Question 1

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 2

Liabilities of commercial banks show up on the Fed's balance sheet as part of its:

Accepted Answer

A) Liabilities 
B) Securities 
C) Foreign exchange reserves 
D) Loans

Question 3

If the Fed sells euros valued at $100 million to commercial banks, will this change the size of the Fed's liabilities and assets? Explain.

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The answer of If the Fed sells euros valued at...

Question 4

During the Great Depression, the monetary base in the U.S.:

Accepted Answer

A) Decreased significantly 
B) Increased 
C) Remained constant 
D) Was highly erratic

Question 5

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 6

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 7

One of the changes to the Fed's balance sheet that has occurred in recent years is the virtual elimination of a category of loans called float.How is float created and why has this item on the balance sheet almost disappeared?

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The answer of One of the changes to the Fed's...

Question 8

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 9

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 10

If the central banks of most countries do not set the exchange rates, why do they hold foreign exchange as one of their assets?

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The answer of If the central banks of most countries...

Question 11

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 12

During the early years of the Great Depression, a study of the money aggregates reveals that the money multiplier:

Accepted Answer

A) Was at an all-time high 
B) Increased from 1929 right through the 1936 
C) Actually decreased 
D) Was constant from 1929 through 1936

Question 13

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 14

What would be the amount of deposits D, given that the monetary base MB = $750 billion, the required reserve rate (rD) = 0.1, the excess reserve rate (rE) = 0.005, and non-bank currency to deposits (C/D) equaled 1.2?

Accepted Answer

The answer of What would be the amount of deposits...

Question 15

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

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) An increase in assets and liabilities

Question 16

Each of the following items would appear as assets on the central bank's balance sheet, except:

Accepted Answer

A) Loans 
B) Securities 
C) Currency 
D) Foreign exchange reserves

Question 17

During the 2007-2009 financial crisis which of the following became the largest component of assets on the Fed's balance sheet:

Accepted Answer

A) foreign exchange reserves 
B) loans 
C) US Treasury securities 
D) mortgage backed securities

Question 18

Suppose a student writes a check in the amount of $300 to the college bookstore for textbooks.Discuss briefly the impact on the student's balance sheet, his/her bank's balance sheet and the balance sheet of the Fed.

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The answer of Suppose a student writes a check in...

Question 19

The collapse of the Thai currency, the baht, was partially due to:

Accepted Answer

A) Inaction by the Federal Reserve 
B) The European Central Bank 
C) Information provided by the central bank of Thailand 
D) Information not provided by the central bank of Thailand

Question 20

Which of the following have the same impact on the Fed's balance sheet?

Accepted Answer

A) An open market purchase and an increase in loans by the Fed to banks 
B) An open market sale and an increase in foreign exchange reserves 
C) An open market purchase and a decrease in foreign exchange reserves 
D) An increase in loans by the Fed to banks and a decrease in foreign exchange reserves

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