ECON Ch.14

Assuming a required reserve ratio of 10% and the Fed purchased $1 million worth of mortgage-backed securities, make use of the simple deposit multiplier to determine by how much checking deposits would change. A) increase by $1 million B) increase by $10 million C) decrease by $1 million D) decrease by $10 million

B) increase by $10 million

The money multiplier A) equals 1 over the required reserve ratio. B) is an expression that converts the monetary base to the money supply. C) is larger than the simple deposit multiplier. D) is completely controlled by the Fed.

B) is an expression that converts the monetary base to the money supply.

What is the maximum amount a bank can lend? A) its total reserves B) its excess reserves C) its excess reserves divided by the required reserve ratio D) the value of its checkable deposits times the required reserve ratio

B) its excess reserves

Since 1980, the M2 multiplier has been A) less stable than the M1 multiplier. B) more stable than the M1 multiplier. C) very stable, as has the M1 multiplier. D) very unstable, as has the M1 multiplier.

B) more stable than the M1 multiplier.

The percentage of deposits that banks must hold as reserves is called the A) percentage rate. B) required reserve ratio. C) Fed rate. D) discount rate.

B) required reserve ratio.

In August 2016, the largest liability of the Fed was A) currency in circulation. B) reserves. C) discount loans to banks. D) vault cash.

B) reserves.

In 2008, as the financial crisis was at its worst, the sale of 1-ounce American Eagle gold coins A) fell to half of the pre-crisis level. B) rose to more than 10 times the pre-crisis level. C) fell to a level not seen since the Great Depression. D) almost tripled compared to sales one year earlier.

B) rose to more than 10 times the pre-crisis level.

When economists, policymakers, or journalists refer to the Fed's balance sheet, they are typically referring to the A) money supply. B) size of the Fed's assets. C) amount of bank reserves. D) amount of foreign reserves.

B) size of the Fed's assets.

A $10 million open market purchase will increase the monetary base by A) $10 million. B) $10 million times the money multiplier. C) $10 million divided by the money multiplier. D) an amount between $0 and $10 million, depending on the fraction of the purchase the public wishes to hold as currency.

A) $10 million.

A $10 million open market sale will decrease the monetary base by A) $10 million. B) $10 million times the money multiplier. C) $10 million divided by the money multiplier. D) an amount between $0 and $10 million, depending on the fraction of the purchase the public wishes to hold as currency.

A) $10 million.

In what year did the United States go off the gold standard? A) 1933 B) 1945 C) 1981 D) 2001

A) 1933

Which of the following expressions is correct? A) B = Bnon + BR B) BR = Bnon + B C) Bnon = B + BR D) Bnon = -BR - B

A) B = Bnon + BR

If the Fed makes a discount loan of $2 million to a commercial bank, the Fed's balance sheet will show A) an increase in discount loans of $2 million and an increase in bank reserves of $2 million. B) an increase in discount loans of $2 million and a decrease in bank reserves of $2 million. C) a decrease in discount loans of $2 million and an increase in bank reserves of $2 million. D) a decrease in discount loans of $2 million and a decrease in bank reserves of $2 million.

A) an increase in discount loans of $2 million and an increase in bank reserves of $2 million.

Reserve deposits are A) assets for financial institutions, but liabilities for the Fed. B) liabilities for financial institutions, but assets for the Fed. C) assets for both financial institutions and the Fed. D) liabilities for both financial institutions and the Fed.

A) assets for financial institutions, but liabilities for the Fed.

If the Fed buys securities worth $10 million, then A) bank reserves will increase by $10 million. B) bank reserves will decrease by $10 million. C) currency in circulation will increase by $10 million. D) bank holdings of securities increase by $10 million.

A) bank reserves will increase by $10 million.

If the Fed purchases $50,000 in T-bills from a bank, by how much will the bank's excess reserves increase? A) by $50,000 B) by $50,000 times the required reserve ratio C) by $50,000 divided by the required reserve ratio D) Not enough information has been provided to answer the question.

A) by $50,000

Although open market operations and discount loans both change the monetary base, the Fed has A) greater control over open market operations than over discount loans. B) greater control over discount loans than over open market operations. C) very little control over either discount loans or open market operations. D) complete control over both discount loans and open market operations.

A) greater control over open market operations than over discount loans.

The M2 multiplier A) is larger than the M1 multiplier. B) is smaller than the M1 multiplier. C) is the same size as the M1 multiplier. D) is negative whereas the M1 multiplier is positive.

A) is larger than the M1 multiplier.

