PrQ15: Practice Quiz - Ch. 15: The Federal Reserve System and Open Market Operations

For the multiple deposit expansion process described in this table, what is the maximum amount of loans that the Second National Bank can make if it observes the same reserve ratio as First National Bank?

$338,560.00

The table shows some statistics for a small economy. Based on only the information provided, M1 in this country amounts to:

$57 million

If the reserve ratio is 4%, the money multiplier is:

25

If a $500 increase in reserves ultimately leads to a $2,000 increase in the money supply, the money multiplier is:

4

Suppose a given economy starts at point A in the figure. If the Fed engages in an expansionary monetary policy, what would you expect to happen in the short run?

Aggregate demand will increase because of lower interest rates

Quantitative easing is the:

Fed purchase of longer-term government bonds

Money is best defined as:

anything that is a widely accepted means of payment

The Fed will be most effective at changing the money supply when:

banks have low reserves and the money multiplier is large

If the Fed wants to increase the money supply, it will:

buy government bonds

Reserves held by banks are mainly held in the form of:

electric claims

To reduce the money supply in the economy, the Fed would:

engage in actions to increase interest rates

Suppose the economy is growing faster than its long-run potential growth rate. To bring the real growth rate back to the long-run potential rate, the Fed should:

engage in actions to raise interest rates

To design effective monetary policy, the Fed does NOT need to monitor or estimate:

how changes in interest rates impact the number of depositors

Suppose the reserve ratio is 20% for all banks. If the Fed increases bank reserves by $200, then the money supply will:

increase by $1,000

Which is NOT neutral in the long run?

output

The Federal Reserve:

regulates the banking system

Tyler owes $100,000, but he owns Mexican Amati paintings that he could sell immediately for $80,000 or within a few months for $120,000. If these are all the assets and liabilities that Tyler has, Tyler is:

solvent but illiquid

The possibility that the failure of one bank affects the performance of other banks is called:

systemic risk

The financial crisis of 2008 illustrates that:

the Fed has the power to step outside its normal functions and lend to investment banks when it perceives the risk of financial contagion

As the reserve ratio rises:

the money multiplier will decrease