Macro Chapt 4 Homework
If the currency-deposit ratio equals 0.5 and the reserve-deposit ratio equals 0.1, then the money multiplier equals:
(cr+1)/(rr+cr) = 2.5
When the Fed makes an open-market sale, it:
decreases the monetary base (B).
The more funds that the Federal Reserve makes available for banks to borrow through the Term Auction Facility, the _____ the monetary base and the _____ the money supply.
greater; greater
The money supply will increase if the:
monetary base increases.
If the monetary base is denoted by B, rr is the ratio of reserves to deposits, and cr is the ratio of currency to deposits, then the money supply is equal to ______ divided by ______ multiplied by B.
(cr + 1); (cr + rr)
Monetary Supply
Monetary base X multiplier
To increase the monetary base, the Fed can:
conduct open-market purchases.
The interest rate charged on loans by the Federal Reserve to banks is called the:
discount rate.
If many banks fail, this is likely to
increase the ratio of currency to deposits.
When the Fed increases the interest rate paid on reserves, it:
increases the reserve-deposit ratio (rr).
When the Fed increases the discount rate, it:
is likely to decrease the monetary base (B).
Open-market operations change the ______; changes in interest rate paid on reserves change the ______; and changes in the discount rate change the ______.
monetary base; money multiplier; monetary base
If the Federal Reserve increases the interest rate paid on reserves, banks will tend to hold _____ excess reserves, which will _____ the money multiplier.
more; decrease
If there is no currency and the proceeds of all loans are deposited somewhere in the banking system and if rr denotes the reserve-deposit ratio, then the total money supply is
reserves divided by rr.
To prevent banks from using excess reserves to make loans that would increase the money supply, the Federal Reserve could conduct open-market ______ and _____ the interest rate paid on bank reserves
sales; raise
The size of monetary base is determined by:
the Federal Reserve
High-powered money
the monetary base
The ratio of the money supply to the monetary base is called:
the money multiplier
If you hear in the news that the Federal Reserve conducted open-market purchases, then you should expect ______ to increase.
the money supply
If the ratio of currency to deposits (cr) increases, while the ratio of reserves to deposits (rr) is constant and the monetary base (B) is constant, then:
the money supply decreases.
When the Fed decreases the interest rate paid on reserves, if the ratio of currency to deposits decreases also while the monetary base is constant, then:
the money supply increases.
If currency held by the public equals $100 billion, reserves held by banks equal $50 billion, and bank deposits equal $500 billion, then the monetary base equals:
Reserves+amount (not deposit)$150 billion.
The reserve-deposit ratio is determined by:
business policies of banks and the laws regulating banks.
The preferences of households determine the:
currency-deposit ratio.
If the Federal Reserve wishes to increase the money supply, it should:
decrease the discount rate.
When the Fed decreases the interest rate paid on reserves, it:
decreases the reserve-deposit ratio (rr).