Question 1

If the Fed were to increase the discount rate so that it was much higher than the federal funds rate,eventually

Accepted Answer

A)   reserves would decrease and the money supply would decrease.
B)   reserves would increase and the money supply would increase.
C)   reserves would decrease and the money supply would increase.
D)   reserves would increase and the money supply would decrease.
E)   there is no impact on reserves or the money supply.F) None of the above
G) B) and D)

Question 2

An "open market operation" is said to occur when the Fed

Accepted Answer

A)   arranges for the merger of two banks.
B)   changes the interest rate at which it lends reserves.
C)   transfers reserves between banks.
D)   buys or sells government securities.E) C) and D)
F) None of the above

Question 3

The Federal Open Market Committee (FOMC)meets on the first Tuesday of each month.

Accepted Answer

A) True 
 B)False

Question 4

To limit political influence on Fed policy,the terms of the Fed Board of Governors are staggered so that one new appointment is made every four years to coincide with the presidential elections.

Accepted Answer

A) True 
 B)False

Question 5

If reserves increase by $4 million and the required reserve ratio is 8%,what is the resulting change in checkable deposits (or the money supply) ,assuming that there are no cash leakages and that banks hold zero excess reserves?

Accepted Answer

A)   $3.2 million
B)   $3.7 million
C)   $5 million
D)   $50 millionE) B) and C)
F) A) and B)

Question 6

Which of the following Fed actions will decrease the money supply?

Accepted Answer

A)   an open market purchase of Treasury bills
B)   an increase in the required reserve ratio
C)   a decrease in the discount rate relative to the federal funds rate
D)   all of the above
E)   none of the aboveF) B) and D)
G) None of the above

Question 7

If a bank has zero excess reserves and one of its creditworthy customers applies for a loan,the bank may be able to grant the loan if it can

Accepted Answer

A)   apply some of its loan repayments to obtain the funds for the new loan.
B)   obtain extra funds in the federal funds market.
C)   obtain extra funds by borrowing from the Fed.
D)   any of the above
E)   b or cF) B) and D)
G) A) and B)

Question 8

The smaller the required reserve ratio,the larger the simple deposit multiplier.

Accepted Answer

A) True 
 B)False

Question 9

The Federal Open Market Committee (FOMC)

Accepted Answer

A)   has six members.
B)   conducts open market operations.
C)   is the policy-making body within the Treasury.
D)   is the governing body of the Federal Reserve System.
E)   a, b, and cF) D) and E)
G) A) and E)

Question 10

The Fed has been called "the lender of last resort" because it

Accepted Answer

A)   is the biggest bank in the country.
B)   is the only lender to the federal government.
C)   serves as the last place to acquire loans for banks suffering cash management, or liquidity, problems.
D)   a and b
E)   all of the aboveF) B) and D)
G) A) and D)

Question 11

The Fed can change the money supply by changing

Accepted Answer

A)   the required reserve ratio.
B)   marginal income tax rates.
C)   federal excise taxes.
D)   unemployment benefits.E) None of the above
F) A) and C)

Question 12

An open market sale by the Fed will

Accepted Answer

A)   increase bank reserves.
B)   increase currency held by the public or vault cash.
C)   increase the money supply.
D)   reduce the money supply.E) None of the above
F) B) and C)

Question 13

Paper money is printed at the _______________________,but it is issued to commercial banks by the ______________________________.

Accepted Answer

A)   Bureau of Engraving and Printing; FOMC
B)   U.S. Mint; 12 Federal Reserve District Banks
C)   Federal Reserve building in Washington; D.C., U.S. Treasury
D)   Bureau of Engraving and Printing; 12 Federal Reserve District Banks
E)   none of the aboveF) C) and E)
G) C) and D)

Question 14

Which of the following actions is most likely to lead to an increase in the money supply?

