353 exam 3
1) Which of the following statements about the natural rate of unemployment is correct? A) Currently, most economists think that the natural rate is about 4%. B) When unemployment is at its natural rate, then only frictional unemployment remains. C) When unemployment is at its natural rate, then only structural unemployment remains. D) Currently, most economists believe the natural rate is zero.
A
12) In June 2020, the largest liability of the Fed was A) reserves. B) discount loans to banks. C) vault cash. D) currency in circulation.
A
18) If the Fed purchases $1 million worth of securities and the required reserve ratio is 8%, by how much will deposits change (assuming no change in excess reserves or the public's currency holdings)? A) rise by $12.5 million B) rise by $1 million C) rise by $8 million D) decline by $1 million
A
18) Under the Federal Reserve Act, which banks must be members of the Federal Reserve System? A) national banks B) all banks with capital in excess of $100 million C) all commercial banks D) state banks
A
20) As a result of an open market purchase, bank reserves A) rise and interest rates fall. B) fall and interest rates rise. C) and interest rates both fall. D) and interest rates both rise.
A
20) The main argument against Fed independence is that A) in a democracy, elected officials should make public policy. B) the Fed has proven irresponsible on many occasions. C) congressional control was tried during the 1960s and it worked well. D) monetary and fiscal policy would be easier to coordinate if the Fed were not independent.
A
23) If the Fed purchases $50,000 in T-bills from a bank, by how much will the bank's excess reserves increase? A) by $50,000 B) by $50,000 times the required reserve ratio C) by $50,000 divided by the required reserve ratio D) Not enough information has been provided to answer the question.
A
25) In the federal funds market diagram, an open market purchase by the Fed A) decreases the equilibrium federal funds rate. B) increases the discount rate. C) decreases the equilibrium level of reserves. D) shifts the reserve supply curve to the left.
A
29) All of the following were reasons that the Fed increased the required reserve ratio in 1936 EXCEPT A) fears that the economy was overheating. B) concerns over the possibility of future inflation. C) to eliminate the high level of excess reserves. D) concerns over a speculative bubble.
A
31) The Fed does NOT have to go through the normal congressional appropriations process because A) it is self financing. B) it is not part of the legislative branch of the federal government. C) its expenses are very small. D) it was given enough funds at the time of its founding to provide for its expenses indefinitely.
A
33) The money multiplier A) is an expression that converts the monetary base to the money supply. B) equals 1 over the required reserve ratio. C) is completely controlled by the Fed. D) is larger than the simple deposit multiplier.
A
35) Due to the economic problems resulting from the COVID-19 pandemic, the European Union sold common bonds for the first time in July 2020. These bonds were intended to raise funds to help recovery in EU countries. Which EU countries in particular had suffered the most from the effects of the virus? A) Italy and Spain B) Portugal and France C) Denmark and Germany D) Greece and Belgium
A
38) Which of the following assumptions made in deriving the simple deposit multiplier is unrealistic? A) Banks loan out all of their excess reserves. B) The Fed sets the required reserve ratio. C) The simple deposit multiplier is equal to 1 divided by the required reserve ratio. D) The Fed is able to affect the level of reserves in the banking system.
A
39) The Fed has the greatest control over which of the following? A) the nonborrowed monetary base B) the amount of excess reserves C) the money multiplier D) discount loans
A
40) In 2010, doubts were raised about the debt of all of the following countries EXCEPT A) Poland. B) Ireland. C) Greece. D) Portugal.
A
5) In a 2016 survey, the Fed found that compared to the median family income for Blacks, the median family income for Whites was A) nearly 10 times higher. B) about 25% higher. C) almost twice as high. D) approximately $14,000 greater.
A
6) A rising dollar makes U.S. goods A) more expensive abroad and decreases the volume of U.S. exports. B) more expensive abroad and increases the volume of U.S. exports. C) less expensive abroad and decreases the volume of U.S. exports. D) less expensive abroad and increases the volume of U.S. exports.
A
6) The members of Federal Reserve district bank boards of directors who are bankers are known as A) Class A directors. B) Class B directors. C) Class C directors. D) Class D directors.
