Question 1

If the Fed buys securities worth $10 million, then

Accepted Answer

A)  bank reserves will increase by $10 million.
B)  bank reserves will decrease by $10 million.
C)  currency in circulation will increase by $10 million.
D)  bank holdings of securities increase by $10 million.

Question 2

Which of the following statements is correct?

Accepted Answer

A)  The discount rate is determined by market forces.
B)  The Fed's control over discount lending is more complete than its control over open market operations.
C)  Decisions by both banks and the Fed determine the volume of discount loans.
D)  The discount rate is typically greater than other short-term market interest rates.

Question 3

If banks hold no excess reserves, checkable deposits total $1.5 billion, currency totals $400 million, and the required reserve ratio is 10%, then the monetary base equals

Accepted Answer

A)  $550 million.
B)  $1.54 billion.
C)  $1.9 billion
D)  $15 billion.

Question 4

A $10 million open market purchase will increase the monetary base by

Accepted Answer

A)  $10 million.
B)  $10 million times the money multiplier.
C)  $10 million divided by the money multiplier.
D)  an amount between $0 and $10 million, depending on the fraction of the purchase the public wishes to hold as currency.

Question 5

Reserves equal

Accepted Answer

A)  deposits with the Fed plus holdings of U.S. government securities.
B)  currency in circulation plus vault cash.
C)  deposits with the Fed plus vault cash.
D)  currency outstanding plus currency in circulation.

Question 6

Reserve deposits are

Accepted Answer

A)  assets for financial institutions, but liabilities for the Fed.
B)  liabilities for financial institutions, but assets for the Fed.
C)  assets for both financial institutions and the Fed.
D)  liabilities for both financial institutions and the Fed.

Question 7

What is the maximum amount a bank can lend?

Accepted Answer

A)  its total reserves
B)  its excess reserves
C)  its excess reserves divided by the required reserve ratio
D)  the value of its checkable deposits times the required reserve ratio

Question 8

If currency outstanding equals $200 million, checkable deposits equal $1 billion, reserves equal $150 million, and the required reserve ratio is 0.10, the money multiplier equals

Accepted Answer

A)  0) 86.
B)  3) 14.
C)  3) 43.
D)  4)

Question 9

A $10 million open market sale will decrease the monetary base by

Accepted Answer

A)  $10 million.
B)  $10 million times the money multiplier.
C)  $10 million divided by the money multiplier.
D)  an amount between $0 and $10 million, depending on the fraction of the purchase the public wishes to hold as currency.

Question 10

Suppose that the banking system currency has no excess reserves and that a bank receives a deposit into a checking account of $10,000 in currency. If the required reserve ratio is 0.20, what is the maximum amount that the banking system can lend out?

Accepted Answer

A)  $8,000
B)  $10,000
C)  $40,000
D)  $50,000

Question 11

The aggregate M1 consists of

Accepted Answer

A)  currency plus all deposits in financial institutions.
B)  currency plus all deposits in all institutions.
C)  currency plus checkable deposits in financial institutions.
D)  currency plus all checkable deposits.

Question 12

Suppose the Fed sells $500,000 worth of securities to First National Bank. Illustrate the immediate effect on the bank's balance sheet.

Accepted Answer

The bank now has $50...

Question 13

Why didn't the surge in the monetary base between 2008-2012 lead to a similar surge in the money supply?

Accepted Answer

A)  The currency-deposit ratio rose significantly, resulting in a much smaller money multiplier.
B)  The excess reserve-deposit ratio rose significantly, resulting in a much smaller money multiplier.
C)  The Fed increase the required reserve ratio, resulting in a much smaller money multiplier.
D)  Nonborrowed reserves declined, offsetting the increase in the monetary base.

Question 14

Between late 2007 and 2012, the Fed's balance sheet:

Accepted Answer

A)  remained about the same
B)  more than doubled
C)  more than tripled
D)  rose tenfold

Question 15

As of October 2012, which of the following was true?