When banks hold excess reserves, the size of the money multiplier A) is less than the simple deposit multiplier would suggest. B) is greater than the simple deposit multiplier would suggest. C) is equal to the size of the simple deposit multiplier. D) becomes infinite.

A) is less than the simple deposit multiplier would suggest.

When the Fed extends loans to depository institutions A) it increases the level of reserves. B) it decreases the level of reserves. C) it reduces the total value of the assets on its balance sheet. D) it reduces the total value of the liabilities on its balance sheet.

A) it increases the level of reserves.

Vault cash is a(an) A) liability of the Fed and is counted as reserves. B) asset of the Fed and is counted as reserves. C) liability of the Fed and is not counted as reserves. D) asset of the Fed and is not counted as reserves.

A) liability of the Fed and is counted as reserves.

What is the most direct method the Fed uses to change the monetary base? A) open market operations B) changing the required reserve ratio C) changing the federal funds rate D) changing the level of discount loans

A) open market operations

In managing the monetary base, the Fed most often uses A) open market operations. B) printing money. C) discount loans. D) tax increases.

A) open market operations.

Which of the following is a liability of the Fed? A) reserves B) U.S. government securities C) discount loans to banks D) checkable deposits in commercial banks

A) reserves

Included in M2 but not in M1 are A) savings accounts and money market mutual funds. B) savings accounts and checkable deposits. C) money market mutual funds and currency. D) currency and checkable deposits.

A) savings accounts and money market mutual funds.

The difference between currency outstanding and currency in circulation is equal to A) vault cash. B) bank reserves. C) coins issued by the U.S. Treasury. D) zero; they are the same thing.

A) vault cash.

Suppose that a bank with no excess reserves receives a deposit into a checking account of $10,000 in currency. If the required reserve ratio is 0.20, what is the maximum amount that the bank can lend out? A) $2,000 B) $8,000 C) $10,000 D) $50,000

B) $8,000

Which of the following equations is correct? A) M = m(Bnon + ER) B) M = m(Bnon + BR) C) M = m(C + BR) D) M = C + R

B) M = m(Bnon + BR)

Why didn't the surge in the monetary base between 2008-2012 lead to a similar surge in the money supply? A) The currency-deposit ratio rose significantly, resulting in a much smaller money multiplier. B) The excess reserve-deposit ratio rose significantly, resulting in a much smaller money multiplier. C) The Fed increased the required reserve ratio, resulting in a much smaller money multiplier. D) Nonborrowed reserves declined, offsetting the increase in the monetary base.

B) The excess reserve-deposit ratio rose significantly, resulting in a much smaller money multiplier.

In the long run, gold has shown to be A) a good hedge against inflation. B) a poor hedge against inflation. C) a good hedge against deflation. D) neither a good nor poor hedge against inflation or deflation.

B) a poor hedge against inflation.

Which of the following is a liability of the Fed? A) U.S. government securities B) currency in circulation C) discount loans to banks D) checkable deposits in commercial banks

B) currency in circulation

The primary assets of the Fed are A) discount loans and reserves. B) discount loans and government securities. C) government securities and reserves. D) discount loans and open market operations.

B) discount loans and government securities.

When the Fed lends to depository institutions, the loans are called A) federal funds. B) discount loans. C) repurchase agreements. D) reverse repurchase agreements.

B) discount loans.

As of August 2016, the value of currency in circulation was about A) $1.1 billion. B) $24 billion. C) $1.4 trillion. D) $44 trillion.

C) $1.4 trillion.

Suppose the required reserve ratio is 8% and the Fed purchases $100 million worth of Treasury bills from Wells Fargo. By how much is Wells Fargo able to increase its loans? A) $8 million B) $92 million C) $100 million D) $1.25 billion

C) $100 million

Suppose that the banking system currently has no excess reserves and that a bank receives a deposit into a checking account of $10,000 in currency. If the required reserve ratio is 0.20, what is the maximum amount that the BANKING SYSTEM can lend out? A) $8,000 B) $10,000 C) $40,000 D) $50,000

C) $40,000

Which of the following assumptions made in deriving the simple deposit multiplier is unrealistic? A) The Fed sets the required reserve ratio. B) The Fed is able to affect the level of reserves in the banking system. C) Banks loan out all of their excess reserves. D) The simple deposit multiplier is equal to 1 divided by the required reserve ratio.

C) Banks loan out all of their excess reserves.

Which of the following statements is correct? A) The discount rate is determined by market forces. B) The Fed's control over discount lending is more complete than its control over open market operations. C) Decisions by both banks and the Fed determine the volume of discount loans. D) The discount rate is typically greater than other short-term market interest rates.

