Ch. 10 quiz

When there is a high degree of trust in a country's banking system, the amount of cash held out of banks relative to deposits in banks would tend to be what?

The amount of cash held out of banks would be relatively low.

If the US Treasury engages in a foreign exchange intervention to increase the value of the dollar relative to the yuan renminbi by having the Federal Reserve buy dollars and sell yuan renminbi in the foreign market, how will this affect the monetary base?

The monetary base will decline

Claire sells a US Treasury security to the Federal Reserve on the secondary market. She receives a check as payment and then cashes the check at her bank, keeping the cash. Which of the following best describes the result?

The monetary base will increase but bank reserves will stay the same.

Trevor goes to the ATM machine and withdraws $500 cash. How will this affect the monetary base?

The monetary base will remain unchanged with he increase in the currency in circulation being exactly offset by a decrease in bank reserves.

The economy is experiencing a decrease in excess reserves relative to the level of bank deposits. What effect will this have on the money supply multiplier?

The money supply multiplier will increase; it will be strengthened.

During the Great Recession and immediate post-recession years between 2008 and 2014, what happened to the price level in the United States?

The price level fell sharply but then rebounded somewhat.

In the conduct of monetary policy, the Federal Reserve has greater control over open market operations than it does over the results of quantitative easing

True

The money supply multiplier is equal to (1+k)/(k+r1+re)

True

Suppose the US Treasury engages in a foreign exchange intervention to lower the value of the dollar relative to the euro. The Fed sells dollars and buys euros in the foreign market. How will this affect the monetary base?

the monetary base will increase

When the currency ratio increases, the impact of changes in the monetary base on the money supply is

weakened

Currency outstanding (C)=$1 trillion, total deposits (D)=$750 billion, total reserves (R)=$76 billion, and the required reserve ration (RR ratio) = 10%. What is the currency ratio in this economy?

1.33

Public mistrust of banks was a factor in limiting the effectiveness of the quantitative easing policies that began in 2008.

FALSE

When the US Treasury decides to reduce the value of the US dollar relative to the British pound, there will be a decline in the monetary base in the United States.

FALSE

When there is a decrease in the required reserve ratio (rr) what will be the change, if any, in the money supply multiplier?

It will be increased or strengthened

When a bank repays a loan at the discount window to the federal Reserve, which of the following will happen?

It will decrease bank reserves and decrease the monetary base.

When a central bank wants to pursue an expansionary monetary policy, it can do which of these things?

Pump excess reserves into the banking system

Which of these entities and/or groups can directly affect the monetary base?

The Federal Reserve, commercial banks, and the cash-holding public

Initially, quantitative easing was not much help in creating economic growth because

banks did not lend out the excess reserves that were created by quantitative easing.

Federal reserve notes are considered to be

liabilities of the Federal Reserve

As a country's financial markets become more highly developed, we can expect monetary policy to be

more effective

Actual bank reserves are equal to

required reserves + excess reserves