Econ 353- Oh Exam Chapter 17

Monetary policy operations for central banks are run through changes in the liability category of: A) gold. B) government's accounts. C) currency. D) reserves.

D) reserves.

When the Fed makes a discount loan, the impact on the Fed's balance sheet will reflect: A) an increase in assets and liabilities. B) no change in liabilities but an increase in assets. C) an increase in assets and a decrease in liabilities. D) a decrease in assets and liabilities.

A) an increase in assets and liabilities.

If the Fed were to decrease the required reserve rate from ten percent to five percent, the simple deposit expansion multiplier would: A) double. B) be half as large as it was before the reduction. C) increase by a factor of five. D) decrease by 5 percent.

A) double.

If there were an increase in the number of bank failures, we should expect the amount of excess reserves in the banking system to: A) increase. B) not change. C) decrease. D) decrease since failing banks lost theirs.

A) increase.

The money multiplier is much lower today than it was twenty-five years ago because: A) the currency-to-deposit ratio is much higher today. B) credit cards are more widely used. C) there is less currency available today. D) people are holding less currency today.

A) the currency-to-deposit ratio is much higher today.

In dollar amounts: A) the monetary base is smaller than M1 and M2 is larger than M1. B) the monetary base is larger than M2 and M1 is less than M2. C) the monetary base is larger than M1 and M2. D) M1 is smaller than the monetary base and M2 is larger than both.

A) the monetary base is smaller than M1 and M2 is larger than M1.

Bank A has checkable deposits of $100 million, vault cash equaling $1 million and deposits at the Fed equaling $14 million. If the required reserve rate is ten percent what is the maximum amount Bank A could lend? A) $15 million B) $5 million C) $85 million D) $14 million

B) $5 million

Consider a $2 billion open market purchase of U.S. Treasury securities by the Federal Reserve. The Fed's balance sheet will show: A) only show an increase in the liability of reserves of $2 billion. B) an increase in the asset category of securities and the liability category of reserves by $2 billion. C) no change in the size of the balance sheet, just the composition of assets will change from cash to securities. D) only an increase in the asset of securities of $2 billion.

B) an increase in the asset category of securities and the liability category of reserves by $2 billion.

Each of the following items would appear as assets on the central bank's balance sheet, except: A) foreign exchange reserves. B) currency. C) securities. D) loans.

B) currency

As a portion of total assets measured in billions of dollars, the least important asset on the Fed's balance sheet is: A) securities. B) gold. C) foreign exchange reserves. D) loans.

B) gold.

During the early years of the Great Depression, the monetary base and M2: A) moved in opposite directions; M2 increased while the monetary base decreased. B) moved in opposite directions; the monetary base increased but M2 decreased. C) both increased significantly. D) both decreased significantly.

B) moved in opposite directions; the monetary base increased but M2 decreased.

To obtain a discount loan from the Fed, a commercial bank must: A) prove that it will fail if it does not obtain the loan. B) provide collateral. C) agree to more frequent examinations. D) prove that the loan will be used to make loans

B) provide collateral.

One thing the Fed has learned over the past twenty-five years is: A) it should focus its attention on targeting M2. B) the money multiplier is unstable over time. C) the money multiplier is fairly constant no matter what changes are made to the monetary base. D) the money multiplier has a trend rate of growth that is fairly constant.

B) the money multiplier is unstable over time.

If required reserves are expressed by RR; the required reserve rate by rD and deposits by D, the simple deposit expansion multiplier is expressed as: A) RD × D. B) RR × D. C) 1/rD. D) (1/rD ) D.

C) 1/rD. D)

If the required reserve rate is ten percent and banks do not hold any excess reserves and there are no changes in currency holdings, a $1 million open market purchase by the Fed will result in what change in loans? A) An increase of $1 million B) A decrease of $1 million C) An increase of $10 million D) No change

C) An increase of $10 million

If M = the quantity of money, m, the money multiplier, MB, the Monetary Base, C = Currency, D = Deposits, R = Reserves, RR = required reserves, and ER = Excess reserves, then C + R would equal: 24) A) ER. B) M. C) MB. D) R

C) MB.

An open market sale of U.S. Treasury securities by the Fed will cause the Fed's balance sheet to show: A) an increase in the liability of reserves. B) an increase in the asset category of securities and the liability category of reserves. C) a decrease in the asset of securities and a decrease in the liability of reserves. D) no change in the size of the balance sheet, just the composition of assets will change from securities to cash.

C) a decrease in the asset of securities and a decrease in the liability of reserves.

The monetary base is the sum of: A) M1 and reserves. B) currency in the hands of the public, reserves and M1. C) currency in the hands of the public and reserves in the banking system. D) reserves and M2.

C) currency in the hands of the public and reserves in the banking system.

If we assume a ten percent required reserve rate, and banks not holding any excess reserves and no change in currency holdings, an open market sale of $5 million of U.S. Treasury securities by the Fed, will result in deposits: A) increasing by $50 million. B) not changing. C) decreasing by $50 million. D) increasing by $5 million.

C) decreasing by $50 million.

In the U.S., loans made by Federal Reserve to banks fall in the categories of: A) discount loans and reserves. B) discount loans and foreign exchange reserves. C) discount loans. D) reserves.

C) discount loans.

Assume that the required reserve rate is ten percent, banks want to hold excess reserves in an amount that equals three percent of deposits, and the public withdraws ten percent of every deposit in cash. An open market purchase of $1 million by the Fed will see banking system deposits increase by: A) less than $1 million. B) more than $10 million but less than $20 million. C) more than $1 million but less than $10 million. D) exactly $1 million.

C) more than $1 million but less than $10 million.

An open market sale of U.S. Treasury securities by the Fed will cause the Banking System's balance sheet to show: A) only a decrease in assets. B) only an increase in liabilities. C) no net change in assets or liabilities, only a change in the composition of assets with securities increasing and reserves decreasing. D) no net change in assets or liabilities, only a change in the composition of assets with securities decreasing and reserves increasing.

C) no net change in assets or liabilities, only a change in the composition of assets with securities increasing and reserves decreasing.

A liability of the central bank in functioning as the bankers' bank is: A) securities. B) currency. C) loans. D) accounts of commercial banks.

D) accounts of commercial banks.

Which of the following best completes the statement? If people increase their currency holdings, all else the same, the monetary base: A) decreases as does the quantity of M2. B) increases as does the quantity of M2. C) does not change and neither does M2. D) does not change but the quantity of M2 will decrease.

D) does not change but the quantity of M2 will decrease.

The simple deposit expansion multiplier is really too simple for understanding the link between changes in a central bank's balance sheet and the quantity of money in the economy because it: A) ignores changes in vault cash. B) assumes banks hold excess reserves. C) ignores how central banks could change their balance sheet. D) ignores the fact people might change their currency holdings.

D) ignores the fact people might change their currency holdings.

A central bank's purchase of securities made by writing checks on itself will: A) decrease the size of its balance sheet. B) have no impact at all on the balance sheet. C) only change the composition of its assets. D) increase the size of their balance sheet.

D) increase the size of their balance sheet.

During the 2007-2009 financial crisis which of the following temporarily became the largest component of assets on the Fed's balance sheet: A) foreign exchange reserves. B) loans. C) U.S. Treasury securities. D) mortgage backed securities.

D) mortgage backed securities.

As a portion of total assets measured in billions of dollars, the most important asset on the Fed's balance sheet is: A) loans. B) foreign exchange reserves. C) gold. D) securities.

D) securities.