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Exam 12: Money Creation and the Federal Reserve

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Question 51

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(Table) SCENARIO: Assume that Empathy State Bank begins with the balance sheet shown and is not fully loaned-up. If this bank is subject to a reserve requirement of 5%, how much more can it loan out if it wants to be fully loaned-up?

A) $2,500
B) $5,000
C) $10,000
D) Nothing. This bank is already fully loaned-up.

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Question 52

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About 2/3 of U.S. dollars are held outside the United States.

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Question 53

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Which measure would decrease the money supply?

During the financial panic in late 2008, the Fed changed the allocation of assets in its balance sheet away from Treasury bonds toward bank assets.

If the Fed increases the supply of money in the market through open market operations, bond prices will _____ and interest rates will _____.

The target federal funds rate is the Fed's primary approach to monetary policy.

The U.S. Treasury is the central bank of the United States.

If the reserve requirement is 10%, then the potential money multiplier is _____ and the actual money multiplier is _____.

When the Fed buys bonds, its demand _____ the price of bonds, _____ nominal interest rates.

There are two ways for money to be initially deposited into the banking system:

If the reserve requirement is 2.5% and a bank initially receives $30,000 in deposits from the Fed, then the maximum amount of money that the banking system can create is

What are leakages in the context of money creation? What effect do they have on the money multiplier?

The membership of the Board of Governors of the Federal Reserve System consists of

If the reserve requirement is 25% and a new deposit leads to a potential increase in the money supply of $4,000, the amount of the new deposit must equal

The following passage is the opening paragraph from the April 13, 2016 Beige Book: Reports from the twelve Federal Reserve Districts suggest that national economic activity continued to expand in late February and March, though the pace of growth varied across Districts. Most Districts said that economic growth was in the modest to moderate range and that contacts expected growth would remain in that range going forward. Consumer spending increased modestly in most Districts and reports on tourism were mostly positive. Labor market conditions continued to strengthen and business spending generally expanded across most Districts. Demand for nonfinancial services grew moderately overall. Manufacturing activity increased in most Districts. Construction and real estate activity also expanded. Credit conditions improved, on net, in most Districts. Low prices weighed on energy and mining output as well as prospects for agricultural producers. Overall, prices increased modestly across the majority of Districts, and input cost pressures continued to ease. From the passage, you might expect that the Fed would have given priority to

(Table) SCENARIO: Assume that Empathy State Bank begins with the balance sheet shown and is fully loaned-up. Vanessa has a checking account at Empathy State Bank. If she writes a check for $5,000 to pay for her new car and if the bank has a reserve requirement of 5%, this bank's excess reserves will be

Money leakages make it more difficult to use monetary policy to pull the economy out of a recession.

A bank has excess reserves of $4,000 and demand deposits of $40,000; the reserve requirement is 20%. Its current level of total reserves is _____. If the reserve requirement is increased to 25%, the new level of excess reserves would be _____.

Assume the reserve requirement is 10% and all banks are fully loaned-up. If a new deposit of $10,000 is made into Bank X, that bank can make new loans of

The formula for calculating the reserve ratio is