Chapter 29

If the reserve ratio is 8 %, banks do not hold excess reserves, and people do not hold currency, then when the Fed purchases $20 million of gov bonds, bank reserves.... a) increases by $20 million and the money supply eventually increases by $2500 million b) increases by $20 million and the money supply eventually decreases by $2500 million c) decreases by $20 million and the money supply eventually increases by $2500 million d) decreases by $20 million and the money supply eventually decreases by $2500 million

a) increases by $20 million and the money supply eventually increases by $2500 million

Suppose banks decide to hold more excess reserves relative to deposits. Other things the same, this action will cause the... a) money supply to fall. To reduce the impact of this the Fed could lower the discount rate b) money supply to fall. To reduce the impact of this the Fed could rise the discount rate c) money supply to rise. To reduce the impact of this the Fed could lower the discount rate d) money supply to rise. To reduce the impact of this the Fed could rise the discount rate

a) money supply to fall. To reduce the impact of this the Fed could lower the discount rate

Monetary policy affects employment... a) only in the long run b) only in the short fun c) in both the long run and short-run d) in neither the long run nor the short run

b) only in the short fun

When the Fed buys government bonds... a) the money supply increases and the federal funds rate increases b) the money supply increases and the federal funds rate decreases c) the money supply decreases and the federal funds rate increases d) the money supply decreases and the federal funds rate decreases

b) the money supply increases and the federal funds rate decreases

Which tool of monetary policy does the federal reserve use most often a)adjustments to long-term interest rates b)open-market operations c) changes in reserve requirements d) change in the discount rate

b)open-market operations

Suppose that banks desire to hold no excess reserves, the reserves requirement is 5%, and a bank reserves a new deposit of 1,000. this bank... a) will increase its required reserves by $50 b) will initially see its total reserves increase by $1000 c) will be able to make a new loan of $950 d) all of the above

d) all of the above will increase its required reserves by $50/will initially see its total reserves increase by $1000/will be able to make a new loan of $950

The federal reserve a) was created in 1913 b) has more than one specific job to perform c) is an example of a central bank d) all of the above

d) all of the above was created in 1913/has more than one specific job to perform/is an example of a central bank

If the public decides to hold mote currency and fewer deposits in banks, bank reserves... a) decrease and the money supply eventually decreases b) decreases but the money supply does not change c) increases and the money supply eventually increases d) increases but the money supply does not change

a) decrease and the money supply eventually decreases

The money supply increases when the Fed a) lowers the discount rate. The increase will be larger the smaller the reserve ratio is. b)lowers the discount rate. The increase will be larger the larger the reserve ratio is. c) raises the discount rate. The increase will be larger the smaller the reserve ratio is. d) raises the discount rate. The increase will be larger the larger the reserve ratio is.

a) lowers the discount rate. The increase will be larger the smaller the reserve ratio is.

In the system of 100% reserve banking a) banks do not accept deposits b) banks do not influence the supply of money c) Loans are the only asset item for banks d)All of the above

b) banks do not influence the supply of money

Suppose a bank has a 10% reserve requirement, $5000 in deposits, and has loaned out all it can given the reserve ratio requirement. a) it has $50 in reserves and $4950 in loans b) it has $500 in reserves and $4500 in loans c) it has $555 in reserves and $4445 in loans d) none of the above

b) it has $500 in reserves and $4500 in loans

Which of the following lists 2 things that both increase the money supply... a) lower the discount rate, raise the reserve requirement b) lower the discount rate, lower the reserve requirement c) raise the discount rate, raise the reserve requirement d) raise the discount rate, lower the reserve requirement

b) lower the discount rate, lower the reserve requirement

Suppose a bank has $10000 in deposits and $8000 in loans. It has loaned out all it can give the reserve requirement. It follows that the reserve requirement is.... a) 2% b) 12.5% c) 20% d) 80%

c) 20% 10,000-8,000=2000-> RR

If $300 of new reserves generates $800 of new money in the economy, then the reserve ratio is... a) 2.7% b) 12.5% c) 37.5% d) 40%

c) 37.5%

To decrease the money supply, the Fed could... a) sell government bonds b) increase the discount rate c) increase the reserve requirement d) all of the above

d) all of the above sell government bonds/increase the discount rate/increase the reserve requirement

In a fractional-reserve banking system, a bank... a) does not make loans b) does not accept deposits c) keeps only a fraction of its reserves in deposits d) keeps only a fraction of its deposits in reserves

d) keeps only a fraction of its deposits in reserves

On a banks t-account a) both deposits and reserves are assets b) both deposits and reserves are liabilities c) deposits are assets and reserves are liabilities d) reserves are assets and deposits are liabilities

d) reserves are assets and deposits are liabilities

At any given time, the voting members of the Federal Open Market Committee include a) five of the 12 presidents of the regional Federal reserve banks b) the president of the federal Reserve Bank of NY d) the 7 members of the Board of Governors

d) the 7 members of the Board of Governors

The Fed's control of the money supply is not precise because... a) congress can also make changes to the money supply b) there are not always government bonds available for purchase when the Fed wants to perform open-market operations c) the Fed does not know where all US currency is located d) the amount of money in the economy depends in part on the behavior of depositors and bankers

d) the amount of money in the economy depends in part on the behavior of depositors and bankers