Chapter 13

13-14. If the Fed purchases government securities from a commercial bank, which of the following will happen?

A. The Fed will increase the bank's reserves on deposit at the Fed.

13-17. The sale of a government security by the Fed

A. decreases the supply of money.

13-27. The interest rate that a commercial bank pays when it borrows from the Fed is the rate.

A. discount

13-25. A commercial bank can receive a loan from another commercial bank in the

A. federal funds market.

13-15. If the Fed wants to increase the money supply through an open market operation, it will

A. purchase government securities.

13-22. If banks are currently holding zero excess reserves and the Fed lowers the required reserve ratio, which of the following will happen?

A. the higher the required reserve ratio.

13-23. The larger the simple deposit multiplier,

A. the higher the required reserve ratio.

13-21. The Fed can change the money supply by changing

A. the required reserve ratio.

13-35. When Bank A obtains a loan from the Fed, the

B. bank's reserves increase.

13-18. An open market purchase by the Fed

B. increases the supply of money.

13-33. When the Fed purchases securities from a bank, it___________reserves and____the money

B. increases; increases

13-12. When the Fed is acting as fiscal agent for the Treasury, it will

B. receive and process bids for Treasury securities in preparation for the Treasury's auction of securities.

13-19. Suppose the Fed forecasts a reduction in cash leakages. It might offset the effect of this on the money supply by

B. selling government securities.

13-28. The lower the discount rate relative to the federal funds rate, the more likely a commercial bank will borrow from

B. the Fed instead of another commercial bank.

13-29. When a commercial bank borrows from the Fed,

B. the bank can make more loans.

13-02. The Federal Reserve System began operations in

C. 1914.

13-34. When the Fed sells government securities to a bank, the securities will be

C. both an asset and a liability for the bank.

13-01. The Federal Reserve System is the

C. central bank of the United States.

13-46. Suppose that the Fed undertakes an open market sale, selling $1 million worth of securities to a bank. If the required reserve ratio is 8%, checkable deposits (or the money supply), would__________by__________million, assuming that there are no cash leakages and that banks hold zero excess reserves.

C. decline; $12.5

13-05. Which of the following is not a major responsibility of the Fed?

C. determining tax rates

13-26. When one commercial bank borrows from another commercial bank, it pays the_______________rate.

C. federal funds

13-44. One of the Fed's functions is to be the government's banker. This means that the

C. government's checking account is at the Fed.

13-24. The word that best describes the relationship between the required reserve ratio and the money supply is

C. inverse.

13-41. The Fed has been called "the lender of last resort" because it

C. serves as the last place to acquire loans for banks suffering cash management, or liquidity, problems.

13-37. Which of the following is not a monetary policy tool of the Fed?

C. setting the price level and the market rate of interest

13-16. Suppose the Fed sells a $50,000 U.S. Treasury security to Martha, a member of the public. If Martha writes a check to the Fed in order to buy this security, the money in her checking account will be transferred to

C. the Fed, and now it is as if the money doesn't exist.

13-10. Open Market Operations are conducted by

C. the Federal Reserve Bank of New York.

13-03. The United States is divided into __________ Federal Reserve districts, each with a district bank.

C. twelve

13-45. Refer to Exhibit 13-1. Suppose that the Federal Reserve conducts open market operations by purchasing $1,000 worth of government securities from Bank A. As a result, Bank A finds itself with $1,000 in excess reserves that it lends out and those funds end up in Bank B. What dollar value goes in blanks (A) and (B), respectively?.

D. $100; $900

13-08. When a check is written on an account at Bank A and deposited in Bank B, the reserve account of __________ will rise and reserves of the entire banking system will __________.

D. Bank B; remain constant

13-09. When we speak of the Fed's responsibility to supervise member banks, we are saying that the

D. Fed will advise member banks regarding the nature of loans and compliance with regulations.

13-04. The Board of Governors of the Federal Reserve is part of a larger policy-making group called the

D. Federal Open Market Committee.

13-38. The required reserve ratio is set by the

D. Federal Reserve.

13-30. Which of the following will decrease the money supply?

D. a and b

13-43. If a bank has zero excess reserves and one of its creditworthy customers applies for a loan, the bank may be able to grant the loan if it can

D. any of the above

13-11. Open market operations are the

D. buying and selling of government securities by the Fed.

13-36. When the Fed increases the required reserve ratio, a bank's

D. excess reserves are decreased.

13-39. A bank is less likely to borrow from the central bank when the falls relative to the

D. federal funds rate; discount rate

13-20. Suppose the Fed forecasts a reduction in excess reserve holdings by banks. It might offset the effect of this on the money supply by

D. selling government securities.

13-42. The banking system currently holds $20 billion in required reserves and zero excess reserves. The Fed lowers the required reserve ratio from 15 percent to 12.5 percent. Assuming that there are no cash leakages, the resulting change in checkable deposits (or the money supply) is approximately

E. $26.6 billion.

13-31. The Federal Reserve System13-31. The Federal Reserve System

E. all of the above

13-32. The Fed

E. all of the above

13-13. When the federal government incurs a budget deficit, it will

E. borrow money from the public by issuing government securities.

13-40. Which of the following will not increase the money supply in the United States?

E. none of the above

13-07. When commercial banks need more Federal Reserve Notes,

E. they call their Federal Reserve District Bank, which delivers the requested amount.