Ch 17 Econ 490

If required reserves are expressed by RR; the required reserve rate by rD and deposits by D, the simple deposit expansion multiplier is expressed as:

1/rD

Which of the following statements is most correct?

Americans hold less cash per resident than Europeans and the amount of cash held by American increased during the 1990s

When the Fed makes a discount loan, the impact on the Banking System's balance sheet will reflect:

An increase in assets and liabilities

When the Fed makes a discount loan, the impact on the Fed's balance sheet will reflect:

An increase in assets and liabilities

When the Federal Reserve purchases a U.S. Treasury bond for $1 million by writing a check, when the check returns, the Fed's balance sheet will show:

An increase in assets and liabilities of $1 million

Consider a $2 billion open market purchase of U.S. Treasury securities by the Federal Reserve. The Fed's balance sheet will specifically show:

An increase in the asset category of securities and the liability category of reserves by $2 billion

Which of the following have the same impact on the Fed's balance sheet?

An open market purchase and an increase in loans by the Fed to banks

Reserves are:

Assets of the commercial banks and liabilities of the central bank

Bonds denominated in the currency of the nation that issued them would:

Be held by the Fed as part of its foreign exchange reserves.

A central bank's balance sheet will categorize the following as liabilities:

Currency

For the Federal Reserve, the largest liability on its balance sheet is:

Currency

A central bank's sale of securities from its portfolio will:

Decrease the size of its balance sheet

If the Federal Reserve is to be independent, the quantity of securities it purchases is determined by:

The Federal Reserve itself

Harry gets $1000 in currency from his grandfather when he graduates from college. He deposits these funds into his checking account. What is the impact on the monetary base of Harry's deposit?

The monetary base did not change

In dollar amounts:

The monetary base is smaller than M1 and M2 is larger than M1

When the Fed makes a discount loan, the impact on the Banking System's balance sheet is:

The same as that of an open market purchase

Most responsible central banks publish their balance sheet:

Weekly

The formula for required reserves is:

rD

Bank A has checkable deposits of $140 million, vault cash equaling $1 million and deposits at the Fed equaling $14 million. If the required reserve rate is ten percent what is the amount of excess reserves Bank A is holding?

$1 million

If the required reserve rate is ten percent and banks do not hold any excess reserves and there are no changes in currency holdings, a $1 million open market purchased by the Fed will result in deposit creation of:

$10 million

Bank A has checkable deposits of $100 million, vault cash equaling $1 million and deposits at the Fed equaling $14 million. If the required reserve rate is ten percent what is the maximum amount Bank A could lend?

$5 million

Over the two-year period during which the financial crisis occurred, the amount of assets in the Federal Reserve balance sheet increased by:

2.5 times

An open market sale of U.S. Treasury securities by the Fed will cause the Fed's balance sheet to show:

A decrease in the asset of securities and a decrease in the liability of reserves

Vault cash is:

A part of reserves and an asset of commercial banks

Gold is

A small portion of the Fed's assets

Compared to the Federal Reserve, the European Central Bank (ECB) has:

A smaller percentage of its liabilities in currency

If M = the quantity of money, m the money multiplier, MB the Monetary Base, C = Currency, D = Deposits, R = Reserves, RR equals required reserves, rD = the required reserve rate and ER = Excess reserves, then RR would equal:

A. R - ER B. rD D C. (MB -C) - ER

If the required reserve rate is ten percent and banks do not hold any excess reserves and there are no changes in currency holdings, a $1 million open market purchase by the Fed will result in what change in loans?

AN increase of $10 million

A liability of the central bank in functioning as the bankers' bank is:

Accounts of commercial banks

During the early years of the Great Depression, a study of the money aggregates reveals that the money multiplier:

Actually decreased

The experience of the Marcos Presidency in the Philippines in 1986 showed:

All of the answers given are correct

A customer of Bank A writes a $20,000 check for a new car, which the car dealer deposits in his bank, Bank B. Which of the following statements pertaining to this transaction is most true?

