Chapter 17 Questions Multiple Choice

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

Harry gets $1,000 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

Vault cash is:

a part of reserves and an asset of commercial banks

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.

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

excess reserves.

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

increase by $100,000.

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

increase by $100,000.

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 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

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.

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

accounts of commercial banks.

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

an increase in assets and liabilities.

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

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

Reserves are:

assets of the commercial banks and liabilities of the central bank.

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 a foreign government in its own currency would:

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

The monetary base is the sum of:

currency in the hands of the public and reserves in the banking system.

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

currency.

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

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

decrease the size of its balance sheet.

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.

The monetary base is also known as:

high-powered money.

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

increase the size of their balance sheet.

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

loans.

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

loans.

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.

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

not change.

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.

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

reserves.