A
7) Interest rate fluctuations A) make it difficult for households and firms to plan for the future. B) have largely been eliminated by the Fed during the past two decades. C) have the paradoxical effect of increasing the rate of economic growth. D) are usually not considered to be of much importance and are largely ignored by the Fed.
A
7) Why did fewer state banks choose to become or remain members of the Federal Reserve System during the 1960s and 1970s? A) Nominal interest rates rose. B) The required reserve ratio rose. C) Open market operations declined. D) The discount rate rose.
A
8) The Fed's goal of interest rate stability A) is motivated by political pressure as well as by a desire for a stable saving and investment environment. B) was formally abandoned in 1998. C) is undermined by actions the Fed takes to further its goal of stability in financial markets and institutions. D) is undermined by actions the Fed takes to further its goal of price stability.
A
1) Which of the following cities does NOT contain a Federal Reserve bank? A) Dallas B) Los Angeles C) Boston D) Cleveland
B
11) A falling dollar makes U.S. goods A) more expensive abroad and decreases the volume of U.S. exports. B) less expensive abroad and increases the volume of U.S. exports. C) less expensive abroad and decreases the volume of U.S. exports. D) more expensive abroad and increases the volume of U.S. exports.
B
13) Assuming a required reserve ratio of 8%, interest rate on reserves of 0.5%, and interest rate on loans of 4%, what is the effective cost of the reserve requirement on a $1,000 deposit? A) 0.05% B) 0.28% C) 0.32% D) 4%
B
13) During the first six months of 2020, gold prices A) more than tripled. B) rose by more than 15%. C) rose by almost 75%. D) fell by almost 30%.
B
16) Which of the following statements about the Depository Institutions Deregulation and Monetary Control Act of 1980 is NOT correct? A) It halted the decline in Fed membership. B) It eliminated restrictions on interstate banking for member banks. C) It required all banks to maintain reserve deposits with the Fed. D) It gave member and nonmember banks equivalent access to discount loans.
B
19) If the Fed wished to decrease the money supply, it could A) lower the interest rate on term deposits. B) raise the interest rate it pays on reserves. C) lower the interest rate on reverse repurchase agreements. D) lower the required reserve ratio.
B
19) What is the maximum amount a bank can lend? A) its total reserves B) its excess reserves C) the value of its checkable deposits times the required reserve ratio D) its excess reserves divided by the required reserve ratio
B
2) John Smith leaves his job in New York to go to California in hopes of finding a better one. If John Smith is unemployed while searching for a job in California, economists would consider him to be A) structurally unemployed. B) frictionally unemployed. C) cyclically unemployed. D) naturally unemployed.
B
2) When conducting open market operations, at what price is the Fed willing to buy or sell securities? A) at the price set by the Fed chair B) at whatever price is necessary to carry out its open market operations C) at the price agreed upon by the Federal Open Market Committee D) at the price agreed upon by the Board of Governors
B
2) Who is considered to wield the most power in the Federal Reserve System? A) the president of the Federal Reserve Bank of New York B) the Fed chair C) the Treasury Secretary D) member banks
B
21) The Fed ended QE3 in A) January 2103. B) October 2014. C) February 2016. D) QE3 had not ended as of January 2017.
B
21) The aggregate M1 consists of A) currency plus all checkable deposits. B) currency plus checkable deposits in financial institutions. C) currency plus all deposits in all institutions. D) currency plus all deposits in financial institutions.
B
21) Which of the following statements is correct? A) The Fed is fully insulated from external pressures because it does not need to go through the normal congressional appropriations process. B) The Fed is only partially insulated from external pressures. C) The Fed is fully insulated from external pressures because it has a constitutional mandate. D) The Fed is fully insulated from external pressures due to the long terms that members of the Board of Governors serve.
B
22) The assumption that reserves are scarce A) was accurate following the financial crisis of 2007-2009 but not prior to the crisis. B) was accurate prior to the financial crisis of 2007-2009 but not following the crisis. C) was accurate prior to and following the financial crisis of 2007-2009. D) was not accurate prior to or following the financial crisis of 2007-2009.
