HW12

Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 20 percent. If the Federal Reserve reduces the required reserve ratio to 15 percent, then the bank will now have excess reserves of

A. $0. B. $5 million. C. $15 million. D. $20 million.

The quantity theory of money implies that the price level will be stable (no inflation or deflation) when the growth rate of the money supply equals

A. 0 B. the growth rate of the price level. C. the growth rate of the velocity of money. D. the growth rate of real GDP.

Using the quantity equation, if the velocity of money grows at 5 percent, the money supply grows at 10 percent, and real GDP grows at 4 percent, then the inflation rate will be

A. 19 percent. B. 15 percent. C. 11 percent. D. 6 percent.

Suppose there is a bank panic. Which of the following would not be a consequence of this bank panic?

A. Bank total reserves would decrease. B. Required reserves would increase. C. Bank checking account balances would decrease. D. Individual banks would have to shrink the value of loans they made.

The seven members of the Board of Governors of the Federal Reserve are appointed by

A. Congress. B. the President. C. the Governors of the States. D. leaders in the banking industry.

The Federal Open Market Committee consists of the seven members of the ________, the president of the Federal Reserve Bank of New York, and ________.

A. Federal Reserve's Board of Governors; four members of the Council of Economic Advisors B. Federal Reserve's Board of Governors; four presidents from the other 11 Federal Reserve banks C. Council of Economic Advisors; four presidents from the 11 Federal Reserve banks D. Council of Economic Advisors; four members of the U.S. Banking Committee

Which of the following is not a function of the Federal Reserve System, or the "Fed"?

A. acting as a lender of last resort B. acting as a banker's bank C. performing check clearing services D. insuring deposits in the banking system

Open market operations refer to the purchase or sale of ________ to control the money supply.

A. corporate bonds and stocks by the Federal Reserve B. U.S. Treasury securities by the Federal Reserve C. corporate bonds and stocks by the U.S. Treasury D. U.S. Treasury securities by the U.S. Treasury

The three main monetary policy tools used by the Federal Reserve to manage the money supply are

A. interest rates, tax rates, and government spending. B. tax rates, government purchases, and government transfer payments. C. open market operations, discount policy, and reserve requirements. D. open market operations, the exchange rate of the dollar against foreign currencies, and government purchases.

According to the quantity theory of money, deflation will occur if the

A. money supply is less than real GDP. B. money supply is more than real GDP. C. money supply grows at a slower rate than real GDP. D. money supply grows at a faster rate than real GDP.

The purchase of Treasury securities by the Federal Reserve will, in general,

A. not change the money supply B. not change the quantity of reserves held by banks. C. increase the quantity of reserves held by banks. D. decrease the quantity of reserves held by banks.

If a bank receives a $1 million discount loan from the Federal Reserve, then the bank's reserves will

A. not change. B. increase by $1 million. C. increase by less than $1 million. D. increase by more than $1 million.

The Federal Reserve was established in 1913 to

A. prevent inflation by decreasing the money supply. B. stimulate the economy by increasing bank reserves. C. stop bank panics by acting as a lender of last resort. D. prevent bad loans by requiring banks to hold reserves.

To increase the money supply, the Federal Reserve could

A. raise the discount rate. B. decrease income taxes. C. raise the required reserve ratio. D. conduct an open market purchase of Treasury securities.

In response to the destructive bank panics of the Great Depression, future bank panics are designed to be prevented by

A. the Federal Reserve System acting as a lender of last resort. B. the Federal Reserve System conducting open market operations. C. the establishment of the Federal Deposit Insurance Corporation. D. establishing a fractional reserve system of banking.

Hyperinflation can be caused by

A. the government selling bonds to the central bank. B. the central bank selling bonds to the public. C. the government selling bonds to the public. D. the central bank selling bonds to the government.

The quantity equation states that

A. the money supply (M) divided by the velocity of money (V) equals the price level (P) divided by real output (Y), i.e., M/V = P/Y. B. M × V = P × Y. C. M + V = P + Y. D. M - V = P - Y.

The Fed has complete control over the money supply.

TF

The Fed has more control over open market operations as compared to discount policy.

TF

The quantity equation becomes the basis for a theory when we assume that velocity of money is constant.

TF