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Which of the following is not one of the major liabilities on the central bank's balance sheet? Multiple choice question. Governments' deposit account Commercial banks deposit accounts Currency Loans

Loans

Commercial bank reserves generally _______ the largest liability on the central bank's balance sheet and _______ the most important liability in determining the money supply. Multiple choice question. are not; are are not; are not are; are are; are not

are; are Reason: During normal economic periods, commercial bank reserves are the largest liability on the central bank's balance sheet and are the most important liability in determining the money supply.

The three primary assets on a central bank's balance sheet are Multiple choice question. securities, foreign exchange reserves, and loans. cash, stocks, and bonds. currency, foreign exchange reserves, and deposits. securities, currency, and borrowings.

securities, foreign exchange reserves, and loans.

Foreign currency held by the Fed is called _____. Multiple choice question. Eurodollars foreign exchange interventions foreign exchange reserves discount loans

foreign exchange reserves

High-powered money is another name for Multiple choice question. the M2 money supply. the M1 money supply. the monetary base. bank reserves.

the monetary base.

Select all that apply Discount loans are Multiple select question. required at the request of the Fed. requested by commercial banks. an event that does not change the balance sheet of the Fed. backed by bank collateral.

requested by commercial banks. backed by bank collateral.

On the balance sheet of the Federal Reserve, commercial bank accounts refer to ________ and are _______. Multiple choice question. reserves; assets reserves; liabilities demand deposits; liabilities demand deposits; assets

reserves; liabilities

Consider an economy in which banks hold $25 billion in aggregate reserves (composed of $20 billion deposit in the Federal Reserve and $5 billion in bank vaults), while the public holds $10 billion in cash. The monetary base in this economy equals Multiple choice question. $50 billion. $35 billion. $30 billion. $15 billion.

$35 billion. Reason: The monetary base equals aggregate reserves plus cash held by the public; therefore, in this economy it equals $25 billion + $10 billion = $35 billion.

Consider a situation in which banks initially hold no excess reserves, currency held by the public is unrelated to the amount of deposits held in banks, and banks must hold 10% of deposits as required reserves. When $50,000 is deposited in a checking account in a single bank, in that bank Multiple choice question. $45,000 in additional loans can now be made. reserves on hand will fall by $50,000. required reserves rise by $50,000. checking accounts in that bank will rise by $45,000.

$45,000 in additional loans can now be made. Reason: As a result of the deposit, checking accounts and reserves on hand will rise by $50,000; required reserves will rise by $5,000 (10% of $50,000); and excess reserves will rise by $45,000 ($50,000 - $5,000). The bank can now make additional loans of $45,000.

Consider a situation where banks must keep 10% of deposits as required reserves, banks initially hold no excess reserves, and the amount of cash held by the public is unrelated to deposits. After moving through the whole banking system, a $60,000 open market purchase by the Federal Reserve can eventually create ________ in new money. Multiple choice question. $54,000 $60,000 $600,000 $540,000

$600,000 Reason: Given the assumptions listed and the 10% reserve requirement, the entire banking system can create 1/10% = 10 times an infusion of reserves in new money. Therefore, the $60,000 open market purchase can result in $60,000 x 10 = $600,000 in new money.

All else equal, which of the following would increase the supply of money? Multiple choice question. An increase in the required reserve-to-deposit ratio. An increase in desired holdings of excess reserves. A decrease in the currency-to-deposit ratio. A decrease in the monetary base.

A decrease in the currency-to-deposit ratio.

Which of the following is an action taken by the Federal Reserve after 9/11 that was unprecedented or unseen since the Great Depression? Multiple choice question. Acting as a lender of last resort to banks Making discount loans Acquiring loans and previously-traded securities Lowering interest rates to respond to recessionary conditions

Acquiring loans and previously-traded securities

Which of the following is an action taken by the Federal Reserve after 9/11 that was unprecedented or unseen since the Great Depression? Multiple choice question. Lowering interest rates to respond to recessionary conditions Acting as a lender of last resort to banks Acquiring loans and previously-traded securities Making discount loans

Acquiring loans and previously-traded securities

Select all that apply Evaluate the following statements and clarify which is/are NOT true about disclosure of central bank information. Multiple select question. Although some central banks have delayed disclosure, to date none has falsified information to the public. Without timely disclosure, there is no way to know if policymakers are doing their jobs. Most central banks provide information less than once a month. Historically, delays in disclosure have little correlation with problems within the central bank.

Although some central banks have delayed disclosure, to date none has falsified information to the public. Most central banks provide information less than once a month. Historically, delays in disclosure have little correlation with problems within the central bank.