B
23) Which of the following was NOT advocated by former Texas Congressman Ron Paul? A) 100% reserve banking B) making the Fed Board of Governors lifetime appointments C) returning to the gold standard D) abolishing the Fed
B
25) Suppose that a bank with no excess reserves receives a deposit into a checking account of $10,000 in currency. If the required reserve ratio is 0.20, what is the maximum amount that the bank can lend out? A) $2,000 B) $8,000 C) $10,000 D) $50,000
B
25) The facts show that the political business cycle theory A) explains monetary policy best during years in which the president is running for reelection. B) does not generally hold true in the United States. C) is unable to explain monetary policy during presidential election years. D) does a good job of explaining monetary policy during presidential election years.
B
26) Which of the following statements is NOT true? A) Congress delegated the power to coin money and regulate its value to the Federal Reserve in the Federal Reserve Act. B) The federal courts have never upheld the constitutionality of the Federal Reserve Act. C) The U.S. Constitution does not explicitly give the federal government the authority to establish a central bank. D) The U.S. Constitution states that Congress has the power "To coin money [and] regulate the value thereof."
B
27) Assume bank reserves = $800 billion, currency = $600 billion, (R/D) = 0.8, and rrD = 0. What is the value of checkable deposits? A) $800 billion B) $1.0 trillion C) $1.6 trillion D) $1.8 trillion
B
27) Most of the Fed's earnings come from A) interest on discount loans. B) interest on the securities it holds. C) congressional appropriations. D) fees charged to financial institutions for check clearing.
B
28) Which of the following equations is correct? (M is the money supply, BR is borrowed reserves, Bnon is nonborrowed monetary base, m is the money multiplier, C is currency in circulation, ER is excess reserves, and R is bank reserves.) A) M = m(Bnon + ER) B) M = m(Bnon + BR) C) M = C + R D) M = m(C + BR)
B
28) Which of the following statements is correct? A) The Fed is dependent on the annual appropriations it receives from Congress. B) The Fed's profits are substantial, even when compared to the largest U.S. corporations. C) The Fed has difficulty covering its normal expenses, but is reluctant to ask Congress for money. D) At one time the Fed made substantial profits, but falling interest rates have greatly reduced them.
B
29) What is the main reason the Fed operates in a political arena? A) It is under the direct control of Congress. B) It lacks a constitutional mandate. C) The members of the Board of Governors are typically prominent politicians. D) The members of the Board of Governors must run for reelection every fourteen years.
B
3) What is the length of a term for the Chairman of the Board of Governors? A) one year B) four years C) 14 years D) 28 years
B
3) When economists, policymakers, or journalists refer to the Fed's balance sheet, they are typically referring to the A) amount of bank reserves. B) size of the Fed's assets. C) money supply. D) amount of foreign reserves.
B
32) Why might Congress benefit from the Fed being self-financed? A) Congress does not benefit from the Fed being self-financed; Congress is obliged by the Constitution to allow the Fed to be self-financed. B) Self-financing gives the Fed an incentive to expand the money supply, which ultimately results in Congress having additional funds to spend. C) Self-financing increases Congressional control over the Fed. D) Self-financing reduces the Fed's exposure to external pressures.
B
35) Assume bank reserves = $800 billion, currency = $600 billion, (R/D) = 0.8, and rrD = 0. What is the value of the money multiplier? A) 0.875 B) 1.14 C) 1.6 D) 2.0
B
38) Which of the following is the mandate of the European Central Bank? A) low unemployment B) price stability C) a fixed exchange rate D) high economic growth
B
4) High employment spurs economic growth because high employment A) discourages foreign imports. B) often leads to high rates of investment. C) often leads to a high birth rate. D) usually reduces inflation.
B
4) The Federal Reserve Act of 1913 A) specified the boundaries, but not the city locations, for the district banks. B) specified neither the boundaries nor city locations for the district banks. C) specified both the boundaries and city locations for the district banks. D) specified the city locations, but not the boundaries, for the district banks.
B
40) Which of the following accurately describes the relationship between excess reserves and checkable deposits following the financial crisis of 2007-2009? A) Excess reserves declined as the excess reserve ratio returned to near zero. B) Excess reserves exceeded checkable deposits. C) Excess reserves approached the same level as checkable deposits. D) Excess reserves rose to nearly one-third of checkable deposits.
