Question 1

If we assume a ten percent required reserve rate, and banks not holding any excess reserves and no change in currency holdings, an open market sale of $5 million of U.S.Treasury securities by the Fed, will result in deposits:

Accepted Answer

A)  Decreasing by $50 million
B)  Increasing by $5 million
C)  Increasing by $50 million
D)  Not changing A

Question 2

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 C + D would equal:

Accepted Answer

A)  M
B)  m
C)  MB
D)  ER/RR A

Question 3

Which of the following statements is most correct?

Accepted Answer

A)  During the 1990s Americans held more cash than Europeans but the amount of cash Americans held per resident decreased
B)  During the 1990s the amount of cash held by Americans increased and we hold more cash per resident than Europeans
C)  Americans hold less cash per resident than Europeans and the amount of cash held by American increased during the 1990s
D)  Americans hold less cash than Europeans and the amount of cash held by American per resident decreased during the 1990s C

Question 4

A central bank holds foreign exchange reserves primarily for:

Accepted Answer

A)  Diversification purposes
B)  Foreign exchange interventions
C)  Safekeeping
D)  Diversification and safekeeping

Question 5

Harry gets $1000 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 $1000 when he deposited the $1000 into his checking account
B)  Increased when he received the $1000 in currency from his grandfather
C)  And liabilities increased by $1000 when he deposited the funds into his checking account
D)  Increased by $1000 and his liabilities decreased by $1000 when he deposited the funds into his checking account

Question 6

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)  Only U.S.Treasury securities

Question 7

The monetary base is the sum of:

Accepted Answer

A)  Reserves and M2
B)  M1 and reserves
C)  Currency in the hands of the public, reserves and M1
D)  Currency in the hands of the public and reserves in the banking system

Question 8

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 9

What would be the change in deposits resulting from a $10 million open market purchase by the Fed if we assume the required reserve rate is ten percent (0.1) and that banks will hold excess reserves in the amount of two percent (0.02) of deposits?

Accepted Answer

The answer of What would be the change in deposits...

Question 10

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 11

The Treasury usually requires most businesses to regularly deposit taxes withheld from employees into accounts at designated commercial banks.On a regular basis, the funds in these accounts are transferred to the Treasury's account at the Fed.Discuss what is happening to the balance sheet of the banking system as the businesses are making deposits and these tax accounts are increasing.What happens to the Banking system's balance sheet when the funds are transferred to the Fed?

Accepted Answer

The answer of The Treasury usually requires most businesses to...

Question 12

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 13

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 14

You are given the following information: Reserves (R) in the banking system amount to $48 billion, of which $45.8 billion are required.Currency in the hands of the public amounts to $692.5 billion while checkable deposits amount to $650 billion.Calculate the money multiplier.

Accepted Answer

The answer of You are given the following information: Reserves...

Question 15

The use of deposit sweeping allows banks to:

Accepted Answer

A)  Pay higher rates of interest than are allowed by law
B)  Reduce the amount of required reserves they must hold
C)  Pay less for FDIC insurance
D)  Weed out less profitable deposits

Question 16

Bank A has checkable deposits of $100 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 maximum amount Bank A could lend?

Accepted Answer

A)  $85 million
B)  $15 million
C)  $14 million
D)  $5 million

Question 17

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 18

The simple deposit expansion multiplier is really too simple for understanding the link between changes in a central bank's balance sheet and the quantity of money in the economy because it:

Accepted Answer

A)  Ignores how central banks could change their balance sheet
B)  Assumes banks loan hold no excess reserves
C)  Ignores the fact people might change their currency holdings
D)  Ignores changes in vault cash

Question 19

A central bank's sale of securities from its portfolio will:

Accepted Answer

A)  Decrease the size of its balance sheet
B)  Have no impact at all on the balance sheet
C)  Only change the composition of its liabilities
D)  Only change the composition of its assets

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