Bank A's reserves decrease by $20,000 and Bank B's reserves increase by $20,000

When an individual withdraws funds from a checking account the:

Bank's balance sheet shrinks but the size of the Fed's balance sheet is not affected

If the Fed were to increase the required reserve rate from ten percent to twenty percent, the simple deposit expansion multiplier would:

Be half as large as it was before the increase

Bonds issued by the U.S. Treasury would:

Be held by the Fed as part of its securities

One trait a central bank has over other businesses including banks is that it:

Can control the size of its balance sheet

Each of the following items would appear as assets on the central bank's balance sheet, except:

Currency

Over ninety percent of the Fed's liabilities is in:

Currency

The monetary base is the sum of:

Currency in the hands of the public and reserves in the banking system

Mary decides to withdraw $500 out of her checking account. The impact of this transaction on the Banking System's balance sheet will be to:

Decrease reserves and checkable deposits by $500 respectively

During the 1990s, the money multipliers for M1 and M2:

Decreased

If we assume a ten percent required reserve rate, and banks not holding any excess reserves and no change in currency holdings, an open market sale of $5 million of U.S. Treasury securities by the Fed, will result in deposits:

Decreasing by $50 million

In the U.S., loans made by Federal Reserve to banks fall in the categories of:

Discount loans

Which of the following statements is most correct?

Discount loans are made when banks need relatively small amounts of cash for the short term

Which of the following best completes the statement? If people increase their currency holdings, all else the same, the monetary base:

Does not change but the quantity of M2 will decrease

If the Fed were to decrease the required reserve rate from ten percent to five percent, the simple deposit expansion multiplier would:

Double

Considering a central bank's balance sheet, when the value of an asset increases:

Either the value of another asset decreases or a liability must increase

Considering a central bank's balance sheet, when the value of a liability decreases:

Either the value of another liability increases or an asset must decrease

If M = the quantity of money, m the money multiplier, MB the Monetary Base, C = Currency, D = Deposits, R = Reserves, RR equals required reserves, rD = the required reserve rate and ER = Excess reserves, then ER/D would equal the:

Excess reserve to deposit ratio

The most a bank could lend at any time without altering its assets is an amount equal to its:

Excess reserves

A central bank holds foreign exchange reserves primarily for:

Foreign exchange interventions

The monetary base is also known as:

High-powered money

If Bank A sells a $100,000 U.S. Treasury bond to the Fed, Bank A's excess reserves will:

INcrease bby $100,000

The simple deposit expansion multiplier is really too simple for understanding the link between changes in a central bank's balance sheet and the quantity of money in the economy because it:

Ignores the fact people might change their currency holdings

If there were an increase in the number of bank failures, we should expect the amount of excess reserves in the banking system to:

Increase

If Bank A sells a $100,000 U.S. Treasury bond to the Fed, Bank A's reserves will:

Increase by $100,000

A central bank's purchase of securities made by writing checks on itself will:

Increase the size of their balance sheet

During the Great Depression, the monetary base in the U.S.:

Increased

Harry gets $1000 in currency from his grandfather when he graduates from college. He deposits these funds into his checking account. Considering Harry's personal balance sheet, his assets:

Increased when he received the $1000 in currency from his grandfather

The collapse of the Thai currency, the baht, was partially due to:

Information not provided by the central bank of Thailand

A central bank's balance sheet would categorize each of the following as liabilities, except:

Loans

As a portion of total assets measured in billions of dollars, the least important asset on the Fed's balance sheet is:

Loans

Liabilities of commercial banks show up on the Fed's balance sheet as part of its:

Loans

The main asset held by a central bank in its role as the Banker's Bank is:

Loans

If M = the quantity of money, m the money multiplier, MB the Monetary Base, C = Currency, D = Deposits, R = Reserves, RR equals required reserves, rD = the required reserve rate and ER = Excess reserves, then C + D would equal:

M

If M = the quantity of money, m the money multiplier, MB the Monetary Base, C = Currency, D = Deposits, R = Reserves, RR = required reserves, and ER = excess reserves, then m would equal:

M/MB

If M = the quantity of money, m the money multiplier, MB the Monetary Base, C = Currency, D = Deposits, R = Reserves, RR = required reserves, and ER = Excess reserves, then C + R would equal