B
44) Apart from the United States, in countries where central bank board members serve fixed terms of office A) the head of the central bank rarely has a term longer than one year. B) none have terms as long as fourteen years. C) all have terms longer than fourteen years. D) many serve for life or good behavio
B
7) The interest rate the Fed charges on loans to depository institutions is known as A) the Fed loan rate. B) the discount rate. C) the interbank clearing rate. D) the federal funds rate.
B
8) What is the most direct method the Fed uses to change the monetary base? A) changing the federal funds rate B) open market operations C) changing the required reserve ratio D) changing the level of discount loans
B
9) Rates of inflation in the hundreds or thousands of percent per year are known as A) megainflation. B) hyperinflation. C) overinflation. D) super inflation.
B
1) As of June 2020, the value of currency in circulation was about A) $1.1 billion. B) $24 billion. C) $1.9 trillion. D) $44 trillion.
C
10) Most economists believe that a zero rate of unemployment A) is obtainable only if the inflation rate is also zero. B) would result in a better functioning economy. C) is inconsistent with a well-functioning economy. D) is obtainable with the correct monetary policy.
C
10) Which of the following is a liability of the Fed? A) checkable deposits in commercial banks B) discount loans to banks C) currency in circulation D) U.S. government securities
C
11) If the Fed makes a discount loan of $2 million to a commercial bank, the Fed's balance sheet will show A) a decrease in discount loans of $2 million and an increase in bank reserves of $2 million. B) a decrease in discount loans of $2 million and a decrease in bank reserves of $2 million. C) an increase in discount loans of $2 million and an increase in bank reserves of $2 million. D) an increase in discount loans of $2 million and a decrease in bank reserves of $2 million.
C
12) Which best describes the Federal Reserve district banks? A) They are private ventures. B) Some are private while others are government. C) They are private-government joint ventures. D) They are government ventures.
C
14) All of the following are associated with rising inflation EXCEPT A) families having trouble deciding how much to save for retirement. B) firms hesitating to enter into long-term contracts with suppliers. C) a steady decrease in interest rates. D) income redistribution.
C
16) How can the Fed increase banks' holdings of reserves and potentially lower the money supply? A) conduct open market purchases B) reducing the federal funds rate C) raising the interest it pays on reserves D) lowering the discount rate
C
17) In March 2020, the Fed changed the required reserve ratio from A) from 5% to 0%. B) 10% to 12%. C) from 10% to 0%. D) 12% to 10%.
C
17) The chair of the Federal Reserve is A) chosen by the members of the Board of Governors. B) elected by Congress. C) chosen by the president. D). the Treasury Secretary
C
20) Suppose the required reserve ratio is 8% and the Fed purchases $100 million worth of Treasury bills from Wells Fargo. By how much is Wells Fargo able to increase its loans? A) $8 million B) $92 million C) $100 million D) $1.25 billion
C
22) Assuming a required reserve ratio of 10% and the Fed purchased $1 million worth of mortgage-backed securities, make use of the simple deposit multiplier to determine by how much checking deposits would change. A) decrease by $1 million B) increase by $1 million C) increase by $10 million D) decrease by $10 million
C
22) During World War II A) the Board of Governors was temporarily disbanded. B) the Fed agreed not to buy Treasury securities. C) the Fed agreed to hold interest rates on short-term Treasury securities at low levels. D) the Fed was not allowed to make discount loans.
C
23) Following the end of the third round of quantitative easing, the Fed A) has been legally banned from again pursuing this policy. B) has engaged in new rounds of quantitative easing at least once every year. C) resumed its policy of quantitative easing in March 2020. D) has considered, but not again engaged in, quantitative easing.