C) Decisions by both banks and the Fed determine the volume of discount loans.

If the nonbank public wants to move funds from checkable deposits to savings accounts A) M1 and M2 would both rise. B) M1 and M2 would both remain unchanged. C) M1 would fall and M2 would remain unchanged. D) M1 would fall and M2 would rise.

C) M1 would fall and M2 would remain unchanged.

If the nonbank public wants to move funds from savings accounts to checkable deposits A) M1 and M2 would both rise. B) M1 and M2 would both remain unchanged. C) M1 would rise and M2 would remain unchanged. D) M1 would rise and M2 would fall.

C) M1 would rise and M2 would remain unchanged.

If C represents currency, D represents checkable deposits, N represents savings accounts, and MM represents money market mutual funds, which of the following equations is correct? A) M2 = N + MM B) M2 = D + N + MM C) M2 = C + D + N + MM D) M2 = C + D

C) M2 = C + D + N + MM

Which of the following statements is correct? A) The volume of open market operations is determined jointly by the actions of the Fed, the banking system, and the nonbank public. B) The Fed's control over discount lending is more complete than its control over open market operations. C) The Fed completely controls the volume of open market operations. D) The Fed has complete control over the volume of both discount loans and open market operations.

C) The Fed completely controls the volume of open market operations.

The Fed's portfolio of securities consists principally of A) municipal bonds. B) corporate bonds. C) U.S. Treasury obligations. D) obligations of foreign governments.

C) U.S. Treasury obligations.

If the Fed purchases securities worth $10 million from a commercial bank, the banking system's balance sheet will show A) an increase in securities held of $10 million and an increase in bank reserves of $10 million. B) an increase in securities held of $10 million and a decrease in bank reserves of $10 million. C) a decrease in securities held of $10 million and an increase in bank reserves of $10 million. D) a decrease in securities held of $10 million and a decrease in bank reserves of $10 million.

C) a decrease in securities held of $10 million and an increase in bank reserves of $10 million.

The monetary base is equal to A) all currency in circulation plus all deposits in financial institutions. B) all currency in circulation plus checkable deposits in financial institutions. C) all currency in circulation plus reserves held by banks. D) checkable deposits in depository institutions plus reserves held by banks.

C) all currency in circulation plus reserves held by banks.

Which of the following increases the M2 multiplier? A) an increase in the required reserve ratio B) an increase in the currency-to-deposit ratio C) an increase in the nonbank public's preference for nontransaction accounts relative to checkable deposits D) a decrease in the nonbank public's preference for money market-type accounts relative to checkable deposits

C) an increase in the nonbank public's preference for nontransaction accounts relative to checkable deposits

As of August 2016, which of the following was TRUE? A) deposits of foreign governments and international organizations > bank reserves > currency in circulation B) currency in circulation > bank reserves > deposits of foreign governments and international organizations C) bank reserves > currency in circulation > deposits of foreign government and international organizations D) currency in circulation > deposits of foreign governments and international organizations > bank reserves

C) bank reserves > currency in circulation > deposits of foreign government and international organizations

Most of the increase in the monetary base between 2008 and 2016 was due to increases in A) currency. B) bank deposits. C) bank reserves. D) Treasury bills.

C) bank reserves.

The aggregate M1 consists of A) currency plus all deposits in financial institutions. B) currency plus all deposits in all institutions. C) currency plus checkable deposits in financial institutions. D) currency plus all checkable deposits.

C) currency plus checkable deposits in financial institutions.

Reserves equal A) deposits with the Fed plus holdings of U.S. government securities. B) currency in circulation plus vault cash. C) deposits with the Fed plus vault cash. D) currency outstanding plus currency in circulation.

C) deposits with the Fed plus vault cash.

Which of the following is an asset of the Fed? A) reserves of banks B) currency in circulation C) discount loans to banks D) checkable deposits in commercial banks

C) discount loans to banks

All of the following were reasons that the Fed increased the required reserve ratio in 1936 EXCEPT A) concerns over the possibility of future inflation. B) to eliminate the high level of excess reserves. C) fears that the economy was overheating. D) concerns over a speculative bubble.

C) fears that the economy was overheating.

Individual investors who always want to hold gold are known as A) goldfinger. B) golden boys. C) gold bugs. D) goldilocks.

C) gold bugs.

Between late 2007 and 2016, the Fed's balance sheet A) remained about the same. B) more than doubled. C) rose fivefold. D) rose tenfold.