When the Federal Reserve buys $5 million in U.S. government bonds from Bank Y Multiple choice question. Bank Y will be more profitable than before, even if it takes no further action. Bank Y must call in $5 million worth of loans as a result. Bank Y loses $5 million in reserves and the Fed gains them. Bank Y alone can now create $5 million more in new money.

Bank Y will now have the ability to lend out any excess reserves it now has as a result of the sale. Bank Y alone can now create $5 million more in new money.

Select all that apply When the Federal Reserve buys $5 million in U.S. government bonds from Bank Y Multiple select question. Bank Y loses $5 million in reserves and the Fed gains them. Bank Y must call in $5 million worth of loans as a result. Bank Y will now have the ability to lend out any excess reserves it now has as a result of the sale. Bank Y alone can now create $5 million more in new money.

Bank Y will now have the ability to lend out any excess reserves it now has as a result of the sale. Bank Y alone can now create $5 million more in new money.

Select all that apply Which of the following transactions would NOT affect the balance sheets for the Federal Reserve, the banking system, and the non-bank public? Multiple select question. Banks borrowing from the Federal Reserve Consumer withdrawal of cash from an ATM Federal Reserve purchases of foreign government bonds Open market operations where the Federal Reserve sells securities to a bank

Banks borrowing from the Federal Reserve Open market operations where the Federal Reserve sells securities to a bank Federal Reserve purchases of foreign government bonds

Why can the central bank affect the size and composition of its balance sheet in ways that private citizens cannot? Multiple choice question. Because the central bank can pay for purchased assets by creating liabilities. Because the central bank can double count transactions on its balance sheet. Because the central bank can pay on credit. Because the central bank need not record assets on its balance sheet.

Because the central bank can pay for purchased assets by creating liabilities.

Which of the following is true about publication of the balance sheets for the Federal Reserve and European Central Bank? Multiple choice question. Both are published online. The Federal Reserve's balance sheet is published more often. The European Central Bank's balance sheet is published more often. The Federal Reserve's balance sheet is available online; the European Central Bank's is available only in printed form.

Both are published online. Reason: Both central banks' balance sheets are published weekly and are available online.

Which of the following is true about bank reserves? Multiple choice question. For a single commercial bank, its required reserves plus its reserves on hand equal its excess reserves. Today banks hold reserves with the primary goal of ensuring banking system stability. Both required reserves and excess reserves are liabilities for the central bank. Banks today are strictly constrained by reserve requirements.

Both required reserves and excess reserves are liabilities for the central bank. Reason: In the past, banks were strictly constrained by reserve requirements. But as demand for checkable deposits has fallen, this has become less true.

Which of the following does not describe an action taken by the Federal Reserve since the 1930s? Multiple choice question. Preventing interest rates from varying with supply and demand conditions Lending to non-financial companies Acquiring securities to make up for nonfunctioning markets Causing its balance sheet to shrink to unprecedented proportions

Causing its balance sheet to shrink to unprecedented proportions

Which of the following does not describe an action taken by the Federal Reserve since the 1930s? Multiple choice question. Causing its balance sheet to shrink to unprecedented proportions Acquiring securities to make up for nonfunctioning markets Lending to non-financial companies Preventing interest rates from varying with supply and demand conditions

Causing its balance sheet to shrink to unprecedented proportions Reason: After 9/11, the Federal Reserve made loans to non-financial companies, acquired securities to make up for failing markets, and prevented interest rates from varying with supply and demand. However, these actions caused its balance sheet to grow - not shrink - to unprecedented proportions.

Select all that apply Identify the correct statements about the ability to create and destroy the monetary base. (Check all that apply.) Multiple select question. Commercial banks cannot create and destroy the monetary base. Commercial banks can create and destroy the monetary base. The Federal Reserve is unable to create and destroy the monetary base. The Federal Reserve can create and destroy the monetary base. The non-bank public cannot create and destroy the monetary base.

Commercial banks cannot create and destroy the monetary base. The Federal Reserve can create and destroy the monetary base. The non-bank public cannot create and destroy the monetary base.