C
24) Suppose that the banking system currently has no excess reserves and that a bank receives a deposit into a checking account of $10,000 in currency. If the required reserve ratio is 0.20, what is the maximum amount that the BANKING SYSTEM can lend out? A) $8,000 B) $10,000 C) $40,000 D) $50,000
C
3) From 2015 to 2020, the demographic group with the highest unemployment -population ratio was ________ and the group with the lowest unemployment-population ratio was ________. A) Whites; Hispanics B) Whites; Blacks C) Hispanics; Blacks D) Blacks; Hispanics
C
30) Which of the following officially ended the cooperation between the Treasury and the Fed that had taken place during World War II? A) Federal Reserve Act of 1951 B) Dodd-Frank Act C) Treasury-Federal Reserve Accord D) Truman Doctrine
C
31) Assume bank reserves = $800 billion, currency = $600 billion, (R/D) = 0.8, and rrD = 0. What is the value of the money supply? A) $600 billion B) $1.44 trillion C) $1.6 trillion D) $1.75 trillion
C
34) Assume bank reserves = $800 billion, currency = $600 billion, (R/D) = 0.8, and rrD = 0. What is the value of the monetary base? A) $200 billion B) $1.12 trillion C) $1.4 trillion D) $1.75 trillion
C
36) The principal-agent view of Fed motivation predicts that the Fed acts A) to promote the interests of the general public. B) in order to make sure its agents—commercial banks—carry out its wishes. C) in order to increase its power, influence, and prestige. D) to promote the interests of the Fed's principal—the President of the United States.
C
36) Why didn't the surge in the monetary base following the 2007-2009 financial crisis lead to a similar surge in the money supply? A) The currency-deposit ratio rose significantly, resulting in a much smaller money multiplier. B) The Fed increased the required reserve ratio, resulting in a much smaller money multiplier. C) The excess reserve-deposit ratio rose significantly, resulting in a much smaller money multiplier. D) Nonborrowed reserves declined, offsetting the increase in the monetary base.
C
37) When banks hold excess reserves, the size of the money multiplier A) becomes infinite. B) is equal to the size of the simple deposit multiplier. C) is less than the simple deposit multiplier would suggest. D) is greater than the simple deposit multiplier would suggest.
C
37) Who sets the inflation target for the Bank of England? A) majority vote of the monetary policy committee B) head of the monetary policy committee C) chancellor of the Exchequer D) Prime Minister
C
43) Generally A) countries with the least independent central banks have the lowest inflation rates. B) the degree of independence of a country's central banks has little to do with its inflation rate. C) countries with the most independent central banks have the lowest inflation rates. D) countries without central banks have the lowest inflation rates.
C
8) In 1976, Congress passed legislation which requires most federal government agencies to give public notice before a meeting. This legislation is the A) No-Stone-Unturned Act. B) Dodd-Frank Act. C) Government in the Sunshine Act. D) Increased Transparency Act.
C
9) Vault cash is a(an) A) asset of the Fed and is counted as reserves. B) asset of the Fed and is not counted as reserves. C) liability of the Fed and is counted as reserves. D) liability of the Fed and is not counted as reserves.
C
9) Which of the following men has NOT served as Chairman of the Board of Governors? A) Arthur Burns B) Alan Greenspan C) Milton Friedman D) Paul Volcker
C
10) Which groups were opposed to the Bank of the United States? A) northeastern financial interests B) northeastern industrial interests C) exporters D) southern and western agrarian and small-business interests
D
11) The Federal Reserve district banks A) do not engage in monetary policy. B) engage in monetary policy directly through their membership on Federal Reserve committees. C) engage in monetary policy directly through open market operations. D) engage in monetary policy directly through discount lending.
D
12) When all workers who want jobs have them and the demand for and supply of labor are in equilibrium A) the economy will be experiencing high rates of inflation. B) frictional unemployment will be zero. C) the unemployment rate will be zero. D) unemployment is at its natural rate.
D
13) Which of the following is NOT considered to be a goal of monetary policy? A) price stability B) high employment C) economic growth D) fair wages
D
14) The difference between currency outstanding and currency in circulation is equal to A) coins issued by the U.S. Treasury. B) bank reserves. C) zero; they are the same thing. D) vault cash.
D
14) Which of the following is NOT considered one of the four groups in the Federal Reserve System? A) Board of Governors B) Federal Reserve banks C) Federal Open Market Committee D) Federal Deposit Insurance Corporation
D
15) How does the Fed reach its target for the federal funds rate? A) by changing the discount rate B) by directly setting the federal funds rate C) by changing reserve requirements D) by buying and selling Treasury securities
D
15) Reserve requirements are set by A) the president. B) Congress. C) the Secretary of Treasury. D) the Fed.
