Chapter 16

Which of the following actions by the Fed most likely increases commercial bank lending? raising the reserve ratio increasing the federal funds target reducing the interest paid on excess reserves held at the Fed selling bonds to commercial banks and the public

3

Assume the legal reserve ratio is 25 percent and the Fourth National Bank borrows $10,000 from the Federal Reserve Bank in its district. As a result a. commercial bank reserves are increased by $10000 b. the supply of money automatically declines by $7500 c. commercial banks reserves are increased by $7500 d. the supply of money is automatically increased by $10000

a

If the Federal Reserve authorities were attempting to reduce demand-pull inflation, the proper policy would be to a. sell government securities, raise reserve requirements, raise the discount rate, and increase the interest rate paid on reserves held at the fed banks. b. buy government securities, raise reserve requirements, raise the discount rate, and reduce the interest rate paid on reserves held at the fed banks. c. sell government securities, raise reserve requirements, lower the discount rate, and increase the interest rate paid on reserves held at the fed banks.

a

Which of the following is considered a limitation of monetary policy? a. the cause-effect chain b. its cyclical asymmetry c. its isolation from political pressure d. the speed with which it can be implemented

b

When the required reserve ratio is decreased, the excess reserves of banks are... a. reduced, but the multiple by which the commercial bank can lend is unaffected b. reduced, and the multiple by which the commercial bank can lend is increased c. increased, and the multiple by which the commercial bank can lend is increased d. increased, but the multiple by which the commercial bank can lend is reduced.

c

Which of the following tools of monetary policy is considered the most important on a day-to-day basis? a. the discount rate b. the reserve ratio c. OMOs d. paying interest on excess reserves

c

Projecting that it might temporarily fall short of legally required reserves in the coming days, the Bank of Beano decides to borrow money from its regional Federal Reserve Bank. The interest rate on the loan is called the... a. prime rate b. federal funds rate c. treasury bill rate d. discount rate

d

If the demand for money increases and the Fed wants interest rates to remain unchanged, which of the following would be appropriate policy? a. recall Federal Reserve Notes from circulation b. raise the legal reserve requirement c. buy bonds in the open market d. raise the discount rate

c

An increase in the legal reserve ratio: A. Increases the money supply by increasing excess reserves and increasing the monetary multiplier. B decreases the money supply by decreasing excess reserves and decreasing the monetary multiplier. C. Increases the money supply by decreasing excess reserves and decreasing the monetary multiplier. D. decreases the money supply by increasing excess reserves and decreasing the monetary multiplier.

b

Which of the monetary policy tools can alter both the level of excess reserves and the money multiplier? a. OMOs b. the reserve ratio c. the discount rate d. the federal funds rate

b

Other things equal, if the supply of money is reduced a. the demand for money will increase b. the interest rate will fall c. bond prices will fall d. investment spending will increase

c

The Federal Reserve regulates the money supply primarily by a. controlling the production of coins at the U.S mint b. altering the reserve requirements of commercial banks and thereby the ability of banks to make loans c. altering the reserves of commercial banks, largely through sales of government bonds d. restricting the issuance of Fed notes because paper money is the largest portion of the money supply

c