Accepted Answer

A)  deposits of foreign governments and international organizations > bank reserves > currency in circulation
B)  currency in circulation > bank reserves > deposits of foreign governments and international organizations
C)  bank reserves > currency in circulation > deposits of foreign government and international organizations
D)  currency in circulation > deposits of foreign governments and international organizations > bank reserves

Question 16

As of October 2012, the value of currency in circulation was about

Accepted Answer

A)  $1.1 billion.
B)  $11 billion.
C)  $1.1 trillion.
D)  $11 trillion.

Question 17

Suppose the banking system holds no excess reserves. If the required reserve ratio is 0.10 and the money multiplier is 2.5, what is the value of the currency-deposit ratio?

Accepted Answer

(1 + (C/D))/((C/D)+ ...

Question 18

Which of the following accurately describes the relationship between excess reserves and checkable deposits following the financial crisis of 2007-2009?

Accepted Answer

A)  Excess reserves declined as the excess reserve ratio returned to near zero.
B)  Excess reserves rose to nearly one-third of checkable deposits.
C)  Excess reserves approached the same level as checkable deposits.
D)  Excess reserves exceeded checkable deposits.

Question 19

Why did banks increase their holdings of excess reserves during the Financial Crisis of 2007-2009?

Accepted Answer

Given the historically high le...

Question 20

The interest rate the Fed charges on loans to depository institutions is known as

Accepted Answer

A)  the federal funds rate.
B)  the Fed loan rate.
C)  the discount rate.
D)  the interbank clearing rate.

Exam 14: The Federal Reserves Balance Sheet and the Money Supply Process

Suppose that the banking system currency has no excess reserves and that a bank receives a deposit into a checking account of $10,000 in currency. If the required reserve ratio is 0.20, what is the maximum amount that the banking system can lend out?

Correct AnswerverifiedShow Answer

If currency outstanding equals $200 million, checkable deposits equal $1 billion, reserves equal $150 million, and the required reserve ratio is 0.10, the money multiplier equals

Correct AnswerverifiedShow Answer

If the Fed buys securities worth $10 million, then

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As of October 2012, which of the following was true?

Correct AnswerverifiedShow Answer

Between late 2007 and 2012, the Fed's balance sheet:

Correct AnswerverifiedShow Answer

Why did banks increase their holdings of excess reserves during the Financial Crisis of 2007-2009?

Correct AnswerverifiedGiven the historically high le...View AnswerShow Answer

The interest rate the Fed charges on loans to depository institutions is known as

Correct AnswerverifiedShow Answer

Which of the following accurately describes the relationship between excess reserves and checkable deposits following the financial crisis of 2007-2009?

Correct AnswerverifiedShow Answer

As of October 2012, the value of currency in circulation was about

Correct AnswerverifiedShow Answer

Suppose the banking system holds no excess reserves. If the required reserve ratio is 0.10 and the money multiplier is 2.5, what is the value of the currency-deposit ratio?

Correct Answerverified(1 + (C/D))/((C/D)+ ...View AnswerShow Answer

If banks hold no excess reserves, checkable deposits total $1.5 billion, currency totals $400 million, and the required reserve ratio is 10%, then the monetary base equals

Correct AnswerverifiedShow Answer

The aggregate M1 consists of

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Why didn't the surge in the monetary base between 2008-2012 lead to a similar surge in the money supply?

Correct AnswerverifiedShow Answer

Suppose the Fed sells $500,000 worth of securities to First National Bank. Illustrate the immediate effect on the bank's balance sheet.

Correct AnswerverifiedThe bank now has $50...View AnswerShow Answer

A $10 million open market sale will decrease the monetary base by

Correct AnswerverifiedShow Answer

Reserve deposits are

Correct AnswerverifiedShow Answer

A $10 million open market purchase will increase the monetary base by

Correct AnswerverifiedShow Answer

What is the maximum amount a bank can lend?

Correct AnswerverifiedShow Answer

Reserves equal

Correct AnswerverifiedShow Answer

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Given the historically high le...
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(1 + (C/D))/((C/D)+ ...
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The bank now has $50...
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