Q8 (Modules 33-36)

Bank reserves are: a) the fraction of deposits kept in the form of very liquid assets. b) the deposits lent to finance illiquid investments. c) gold kept in the bank's vault. d) the fraction of deposits kept in gold with the Federal Reserve.

A

Federal funds rate is the interest rate at which: a) banks borrow from other banks with excess reserves. b) banks borrow funds directly from the Federal Reserve. c) the influential companies borrow from banks. d) households' savings are invested in the Federal Reserve.

A

If the Fed conducts a $10 million open-market sale and the reserve requirement is 20%, the monetary base will: a) decrease by $10 million. b) decrease by $50 million. c) increase by $8 million. d) increase by $10 million.

A

If the Federal Reserve wants to increase the monetary base, the Fed might: a) engage in an open market purchase of Treasury bills. b) increase the reserve ratio. c) decrease personal income taxes. d) increase the discount rate.

A

Suppose you transfer $500 from your checking account to your savings account. With this transaction, M1 _____ and M2_____. a) decreased; stayed the same b) increased; stayed the same c) stayed the same; increased d) decreased; increased

A

The Federal Reserve System is the _______ for the United States. a) central bank b) government-owned bank c) U.S. Treasury Bank d) bank described in B and C

A

The largest monetary aggregate is: a) M2, because it contains all bank deposits and other deposits and deposit-like assets. b) M1, because it contains all the currency in circulation. c) the reserves in the vaults of Federal Reserve banks, because they are the money multiplier. d) the total volume of stocks and bonds, because they store most of the national wealth.

A

The reserve requirement is 20%, and Leroy deposits his $1,000 check received as a graduation gift in his checking account. The bank does NOT want to hold excess reserves. Reference: Ref 25-04 (Scenario: Money Creation) How much can the bank loan based on the $1,000 deposit? a) $800 b) $200 c) $1,000 d) $0

A

The reserve requirement is 20%, and Leroy deposits his $1,000 check received as a graduation gift in his checking account. The bank does NOT want to hold excess reserves. Reference: Ref 25-04 (Scenario: Money Creation) How much of the deposit is the bank required to keep in reserves? a) $200 b) $800 c) $100 d) $1,000

A

To change the money supply, the Fed most frequently uses: a) open-market operations. b) changes in the inflation rate. c) changes in the discount rate. d) changes in the required reserve ratios.

A

Which of the following combination of assets are considered to be money? a) currency in circulation, checkable bank deposits, and travelers' checks b) currency in circulation and in bank vaults, checkable bank deposits, and travelers' checks c) currency in circulation and in bank vaults, checkable bank deposits, and credit cards d) currency in circulation, checkable bank deposits, and credit cards

A

If the Fed increases the discount rate: a) the federal funds rate must decrease. b) the money supply is likely to decrease. c) the money supply is not likely to change. d) the money supply is likely to increase.

B

Suppose the reserve ratio is 20%. If Sam deposits $500 into his checking account, his bank can increase loans by: a) $500. b) $400. c) $100. d) $2,500.

B

The tools of conducting monetary policy include: a) changes in the prime rate. b) changes in the required reserve requirement. c) open market purchases of corporate stock. d) changing tax rates.

B

Which of the following is a "near-money"? a) a credit card b) a savings account c) a debit card d) a traveler's check

B

A bank run occurs when: a) interest rates are higher than inflation rates. b) interest rates start to increase. c) many bank depositors are trying to withdraw their funds from the bank. d) too many people are trying to borrow more at one time.

C

Banks can lend money because: a) they know how much cash they have in their vault. b) there is a high demand for loans. c) they know not everyone wants their deposits back at the same time. d) they have so much to lend.

C

The reserve requirement is 20%, and Leroy deposits his $1,000 check received as a graduation gift in his checking account. The bank does NOT want to hold excess reserves. Reference: Ref 25-04 (Scenario: Money Creation) Which of the following is an accurate description of the bank's balance sheet immediately after the deposit? a) Reserves increase by $1,000, and demand deposits decrease by $1,000. b) Reserves decrease by $200, and demand deposits increase by $1,000. c) Reserves increase by $1,000, and demand deposits increase by $1,000. d) Reserves decrease by $1,000, and demand deposits decrease by $1,000.

C

To _______ the money supply, the Fed could ________. a) decrease; conduct open-market purchases b) decrease; lower the discount rate c) increase; lower the reserve requirements d) increase; raise the federal funds rate

C

Banks create money when they: a) hold excess reserves. b) pay withdrawals to depositors. c) take deposits. d) make loans.

D

(Table: Balance Sheet) If the reserve ratio is 25%, deposits are: a) $5,000. b) $60,000. c) $15,000. d) $80,000.

D

Currency in the United States today is _______ money. a) intrinsic b) commodity-backed c) commodity d) fiat

D

If a bank gets a new deposit of $100 cash and it has a 20% required reserve ratio, then the total amount deposits can increase by is: a) $1,000. b) $20. c) $100. d) $500.

D

If a bank has deposits of $100,000, cash on hand of $10,000 and $15,000 on deposit at the Federal Reserve, and the required reserve ratio is 0.20, then the bank: a) has no excess reserves. b) has an insufficient deposit to loan ratio. c) has insufficient reserves to meet requirements. d) has excess reserves of $5,000.

D

If the Fed conducts a $10 million open-market sale and the reserve requirement is 20%, the maximum change in the money supply is: a) a decrease of $8 million. b) an increase of $10 million. c) a decrease of $10 million. d) a decrease of $50 million.

D

The Federal Reserve Bank of the United States is: a) a purely private central bank. b) is part of the U.S. government. c) a purely public central bank. d) is not exactly part of the U.S. government but not really a private institution either.

D

The Federal Reserve: a) was created by Franklin Delano Roosevelt to disburse funds for the WPA. b) was established by Ronald Reagan during the Recession of 1982. c) conducts fiscal policy for state governments. d) was created in 1913 in response to the Panic of 1907.

D

The Glass-Steagall Act of 1933: a) created the Reconstruction Finance Corporation. b) limited interest rates that savings and loans could charge on mortgages. c) created the Federal Reserve. d) separated banks into two categories, commercial banks and investment banks.

D

To _______ the money supply, the Fed could ________. a) increase; decrease the money multiplier b) decrease; lower the discount rate c) decrease; lower the reserve requirements d) increase; conduct open-market purchases

D

U.S. Treasury bills are a(n): a) liability to both the U.S. government and the Federal Reserve. b) asset of the U.S. government, but a liability to the Federal Reserve. c) part of the net worth of the U.S. government. d) liability of the U.S. government, but an asset to the Federal Reserve.

D

Which of the following financial assets belongs to M2, but not to M1? a) travelers' checks b) currency c) a checkable deposit d) a savings account

D

Which of the following is an asset that most people would consider money? a) your shares of stock in a company b) your car c) your house d) your checking account balance

D

Which of the following is part of M1? a) currency in a bank's vault b) short-term certificates of deposit (CDs) c) shares of corporate stock d) checking account balances

D

To increase the money supply, the central bank could make open-market purchases. True False

True