 
D)  the Fed enforces regulations on the banking industry.

Question 19

Which does NOT serve as means of payment in the United States?

Accepted Answer

A)  paper bills and coins 
B)  mutual funds 
C)  checking or debit account 
D)  savings deposits 
A)  paper bills and coins 
B)  mutual funds 
C)  checking or debit account 
D)  savings deposits

Question 20

U.S.currency has the words "Federal Reserve Note" on it.

Accepted Answer

A) True 
 B)False

Exam 15: The Federal Reserve System

The goal of an open market sale by the Federal Reserve is to:

The risk that the failure of a few large financial institutions can affect the entire financial system is called:

A decrease in the money supply reduces aggregate demand and real GDP growth in the short run.

Required reserves are the percent of:

Explain why the existence of the Federal Deposit Insurance Corporation may reduce bank panics.

The money multiplier is greater than 1 because most banks keep more than 100% of any increase in bank deposits as reserves.

Money market mutual funds are more liquid than savings deposits.

During the financial crisis of 2008,the Federal Reserve worked closely with the U.S.Treasury.

To increase the money supply in the economy,the Fed would:

When the Fed wants to increase interest rates,it:

The discount rate is the:

If you owe your banker one million dollars and can't pay,you have a problem.If you owe your banker one billion dollars and can't pay,your banker has a problem.

An insolvent bank is one that:

Reserves held by banks are mainly held in the form of:

The Term Auction Facility was set up in response to the financial crisis of 2007-2008.

For each depositor name on an account,the FDIC guarantees up to:

The United States has a fractional reserve banking system.

An open market operation occurs when:

Which does NOT serve as means of payment in the United States?

U.S.currency has the words "Federal Reserve Note" on it.

The Big Ideas

The Power of Trade

Supply and Demand

Equilibrium- How Supply and Demand

Price Ceilings and Floors

GDP and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth,capital Accumulation

Saving,investment,and the Financial System

Stock Markets and Personal Finance

Unemployment and Labor Force Participation

Inflation and the Quantity Theory of Money

Business Fluctuations

Transmission and Amplification Mechanisms

Monetary Policy

The Federal Budget- Taxes and Spending

Fiscal Policy

International Trade

International Finance

Political Economy and Public Choice

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