Question 1

In the U.S., loans made by Federal Reserve to banks fall in the categories of:

Accepted Answer

A)  discount loans. 
B)  reserves. 
C)  discount loans and reserves. 
D)  discount loans and foreign exchange reserves.

Question 2

Harry gets $1,000 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 $1,000 
C)  The monetary base decreased by $1,000 
D)  The monetary base increases by more than a $1,000

Question 3

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

Accepted Answer

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

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 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

Question 5

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

Accepted Answer

The answer of During the financial crisis of 2007-2009, the...

Question 6

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

Question 7

When the Fed makes a discount loan, the impact on the Banking System's balance sheet is:

Accepted Answer

A)  an increase in liabilities with no change in assets. 
B)  an increase in assets and a decrease in liabilities. 
C)  a decrease in assets and an increase in liabilities. 
D)  the same as that of an open market purchase.

Question 8

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.

Question 9

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.

Question 10

Harry gets $1,000 in currency from his grandfather when he graduates from college. He deposits these funds into his checking account. Considering Harry's personal balance sheet, his assets:

Accepted Answer

A)  increased by $1,000 when he deposited the $1,000 into his checking account. 
B)  Increased when he received the $1,000 in currency from his grandfather. 
C)  And liabilities increased by $1,000 when he deposited the funds into his checking account. 
D)  Increased by $1,000 and his liabilities decreased by $1,000 when he deposited the funds into his checking account.

Question 11

Gold is:

Accepted Answer

A)  the most important asset on the Fed's balance sheet. 
B)  extremely important as an asset for the Fed. 
C)  a small portion of the Fed's assets. 
D)  very important for monetary policy in the U.S.

Question 12

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.

Question 13

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

Accepted Answer

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

Question 14

For the Federal Reserve's balance sheet, the asset listed securities would include:

Accepted Answer

A)  private and public debt. 
B)  mainly U.S. Treasury and municipal bonds. 
C)  bonds issued by commercial banks. 
D)  U.S. Treasury securities.

Question 15

If we assume the required reserve rate is ten percent (0.1), and that the public does not change their currency holdings and that banks do not hold any excess reserves, what will be the change in deposits resulting from a $150 million open market purchase by the Fed?

Accepted Answer

The answer of If we assume the required reserve rate...

Question 16

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

Accepted Answer

The answer of If reserves pay interest below the market...

Question 17

The experience of the Marcos Presidency in the Philippines in 1986 showed:

Accepted Answer

A)  the importance of keeping the central bank independent from political pressure. 
B)  published central bank balance sheets do not always reflect reality. 
C)  transparency is critical if people are going to trust a central bank. 
D)  all of the answers given are correct.

Question 18

When the Fed makes a discount loan, the impact on the Fed's balance sheet will reflect:

Accepted Answer

A)  no change in liabilities but an increase in assets. 
B)  a decrease in assets and liabilities. 
C)  an increase in assets and liabilities. 
D)  an increase in assets and a decrease in liabilities.

Question 19

The Fed sells German bonds to commercial banks. Which of the following best describes the impact on the Fed's and the Banking System's balance sheets resulting from this transaction?

Accepted Answer

A)  The Fed's assets and liabilities increase, the banking systems assets and liabilities decrease. 
B)  The Fed's assets increase and its liabilities both increase. For the banking system, the value of assets and liabilities do not change, only the composition of assets changes. 
C)  The Fed's assets and liabilities do not change, only the compositions of the assets change. For the banking system, assets and liabilities increase. 
D)  The Fed's assets and liabilities both decrease. For the banking system, the value of assets and liabilities do not change, only the composition of assets changes.

Question 20

The quantity of securities held by the Federal Reserve is controlled through:

Accepted Answer

A)  the U.S. Treasury. 
B)  the Fed's annual budget. 
C)  open market operations. 
D)  the purchases made by the regional Reserve banks.

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