The liabilities side of the central bank's balance sheet can be divided into which three categories? Multiple choice question. Currency, government deposit accounts, and commercial bank deposit accounts Loans, government deposit accounts, and commercial bank deposit accounts Currency,securities, and commercial bank deposit accounts Currency, government deposit accounts, and foreign exchange reserves

Currency, government deposit accounts, and commercial bank deposit accounts

The liabilities side of the central bank's balance sheet can be divided into which three categories? Multiple choice question. Currency, government deposit accounts, and foreign exchange reserves Currency, government deposit accounts, and commercial bank deposit accounts Loans, government deposit accounts, and commercial bank deposit accounts Currency,securities, and commercial bank deposit accounts

Currency, government deposit accounts, and commercial bank deposit accounts

Match each variable that affects the quantity of money with the party that controls it. Monetary base Demand for currency Excess reserve-to-deposit ratio

Federal Reserve Members of the public Commercial banks

Select all that apply Why does the Fed hold foreign currency? Multiple select question. In order to make loans to commercial banks short on cash For use in foreign exchange interventions In order to change the market values of various currencies For use as a stable investment vehicle

For use in foreign exchange interventions In order to change the market values of various currencies

Which of the following prompted commercial bank deposits to increase nearly 100 times? Multiple choice question. The Dodd-Frank Wall Street Reform and Consumer Protection Act The sub-prime crisis The post-Lehman panic The Great Depression

The post-Lehman panic

Which of the following transactions would affect the balance sheets for the Federal Reserve, the banking system, and the non-bank public? Multiple choice question. Withdrawal of cash from an ATM Open market operations where the Federal Reserve sells securities to a bank Federal Reserve purchases of foreign government bonds Bank borrowing from the Federal Reserve

Withdrawal of cash from an ATM

Which of the following is not an important reason bank managers keep some excess reserves on hand today? Multiple choice question. To insure against unforeseen outflows of funds To ensure bank system stability and soundness To provide funds for day-to-day business

To ensure bank system stability and soundness

Which of the following is true about disclosure of central bank information? Multiple choice question. Historically, delays in disclosure have little correlation with problems within the central bank. Without timely disclosure, there is no way to know if policymakers are doing their jobs. Although some central banks have delayed disclosure, to date none has falsified information to the public. Most central banks provide information less than once a month.

Without timely disclosure, there is no way to know if policymakers are doing their jobs.

When the Federal Reserve sells $100 billion of government securities to a commercial bank, the banking system's balance sheet experiences Multiple choice question. a $100 billion decrease in reserves. a $100 billion increase in total assets. different effects depending on whether the bonds were domestic or foreign. a $100 billion decrease in securities.

a $100 billion decrease in reserves. Reason: As a result of the $100 billion sale of government securities, the banking system's balance sheet gains $100 billion in securities (an asset) and loses $100 billion in reserves (another asset). Its total assets are therefore unchanged.

Vault cash is Multiple choice question. an asset that is part of loans. an asset that is part of currency. a liability that is not part of reserves. a liability that is part of reserves.

a liability that is part of reserves.

For the money supply to change as much as predicted by the simple deposit expansion multiplier when we have a change in reserves, we must assume that Multiple choice question. banks hold no excess reserves. all banks engage in open market operations. the public holds as much cash as possible. the more money held in deposits, the less cash held by the public.

banks hold no excess reserves.

When a bank takes out a discount loan Multiple choice question. it lends reserves to another bank. the bank that borrows gains a liability and loses reserves. bonds in its balance sheet generally act as collateral. the loan is a liability for the Federal Reserve and an asset to the borrowing bank.

bonds in its balance sheet generally act as collateral. Reason: When a bank takes out a discount loan, it borrows reserves from the Fed. Reason: When a bank takes out a discount loan, it gains a liability (the discount loan itself) and also gains reserves. Reason: When a bank takes out a discount loan, that loan is an asset for the Fed and a liability for the borrowing bank.

After the financial crisis of 2007-2009, on the balance sheet of the Fed, we see that Multiple choice question. during the crisis the Fed stopped paying interest on bank reserves. commercial bank deposits increased to 100 times their old level. the balance sheet has overall gotten much smaller after the crisis. securities held decreased by more than $1 trillion.

commercial bank deposits increased to 100 times their old level.

The three major liabilities on a central bank's balance sheet are Multiple choice question. reserves, securities, and foreign exchange reserves. currency, the government's account, and reserves. securities, foreign exchange reserves, and loans. cash in bank vaults, cash held by the public, and securities.

currency, the government's account, and reserves.

All else equal, when banks hold more excess reserves an economy's ability to expand deposits __________; when the public holds less cash an economy's ability to expand deposits _________. Multiple choice question. decreases; decreases decreases; increases increases; increases increases; decreases

decreases; increases

The currency-to-deposit ratio Multiple choice question. implies that cash is more desirable as interest rates fall. implies that the interest rate is the benefit of holding currency. has a positive (direct) relationship with the money multiplier. equals deposits divided by currency held by the public.

implies that cash is more desirable as interest rates fall. Reason: The currency-to-deposit ratio implies that the interest rate is the cost, not the benefit, of holding currency. It implies that the interest rate is the cost of holding cash and therefore that cash is more desirable as interest rates fall. Reason: The currency-to-deposit ratio has a negative (inverse) relationship with the money multiplier - when one rises, the other falls. It implies that the interest rate is the cost of holding cash and therefore that cash is more desirable as interest rates fall. Reason: The currency-to-deposit ratio equals currency held by the public divided by deposits, not vice versa. It implies that the interest rate is the cost of holding cash and therefore that cash is more desirable as interest rates fall.

