Chapter 15
Which of the following statements is correct?
Interest rates and bond prices vary inversely.
Before the Great Recession the most important tool of the Fed was
Open Market Operations
Answer the question on the basis of the given consolidated balance sheet of the commercial banking system. Assume that the reserve requirement is 10 percent. All figures are in billions. Assets Liabilities & Net Worth Reserves $60 Checkable Deposits $600 Securities 140 Stock Shares 260 Loans 260 Property 400 The commercial banking system has excess reserves of
Zero
A restrictive monetary policy is designed to shift the
aggregate demand curve leftward.
A decrease in the reserve ratio increases the
amount of excess reserves in the banking system.
The federal funds rate is the interest rate that _______ charge(s) _______.
banks; other banks
If the economy were encountering a severe recession, proper monetary and fiscal policies would call for
buying government securities, reducing the reserve ratio, reducing the discount rate, reducing interest paid on reserves held at Fed banks, and a budgetary deficit.
It is costly to hold money because
in doing so, one sacrifices interest income.
If the Fed wants to discourage commercial bank lending, it will
increase the interest paid on excess reserves held at the Fed.
When the Fed lends money to a commercial bank, the bank
increases its reserves and enhances its ability to extend credit to bank customers
A contraction of the money supply
increases the interest rate and decreases aggregate demand.
If the Federal Reserve System buys government securities from commercial banks and the public,
it will be easier to obtain loans at commercial banks
An increase in the money supply will
lower interest rates and increase the equilibrium GDP.
The Federal Reserve Banks buy government securities from commercial banks. As a result, the checkable deposits
of commercial banks are unchanged, but their reserves increase.
Which of the following is a tool of monetary policy?
open market operations
Refer to the diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve. All figures are in billions. Which of the following would shift the money supply curve from MS1 to MS3?
purchases of U.S. securities by the Fed in the open market
The discount rate is the interest
rate at which the Federal Reserve Banks lend to commercial banks
Answer the question on the basis of the given consolidated balance sheet of the commercial banking system. Assume that the reserve requirement is 10 percent. All figures are in billions. Assets Liabilities & Net Worth Reserves $60 Checkable Deposits $600 Securities 140 Stock Shares 260 Loans 260 Property 400 Suppose the Fed sold $10 billion of U.S. securities to the banks. This would
reduce bank reserves to $50 billion, increase bank-held securities to $150 billion, and ultimately decrease the money supply (checkable deposits) by $100 billion.
Which of the monetary policy tools can alter both the level of excess reserves and the money multiplier?
reserve ratio
Refer to the diagram of the market for money. The vertical money supply curve Sm reflects the fact that
the stock of money is determined by the Federal Reserve System and does not change when the interest rate changes.