Accepted Answer

A)   Fed purchases of government securities
B)   an increase in the required reserve ratio
C)   an increase in the discount rate
D)   none of the aboveE) A) and C)
F) B) and C)

Question 15

The lower the required reserve ratio,

Accepted Answer

A)   the less money that can be loaned at each round of the lending process.
B)   the larger the simple deposit multiplier.
C)   the smaller the simple deposit multiplier.
D)   the fewer excess reserves there are at each round of the simple deposit multiplier process.
E)   a, c, and dF) A) and E)
G) C) and D)

Question 16

Which of the following is not a monetary policy tool of the Fed?

Accepted Answer

A)   changing the required reserve ratio
B)   changing the discount rate
C)   setting the price level and the market rate of interest
D)   conducting open market operationsE) A) and B)
F) C) and D)

Question 17

Controlling the nation's money supply is the most important duty of the Federal Reserve.

Accepted Answer

A) True 
 B)False

Question 18

Suppose that the Fed undertakes an open market sale,selling $1 million worth of securities to a bank. If the required reserve ratio is 8%,checkable deposits (or the money supply) ,would _______________ by ________________ million,assuming that there are no cash leakages and that banks hold zero excess reserves.

Accepted Answer

A)   rise; $12.5
B)   decline; $8
C)   decline; $12.5
D)   rise; $8E) A) and B)
F) None of the above

Question 19

Here is how an open market sale works: A commercial bank __________ government securities to (from) the Fed,which lowers the bank's deposits at the __________ and __________ the bank's __________.

Accepted Answer

A)   buys; Fed; lowers; reserves
B)   sells; Treasury; raises; reserves
C)   sells; Fed; raises; reserves
D)   buys; Treasury; lowers; liabilities
E)   none of the aboveF) C) and E)
G) None of the above

Question 20

A decrease in the required reserve ratio __________ the money supply; an open market purchase __________ the money supply.

Accepted Answer

A)   decreases; decreases
B)   decreases; increases
C)   increases; increases
D)   increases; decreasesE) A) and B)
F) A) and C)

Exam 13: The Federal Reserve System

The Federal Open Market Committee (FOMC)

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If the Fed were to increase the discount rate so that it was much higher than the federal funds rate,eventually

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If reserves increase by $4 million and the required reserve ratio is 8%,what is the resulting change in checkable deposits (or the money supply) ,assuming that there are no cash leakages and that banks hold zero excess reserves?

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The Federal Open Market Committee (FOMC)meets on the first Tuesday of each month.

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An "open market operation" is said to occur when the Fed

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Which of the following is not a monetary policy tool of the Fed?

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Which of the following Fed actions will decrease the money supply?

Correct AnswerverifiedShow Answer

The Fed can change the money supply by changing

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Here is how an open market sale works: A commercial bank __________ government securities to (from) the Fed,which lowers the bank's deposits at the __________ and __________ the bank's __________.

Correct AnswerverifiedShow Answer

A decrease in the required reserve ratio __________ the money supply; an open market purchase __________ the money supply.

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If a bank has zero excess reserves and one of its creditworthy customers applies for a loan,the bank may be able to grant the loan if it can

Correct AnswerverifiedShow Answer

Controlling the nation's money supply is the most important duty of the Federal Reserve.

Correct AnswerverifiedShow Answer

The lower the required reserve ratio,

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To limit political influence on Fed policy,the terms of the Fed Board of Governors are staggered so that one new appointment is made every four years to coincide with the presidential elections.

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An open market sale by the Fed will

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Fed has been called "the lender of last resort" because it

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The smaller the required reserve ratio,the larger the simple deposit multiplier.

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Paper money is printed at the _______________________,but it is issued to commercial banks by the ______________________________.

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Which of the following actions is most likely to lead to an increase in the money supply?

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Here is how an open market sale works: A commercial bank government securities to (from) the Fed,which lowers the bank's deposits at the and the bank's .

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A decrease in the required reserve ratio the money supply; an open market purchase the money supply.

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Paper money is printed at the _,but it is issued to commercial banks by the ________.

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