Chapter 34

Which of the following assets would you classify as being most liquid? A. small-time deposits B. small-cut diamonds C. money market mutual funds D. an oil painting by Claude Monet

A. small-time deposits

The reserve ratio is the ratio of bank reserves to A. the monetary base. B. currency demand. C. bank deposits. D. bank loans.

C. bank deposits.

Which of the following is the most liquid asset? A. savings deposits B. checkable deposits C. currency D. money market mutual funds

C. currency

Suppose the Fed carries out an open market purchase and credits the account of a bank by $160,000. Further suppose that RR is 10 percent. By how much is the money supply expected to change? A. $1.76 million B. $160,000 C. $16 million D. $1.6 million

D. $1.6 million

The Federal Reserve is the A. federal government's bank. B. U.S. central bank. C. banker's bank in the United States D. Each of these answers is correct.

D. Each of these answers is correct.

True or False: If the Fed decides to increase the money supply by $200 million, it can buy government bonds in the open market for less than $200 million.

True

True or False: If the Fed increases the amount of bank reserves by $100 million, the total money supply will potentially increase by more than $100 million.

True

True or False: The most liquid asset is cash.

True

If the required reserve ratio is 4 percent, the money multiplier is A. 25. B. 20. C. 16. D. 4.

A. 25.

What is the overnight lending rate from one bank to another? A. Federal Funds rate B. money multiplier rate C. money market rate D. Federal Reserve rate

A. Federal Funds rate

Banks can borrow money from what sources? I. other banks II. the Fed's discount window II. ATMs A. I and II only B. I only C. II only D. III only

A. I and II only

The Federal Reserve's major tools to control the money supply are I. open market operations. II. discount rate lending and the term auction facility. III. required reserve ratio and payment of interest on reserves. IV. federal funds lending. A. I, II, and III only B. I, II, III, and IV C. I and II only D. III and IV only

A. I, II, and III only

The Federal Reserve I. clears all checks. II. makes monetary policy. III. supervises the banking sector. A. II and III only B. I and II only C. I, II, and III D. I only

A. II and III only

Which of the following assets would you classify as being most liquid? A. demand deposits B. gold bullion C. a home D. small-time deposits

A. demand deposits

When the Federal Reserve makes an open market purchase, the reserves of the banking system will A. increase. B. remain constant. C. decrease. D. become difficult to predict

A. increase.

Which of the following is NOT a function of the Federal Reserve? A. providing loans to small businesses B. regulating the U.S. money supply C. regulating the U.S. financial system D. serving as the lender of last resort

A. providing loans to small businesses

All of the following are means of payment in the United States EXCEPT A. stock options. B. Federal Reserve notes. C. checkable deposits. D. savings deposits.

A. stock options.

An open market operation occurs when A. the Fed buys or sells government bonds. B. banks loan funds to each other. C. banks increase the reserve ratio. D. the Fed enforces regulations on the banking industry.

A. the Fed buys or sells government bonds.

The members of the Board of Governors of the Federal Reserve have 14-year non-renewable terms. Thus, A. they are somewhat insulated from the political process. B. the chairman of the board of governors also has a 14-year term. C. every president of a federal reserve district bank will serve at least 14 years on the BOG. D. the New York Federal Reserve District Bank President can only serve 14 years on the FOMC.

A. they are somewhat insulated from the political process.

To increase the money supply in the economy, the Fed would A. carry out open market sales and/or lower the discount rate. B. carry out open market purchases and/or lower the discount rate. C. increase the discount rate and/or lower the reserve ratio. D. carry out open market purchases and/or raise the reserve ratio.

B. carry out open market purchases and/or lower the discount rate.

In the United States, the amount of cash per capita is about $3,000. This figure A. shows how much the world depends on the U.S. monetary system. B. misrepresents actual currency holdings in the United States because a lot of dollars are held outside the country. C. accurately represents the size of the underground economy in the United States. D. shows how much currency each American holds in their checking accounts.

B. misrepresents actual currency holdings in the United States because a lot of dollars are held outside the country.

To be considered money, an asset must be A. backed by gold or other precious metals. B. widely accepted as a means of payment. C. currency. D. Each of these answers is correct.

B. widely accepted as a means of payment.

Which of the following is the most liquid asset? A. savings deposits B. checkable deposits C. currency D. money market mutual funds

C. currency

For a given money multiplier, a decrease in the banking system's reserves will cause the money supply to A. increase. B. become difficult to predict. C. decrease. D. remain constant.

C. decrease.

Holding reserves is costly for banks because A. it leads to the risk of bank robberies. B. the Fed charges banks interest on required reserves. C. it leads to fewer profits. D. it forces banks to pay for ATMs.

C. it leads to fewer profits.

When the Federal Reserve conducts monetary policy, the Federal Reserve usually focuses on A. the discount rate. B. M1. C. the Federal Funds rate. D. M2.

C. the Federal Funds rate.

The main difference between M1 and M2 is that A. M1 includes more liquid assets in addition to the assets in M2. B. M2 includes more liquid assets in addition to the assets in M1. C. M1 includes some less liquid assets in addition to the assets in M2. D. M2 includes some less liquid assets in addition to the assets in M1.

D. M2 includes some less liquid assets in addition to the assets in M1.

The money multiplier equals A. one divided by the difference between the reserve ratio and the required reserve ratio. B. the amount of money supply divided by the amount of reserves. C. one divided by the discount rate. D. one divided by the reserve ratio.

D. one divided by the reserve ratio.

When the Fed wants to increase interest rates, it A. buys bonds in the open market. B. adjusts the fractional reserve ratio. C. instructs banks across the nation that they must raise their rates. D. sells bonds in the open market.

D. sells bonds in the open market.