D
15) Which of the following expressions is correct? (B is the monetary base, BR is borrowed reserves, and Bnon is nonborrowed monetary base.) A) BR = Bnon + B B) Bnon = B + BR C) Bnon = -BR - B D) B = Bnon + BR
D
16) The Fed's portfolio of securities consists principally of A) municipal bonds. B) corporate bonds. C) obligations of foreign governments. D) U.S. Treasury obligations.
D
17) If the Fed purchases $1 million in securities from the nonbank public, the monetary base will rise by $1 million A) if the public holds the proceeds as currency. B) if the public deposits the proceeds with the Treasury in a monetary base account. C) if the public deposits the proceeds as checkable deposits. D) whether the public holds the proceeds as currency or deposits them as checkable deposits.
D
18) How many times has the Fed changed reserve requirements since 1993? A) only twice B) about once a year C) never D) only once
D
19) The public interest view of Fed motivation holds that the Fed acts in the interest of A) Congress. B) itself. C) banks. D) the general public.
D
24) How did the Fed peg interest rates during World War II? A) through nationalization of the banking system B) by setting a low federal funds rate C) through extensive use of discount loans D) by agreeing to purchase any bonds that were not purchased by private investors
D
24) The third round of quantitative easing, announced in September 2012, was focused on purchases of A) long-term Treasury notes. B) short-term Treasury bills. C) long-term Treasury notes and sales of short-term Treasury bills. D) mortgage-backed securities.
D
26) If the required reserve ratio is 5%, what is the value of the simple deposit multiplier? A) 0.05 B) 0.20 C) 5 D) 20
D
30) For someone who invested in gold bars or coins in the late 1970s, when including storage and insurance fees the real return on investment in 2020 would have been A) 500%. B) 125%. C) 0%. D) -15%.
D
32) The size of the money multiplier depends upon all of the following EXCEPT A) excess reserves relative to deposits. B) the required reserve ratio. C) the currency-deposit ratio. D) the discount rate.
D
33) The political business cycle theory predicts that A) the Fed acts to promote the interests of the general public. B) the president's appointments to the Board of Governors will usually be politicians. C) political factors over which the Fed has no control are most important in explaining the business cycle. D) the Fed acts to stimulate economic activity before an election.
D
34) Which of the following appears to be evidence against the public interest view of the Fed's motivation? A) the unwillingness of the Fed to turn over its excess profits to the Treasury B) the independence of Fed chairmen from the authority of the president C) the conflict with the Treasury over interest rate fixing during World War II D) the failure of the Fed to emphasize the goal of price stability
D
39) The European Central Bank is responsible for the monetary policy of A) all 28 countries in the European Union. B) the 5 largest European economies. C) all countries on the continent of Europe. D) the 19 sovereign countries that use the euro as their currency.
D
4) When the Fed extends loans to depository institutions A) it reduces the total value of the liabilities on its balance sheet. B) it decreases the level of reserves. C) it reduces the total value of the assets on its balance sheet. D) it increases the level of reserves.
D
41) Which of the following does NOT serve on the Governing Council of the European Central Bank? A) governors of the national central banks B) members of the executive board C) chair of the executive board D) finance ministers of each country
D
42) Which of the following is the most common goal for central banks of industrialized countries? A) high economic growth B) high employment C) low interest rates D) low inflation
D
45) Which central bank gained the power to set interest rates independent of the government in the late 1990s? A) Bank of China B) Bank of Canada C) Federal Reserve Bank D) Bank of England
D
5) Members of the Board of Governors A) serve for life or good behavior. B) must resign when the President who has appointed them leaves office. C) may serve no more than three consecutive four-year terms. D) serve one nonrenewable fourteen-year term.
D
5) Which of the following statements is correct? A) The Fed has complete control over the volume of both discount loans and open market operations. B) The Fed's control over discount lending is more complete than its control over open market operations. C) The volume of open market operations is determined jointly by the actions of the Fed, the banking system, and the nonbank public. D) The Fed completely controls the volume of open market operations.
D
6) Individual investors who always want to hold gold are known as A) goldilocks. B) goldfinger. C) golden boys. D) gold bugs.
D