C) rose fivefold.

Open market operations generally involve A) the Fed making discount loans to depository institutions. B) the Fed buying and selling common stock in order to affect the liquidity of the stock market. C) the Fed buying and selling U.S. government securities. D) private investors buying and selling securities directly on exchanges, rather than through brokers.

C) the Fed buying and selling U.S. government securities.

The interest rate the Fed charges on loans to depository institutions is known as A) the federal funds rate. B) the Fed loan rate. C) the discount rate. D) the interbank clearing rate.

C) the discount rate.

For someone who invested in gold bars or coins in the late 1970s, when including storage and insurance fees the real return on investment in 2016 would have been A) 500%. B) 125%. C) 0%. D) -30%.

D) -30%.

If the required reserve ratio is 5%, what is the value of the simple deposit multiplier? A) 0.05 B) 0.20 C) 5 D) 20

D) 20

Which of the following accurately describes the relationship between excess reserves and checkable deposits following the financial crisis of 2007-2009? A) Excess reserves declined as the excess reserve ratio returned to near zero. B) Excess reserves rose to nearly one-third of checkable deposits. C) Excess reserves approached the same level as checkable deposits. D) Excess reserves exceeded checkable deposits.

D) Excess reserves exceeded checkable deposits.

If C represents currency, D represents checkable deposits, N represents savings accounts, and MM represents money market mutual funds, which of the following equations is correct? A) M1 = N + MM B) M1 = D - N - MM C) M1 = C + D + N + MM D) M1 = C + D

D) M1 = C + D

If the Fed sells securities worth $10 million to a commercial bank, the Fed's balance sheet will show A) an increase in securities held of $10 million and an increase in bank reserves of $10 million. B) an increase in securities held of $10 million and a decrease in bank reserves of $10 million. C) a decrease in securities held of $10 million and an increase in bank reserves of $10 million. D) a decrease in securities held of $10 million and a decrease in bank reserves of $10 million.

D) a decrease in securities held of $10 million and a decrease in bank reserves of $10 million.

Which of the following decreases the M2 multiplier? A) a decrease in the required reserve ratio B) a decrease in the currency-to-deposit ratio C) an increase in the nonbank public's preference for nontransaction accounts relative to checkable deposits D) a decrease in the nonbank public's preference for money market-type accounts relative to checkable deposits

D) a decrease in the nonbank public's preference for money market-type accounts relative to checkable deposits

When conducting open market operations, at what price is the Fed willing to buy or sell securities? A) at the price agreed upon by the Federal Open Market Committee B) at the price agreed upon by the Board of Governors C) at the price set by the Fed chair D) at whatever price is necessary to carry out its open market operations

D) at whatever price is necessary to carry out its open market operations

Included in both M1 and M2 are A) savings accounts and money market mutual funds. B) savings accounts and checkable deposits. C) money market mutual funds and currency. D) currency and checkable deposits.

D) currency and checkable deposits.

If the Fed purchases $1 million worth of securities and the required reserve ratio is 8%, by how much will deposits change (assuming no change in excess reserves or the public's currency holdings)? A) rise by $1 million B) decline by $1 million C) rise by $8 million D) rise by $12.5 million

D) rise by $12.5 million

The rapid increase in bank reserves that began in 2008 was a result of A) the Fed printing money. B) banks making more loans. C) an increase in the number of commercial banks. D) the Fed purchasing assets.

D) the Fed purchasing assets.

The paper currency of the United States is issued by A) state governments and the Fed. B) state governments and the U.S. Treasury. C) the U.S. Congress. D) the Fed.

D) the Fed.

The size of the money multiplier depends upon all of the following EXCEPT A) the required reserve ratio. B) the currency-deposit ratio. C) excess reserves relative to deposits. D) the discount rate.

D) the discount rate.

The Fed has the greatest control over which of the following? A) the money multiplier B) discount loans C) the amount of excess reserves D) the nonborrowed monetary base

D) the nonborrowed monetary base

If the Fed purchases $1 million in securities from the nonbank public, the monetary base will rise by $1 million A) if the public holds the proceeds as currency. B) if the public deposits the proceeds as checkable deposits. C) if the public deposits the proceeds with the Treasury in a monetary base account. D) whether the public holds the proceeds as currency or deposits them as checkable deposits.

D) whether the public holds the proceeds as currency or deposits them as checkable deposits.

On the books of the Fed, the difference between borrowed reserves and discount loans is equal to A) excess reserves. B) required reserves. C) currency in circulation. D) zero; they are the same thing.

D) zero; they are the same thing.