Question 1

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 2

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 3

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 deposit creation of:

Accepted Answer

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

Question 4

Why would it be correct to say that, if we assume that people do not change their currency holdings and that banks do not hold any excess reserves, the equation

Accepted Answer

The answer of Why would it be correct to say...

Question 5

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.

Question 6

The most a bank could lend at any time without altering its assets is an amount equal to its:

Accepted Answer

A) checkable deposits. 
B) reserves. 
C) excess reserves. 
D) net worth.

Question 7

Total banking system reserves equal $58.65 billion.The total banking system checkable deposits subject to reserve requirements are $510 billion.The required reserves are $51 billion.What is the required reserve rate, and what is the excess reserve rate?

Accepted Answer

The answer of Total banking system reserves equal $58.65 billion.The...

Question 8

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 9

Bonds issued by the U.S.Treasury 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.

Question 10

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.

Question 11

The assets that appear on the central bank's balance sheet include the category of loans.Who are central banks lending to and are these loans associated with the central bank functioning as the government's bank? Explain.

Accepted Answer

The answer of The assets that appear on the central...

Question 12

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.

Question 13

During the early years of the Great Depression, the monetary base and M2:

Accepted Answer

A) both increased significantly. 
B) both decreased significantly. 
C) moved in opposite directions; M2 increased while the monetary base decreased. 
D) moved in opposite directions; the monetary base increased but M2 decreased.

Question 14

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.

Question 15

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 answer of Explain the impact on the Fed's balance...

Question 16

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 answer of Why is it more correct to say...

Question 17

During the 1990s, the money multipliers for M1 and M2:

Accepted Answer

A) decreased. 
B) remained fairly constant even though the economy grew. 
C) the M1 multiplier decreased while the M2 multiplier increased dramatically. 
D) increased dramatically as the economy grew.

Question 18

The Fed purchases German bonds from 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 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 increase and its liabilities decrease, for the banking system, the value of assets and liabilities do not change, only the composition of assets changes.

Question 19

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 20

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

The answer of You receive a $1,000 gift from your...

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