Homework 8

Which of the following is NOT a part of the monetary base?

U.S. government securities owned by the Fed

When the Fed is ________ it is ________.

adjusting the amount of money in circulation; conducting monetary policy

For a commercial bank, the term "reserves" refers to

the cash in its vaults and its deposits at the Federal Reserve.

If the desired reserve ratio is 3 percent and deposits totaled $575 billion, banks would hold

$17.25 billion in reserves.

When bank deposits increase from $1 million to $2 million, banks' required reserves increase from $100,000 to $200,000. The required reserve ratio is ________.

0.1

The nation is divided into ________ Federal Reserve districts, each having a Federal Reserve Bank.

12

When the monetary base increases by $4 billion, the quantity of money increases by $10 billion. Thus, the money multiplier equals

2.5

TBK Bank Balance Sheet Assets Liabilities Reserves $120 Deposits $600 Loans 580 Net worth 100 Total asset $700 Total liabilities $700 The above table presents the balance sheet of the TBK commercial bank. What is this bank's actual reserve ratio?

20%

The initial impact of the Fed's open market sale of government securities to banks is

a decrease of the banking system's reserve deposits at the Fed.

A bank can only make a loan if it has

excess reserves.

The difference between actual reserves and required reserves is

excess reserves.

Money is created by

banks making loans.

When the Fed wants to undertake open market operations, it

buys or sells securities in the open market.

In an open market purchase, the Fed ________ government securities, which ________ bank reserves.

buys, increases

The Bank of Japan is Japan's central bank. As part of its duties, the Bank of Japan would

control the quantity of money in circulation in Japan.

The monetary base is the sum of

currency and reserves of depository institutions.

A decrease in the interest rate ________ the opportunity cost of holding money.

decreases

The tools at the disposal of the Fed for changing the quantity of money do NOT include

increasing the number of commercial banks.

Controlling the quantity of money and interest rates to influence aggregate economic activity is called

monetary policy.

In February, 2010 the U.S. M1 money multiplier crashed to 0.786. Each $1 increase in the monetary base resulted in the quantity of money increasing by only $0.79. Where did the remaining $0.21 disappear?

Both A and C are correct.

The Federal Reserve System

Both answers A and B are correct.

When a bank has excess reserves

Both answers A and B are correct.

the Fed sells government securities to a bank, how are the Fed's assets affected?

The amount of the Fed's government securities decreases.

Which of the following is true regarding the required reserve ratio?

The ratio determines the legally required amount of reserves a bank must hold.

All the following statements about the Federal Reserve are true EXCEPT the fact that it ________.

accepts checking deposits from the nation's residents

The minimum percentage of deposits that a depository institution must hold and cannot use for lending is known as the

required reserve ratio.

Control of the nation's quantity of money is handled by

the Federal Reserve System.

An open market operation occurs when ________ buys or sells securities ________.

the Federal Reserve System; in the open market

A bank has no excess reserves. Then it receives a new deposit for $100,000. If it has a desired reserve ratio of 20 percent, by how much can it increase its loans?

$80,000

Suppose a bank has $1,500,000 in deposits and the desired reserve ratio is 12 percent. If the bank is currently holding $200,000 in reserves, the excess reserves are equal to

20,000

Which of the following explains why a bank holds reserves? Banks are required by law to hold reserves. To meet depositors' currency withdrawals III. To use them to make loans to households

I and II

The Federal Reserve System is the

central bank of the United States.

An open market sale of securities by the Fed

decreases banks' reserves and increases banks' securities.

The required reserve ratio is the ratio of reserves to ________ required by banking regulations.

deposits

Changing which of the following is a Federal Reserve monetary policy tool?

required reserve ratios

The money multiplier determines how much

the quantity of money will be expanded given a change in the monetary base.

The risk of making a loan is

the risk that the borrower does not pay.