What tends to occur when banks hold less excess reserves? An economy's ability to expand deposits __________; when the public holds more cash an economy's ability to expand deposits _________. Multiple choice question. increases; increases decreases; increases decreases; decreases increases; decreases

increases; decreases

For short-run monetary policy, central banks today generally focus on __________ due to the volatility of the _____________. Multiple choice question. the money supply; monetary base interest rates; money multiplier the money supply; money multiplier interest rates; monetary base

interest rates; money multiplier

By creating liabilities to pay for purchased assets, the central bank Multiple choice question. is able to change the size and composition of its balance sheet. is operating in much the same way as a the U.S. Treasury. is unable to change the size and composition of its balance sheet. is able to change the size and composition of its balance sheet in the same way the public can.

is able to change the size and composition of its balance sheet.

When the Federal Reserve buys $200 billion of U.S. Treasury bonds from a commercial bank, on the Fed's balance sheet Multiple choice question. there is no change in its total assets. its assets and liabilities both rise by $200 billion. its liabilities in total rise by $200 billion, while its assets fall by the same amount. the cash account falls by $200 billion.

its assets and liabilities both rise by $200 billion. Reason: The Fed gains bonds (an asset) in the amount of $200 billion, and banks' deposits (a liability on the Fed's balance sheet) also rise by $200 billion.

Reserves held by commercial banks are Multiple choice question. assets on the central bank's balance sheet in its role as the government's bank. assets on the central bank's balance sheet in its role as bankers' bank. liabilities on the central bank's balance sheet in its role as the government's bank. liabilities on the central bank's balance sheet in its role as bankers' bank.

liabilities on the central bank's balance sheet in its role as bankers' bank.

The central bank's monetary base is made up of __________ that are held ________. Multiple choice question. liabilities; publicly assets; publicly liabilities; privately assets; privately

liabilities; privately

The monetary base can be created and destroyed Multiple choice question. by the Federal Reserve, commercial banks, or by the non-bank public. only by the Federal Reserve. by the Federal Reserve or by commercial banks. only by commercial banks.

only by the Federal Reserve.

Identify which of the following are NOT the three major liabilities on a central bank's balance sheet Multiple select question. securities, foreign exchange reserves, and loans. reserves, securities, and foreign exchange reserves. currency, the government's account, and reserves. cash in bank vaults, cash held by the public, and securities.

securities, foreign exchange reserves, and loans. reserves, securities, and foreign exchange reserves. cash in bank vaults, cash held by the public, and securities.

Before the financial crisis of 2007 - 2009, the Fed controlled the federal funds rate and the availability of money and credit by adjusting its holdings of liquid securities, primarily __________. Multiple choice question. foreign exchange reserves currency holdings short-term Treasury bills loans

short-term Treasury bills

When the U.S. Treasury instructs the Federal Reserve to purchase $500 million euro Multiple choice question. the Fed's assets and liabilities both rise by $500 million euro. the effect on the balance sheet of the banking system is very similar to that when the Fed sells bonds to banks in open market operations. the banking system's securities and reserve balances both increase by $500 million euro. the Fed purchases euro from the European Central Bank.

the Fed's assets and liabilities both rise by $500 million euro.

Select all that apply When the U.S. Treasury instructs the Federal Reserve to purchase $250 million euro Multiple select question. the monetary base contracts. the Fed's liabilities rise by $250 million euro. the monetary base expands. the Fed's assets fall by $250 million euro. the Fed's assets rise by $250 million euro.

the Fed's liabilities rise by $250 million euro. the monetary base expands. the Fed's assets rise by $250 million euro.

We can move from the unrealistically simple deposit expansion multiplier to a more realistic one by acknowledging that Multiple choice question. banks generally hold no excess reserves. changes in public cash holdings don't affect reserves. the more excess reserves a bank holds, the less safe it is. the public holds more cash as the amount of deposits rises.

the public holds more cash as the amount of deposits rises.

The link between the central bank's balance sheet and the money supply is ________ because _________ is too variable. Multiple choice question. strong; the money multiplier weak; the money multiplier strong; the monetary base weak; the monetary base

weak; the money multiplier