MB

If M = the quantity of money, m the money multiplier, MB the Monetary Base, C = Currency, D = Deposits, R = Reserves, RR equals required reserves, rD = the required reserve rate and ER = Excess reserves, then C + D would equal:

MB times m

Assume that the required reserve rate is ten percent, banks want to hold excess reserves in an amount that equals three percent of deposits, and the public withdraws ten percent of every deposit in cash. An open market purchase of $1 million by the Fed will see banking system deposits increase by:

More than $1 million but less than $10 million

During the early years of the Great Depression, the monetary base and M2:

Moved in opposite directions; the monetary base increased but M2 decreased

The term for turning reserves into bank deposits is called:

Multiple deposit creation

Tom decides to withdraw $300 out of his checking account. The impact of this transaction on the Fed's balance sheet will be:

No change in total assets or total liabilities, but an increase in the liability of currency and a decrease in the liability of reserves by $300 respectively

Consider a $2 billion open market purchase of U.S. Treasury securities by the Federal Reserve. The Banking System's balance sheet will specifically show:

No net change in assets or liabilities, only a change in the composition of assets with securities decreasing and reserves increasing by $2 billion respectively

An open market sale of U.S. Treasury securities by the Fed will cause the Banking System's balance sheet to show:

No net change in assets or liabilities, only a change in the composition of assets with securities increasing and reserves decreasing

If Bank A sells a $100,000 U.S. Treasury bond to the Fed, Bank A's required reserves will:

Not change

When a business purchases a $50,000 computer system by writing a check, the business's balance sheet will:

Not reflect any increase in assets or liabilities, only a change in the composition of assets

For the Federal Reserve's balance sheet, the asset listed Securities would include:

Only U.S. Treasury securities

Vault cash is not included in the central bank's liability category of currency because

Only non-bank currency is in the liability category of currency

The quantity of securities held by the Federal Reserve is controlled through:

Open market operations

To obtain a discount loan from the Fed, a commercial bank must:

Provide collateral

If M = the quantity of money, m the money multiplier, MB the Monetary Base, C = Currency, D = Deposits, R = Reserves, RR = required reserves, and ER = Excess reserves, then RR would equal:

R-ER

The use of deposit sweeping allows banks to:

Reduce the amount of required reserves they must hold

If M = the quantity of money, m the money multiplier, MB the Monetary Base, C = Currency, D = Deposits, R = Reserves, RR equals required reserves, rD = the required reserve rate and ER = Excess reserves, then RR/D would equal the:

Required reserve rate

Monetary policy operations for central banks are run through changes in the liability category of:

Reserves

The monetary base is the sum of:

Reserves and currency in the hands of the public

Which of the following statements is most correct?

Reserves are assets of the commercial banks and liabilities of the central bank

If we focus on the banking system and assume no change in the public's currency holdings, a loss of reserves by any one bank must:

Result in no change in reserves for the banking system

As a portion of total assets measured in billions of dollars, the most important asset on the Fed's balance sheet is:

Securities

When a business purchases a $25,000 computer system by writing a check, the business's balance sheet will:

Still show the same total amount of assets as before the purchase

The Fed sells German bonds to commercial banks. Which of the following best describes the impact on the Fed's and the Banking System's balance sheets resulting from this transaction?

The Fed's assets and liabilities both decrease. For the banking system, the value of assets and liabilities do not change, only the composition of assets changes

The Fed purchases German bonds from commercial banks. Which of the following best describes the impact on the Fed's and the Banking System's balance sheets resulting from this transaction? The Fed's assets increase and its liabilities increase, for the banking system, the value of assets and liabilities do not change, only the composition of assets changes

The Fed's assets increase and its liabilities increase, for the banking system, the value of assets and liabilities do not change, only the composition of assets changes

The money multiplier is much lower today than it was twenty-five years ago because:

The currency-to-deposit ratio is much higher today

One thing the Fed has learned over the past twenty-five years is:

The theory of the money multiplier isn't very useful since the money multiplier is unstable over time

During the 2007-2009 financial crisis which of the following became the largest component of assets on the Fed's balance sheet:

mortgage backed securities