Question 1

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/D would equal the:

Accepted Answer

A) Amount in required reserves 
B) Required reserve rate 
C) Amount in excess reserves 
D) Monetary base

Question 2

Explain why the Fed making more discount loans to banks, or an open market purchase, or an increase in foreign exchange reserves all have the same effect on its balance sheet.What is that effect on the monetary base?

Accepted Answer

The answer of Explain why the Fed making more discount...

Question 3

Traveler's checks have no reserve requirements and are included in M1.When people travel during the summer and convert some of their checking account deposits into traveler's checks, explain what happens to the monetary base.

Accepted Answer

The answer of Traveler's checks have no reserve requirements and...

Question 4

Follow a $1 billion purchase of U.S.Treasury bonds by the Fed from commercial banks.Discuss the changes that occur to the balance sheet of the banking system and the balance sheet of the Fed.

Accepted Answer

The answer of Follow a $1 billion purchase of U.S.Treasury...

Question 5

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 theory of the money multiplier isn't very useful since 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 6

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 7

Assume that the required reserve rate is ten percent, banks want to hold excess reserves in an amount that equals three percent of deposits, and the public withdraws ten percent of every deposit in cash.An open market purchase of $1 million by the Fed will see banking system deposits increase by:

Accepted Answer

A) More than $1 million but less than $10 million 
B) Exactly $1 million 
C) Less than $1 million 
D) More than $10 million but less than $20 million

Question 8

The money multiplier is much lower today than it was twenty-five years ago because:

Accepted Answer

A) People are holding less currency today 
B) The currency-to-deposit ratio is much higher today 
C) There is less currency available today 
D) Credit cards are more widely used

Question 9

For the Federal Reserve, the largest liability on its balance sheet is:

Accepted Answer

A) Commercial bank reserves 
B) Currency 
C) Governments' accounts 
D) Treasury certificates

Question 10

Given the prevalence of electronic payment mechanisms like credit cards and debit cards and the safety of checks, why is the amount of currency in the hands of the public increasing?

Accepted Answer

The answer of Given the prevalence of electronic payment mechanisms...

Question 11

Harry gets $1000 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 $1000 
C) The monetary base decreased by $1000 
D) The monetary base increases by more than a $1000

Question 12

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) MB times m 
B) R/ER 
C) D rD 
D) C/D

Question 13

When the Federal Reserve purchases a U.S.Treasury bond for $1 million by writing a check, when the check returns, the Fed's balance sheet will show:

Accepted Answer

A) An increase in assets and a decrease in liabilities of $1 million 
B) Only an increase in assets of $1 million 
C) Only an increase in liabilities of $1million 
D) An increase in assets and liabilities of $1 million

Question 14

If Bank A sells a $100,000 U.S.Treasury bond to the Fed, Bank A's excess reserves will:

Accepted Answer

A) Increase by less than $100,000 
B) Not change 
C) Decrease by less than $100,000 
D) Increase by $100,000

Question 15

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 16

A customer of Bank A writes a $20,000 check for a new car, which the car dealer deposits in his bank, Bank B)Which of the following statements pertaining to this transaction is most true?

Accepted Answer

A) Banks A's reserves will decrease by the required reserve rate times $20,000 and Banks B's reserves will increase by (1- required reserve rate) times $20,000 
B) Bank A's reserves decrease by $20,000 and Bank B's reserves increase by $20,000 
C) Neither Bank A's nor B's reserves will change 
D) Bank B's reserves will decrease and Bank A's reserves will increase by $20,000

Question 17

If the Federal Reserve is to be independent, the quantity of securities it purchases is determined by:

Accepted Answer

A) The Federal Reserve itself 
B) Congress 
C) The amount the public does not want to purchase at the going price 
D) The Treasury

Question 18

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 m would equal:

Accepted Answer

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

Question 19

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 20

When a business purchases a $25,000 computer system by writing a check, the business's balance sheet will:

Accepted Answer

A) Show an increase in assets and liabilities of $25,000 
B) Only show an increase in assets of $25,000 
C) Only show an increase in liabilities of $25,000 
D) Still show the same total amount of assets as before the purchase

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