Econ Part 4 - Ch 16, 17, 18, 19

Everything else held constant, in the market for reserves, when the demand for federal funds intersects the reserve supply curve along the horizontal section, increasing the discount rate A) increases the federal funds rate. B) lowers the federal funds rate. C) has no effect on the federal funds rate. D) has an indeterminate effect of the federal funds rate.

A) increases the federal funds rate. (Ch. 18)

When the Federal Reserve purchases a government bond from a bank, reserves in the banking system ________ and the monetary base ________, everything else held constant. A) increase; increases B) increase; decreases C) decrease; increases D) decrease; decreases

A) increases; increases (Ch. 17)

In the market for reserves, an open market purchase ________ the ________ of reserves which causes the federal funds rate to fall, everything else held constant. A) increases; supply B) increases; demand C) decreases; supply D) decreases; demand

A) increases; supply (Ch. 18)

Price stability is desirable because A) inflation creates uncertainty, making it difficult to plan for the future. B) everyone is better off when prices are stable. C) price stability increases the profitability of the Fed. D) it guarantees full employment.

A) inflation creates uncertainty, making it difficult to plan for the future. (Ch. 19)

The time-inconsistency problem with monetary policy tells us that, if policymakers use discretionary policy, there is a higher probability that the ________ will be higher, compared to policy makers following a behavior rule. A) inflation rate B) unemployment rate C) interest rate D) foreign exchange rate

A) inflation rate (Ch. 19)

If the required reserve ratio is equal to 10 percent, a single bank can increase its loans up to a maximum amount equal to A) its excess reserves. B) 10 times its excess reserves. C) 10 percent of its excess reserves. D) its total reserves.

A) its excess reserves (Ch. 17)

Everything else held constant, in the market for reserves, when the federal funds rate is 5%, lowering the discount rate from 5% to 4% A) lowers the federal funds rate. B) raises the federal funds rate. C) has no effect on the federal funds rate. D) has an indeterminate effect on the federal funds rate.

A) lowers the federal funds rate. (Ch. 18)

The formula for the M1 money multiplier is A) m = (1 + c)/(r + e + c). B) M = 1/(r + e + c). C) M=(1+c)/(r+e+c). D) m = [1/(r + e + c)] × MB.

A) m = (1 + c)/(r + e + c). (Ch. 17)

The ratio that relates the change in the money supply to a given change in the monetary base is called the A) money multiplier. B) required reserve ratio. C) deposit ratio. D) discount rate.

A) money multiplier (Ch. 17)

A bank has no excess reserves and demand deposit liabilities of $100,000 when the required reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, the bankʹs excess reserves will now be A) -$5,000. B) -$1,000. C) $1,000. D) $5,000.

A) -$5,000 (Ch. 17)

If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the excess reserves-checkable deposit ratio is A) 0.001. B) 0.10. C) 0.01. D) 0.05.

A) 0.001. (Ch. 17)

A simple deposit multiplier equal to one implies a required reserve ratio equal to A) 100 percent. B) 50 percent. C) 25 percent. D) 0 percent.

A) 100 percent (Ch. 17)

If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the M1 money multiplier is A) 2.5. B) 1.67. C) 2.0. D) 0.601.

A) 2.5. (Ch. 17)

If the required reserve ratio is 15 percent, currency in circulation is $400 billion, checkable deposits are $1000 billion, and excess reserves total $1 billion, then the M1 money multiplier is A) 2.54. B) 2.67. C) 2.35. D) 0.551.

A) 2.54. (Ch. 17)

If the required reserve ratio is 20 percent, the simple deposit multiplier is A) 5.0. B) 2.5. C) 4.0. D) 10.0.

A) 5.0 (Ch. 17)

The equation that shows the amount of the monetary base needed to support existing levels of checkable deposits, excess reserves, and currency is A) MB = (r × D) + ER + C. B) MB = (r + D) + ER + C. C)MB=Dr +ER+C. D) MB = (r × D) - ER - C.

A) MB = (r × D) + ER + C. (Ch. 17)

A nominal variable, such as the inflation rate or the money supply, which ties down the price level to achieve price stability is called ________ anchor. A) a nominal B) a real C) an operating D) an intermediate

A) a nominal (Ch. 19)

The Federal Reserve usually keeps the discount rate A) above the target federal funds rate. B) equal to the target federal funds rate. C) below the target federal funds rate. D) equal to zero.

A) above the target federal funds rate. (Ch. 18)

Funds held in ________ are subject to reserve requirements. A) all checkable deposits B) all checkable and time deposits C) all checkable, time, and money market fund deposits D) all time deposits

A) all checkable deposits (Ch. 18)

Having interest rate stability A) allows for less uncertainty about future planning. B) leads to demands to curtail the Fedʹs power. C) guarantees full employment. D) leads to problems in financial markets.

A) allows for less uncertainty about future planning. (Ch. 19)

The strongest argument for an independent Federal Reserve rests on the view that subjecting the Fed to more political pressures would impart A) an inflationary bias to monetary policy. B) a deflationary bias to monetary policy. C) a disinflationary bias to monetary policy. D) a countercyclical bias to monetary policy.

A) an inflationary bias to monetary policy (Ch. 16)

A central feature of monetary policy strategies in all countries is the use of a nominal variable that monetary policymakers use as an intermediate target to achieve an ultimate goal such as price stability. Such a variable is called a nominal A) anchor. B) benchmark. C) tether. D) guideline.

A) anchor. (Ch. 19)

Total Reserves minus vault cash equals A) bank deposits with the Fed. B) excess reserves. C) required reserves. D) currency in circulation.

A) bank deposits with the Fed (Ch. 17)

The research document given to the Federal Open Market Committee that contains information on the state of the economy in each Federal Reserve district is called the A) beige book. B) green book. C) blue book. D) black book.

A) beige book (Ch. 16)

If the central bank pursues a monetary policy that is more expansionary than what firms and people expect, then the central bank must be trying to A) boost output in the short run. B) constrain output in the short run. C) constrain prices. D) boost prices in the short run.

A) boost output in the short run. (Ch. 19)

Suppose that from a new checkable deposit, First National Bank holds eight million dollars on deposit with the Federal Reserve, nine million dollars in excess reserves, and faces a required reserve ratio of ten percent. Given this information, we can say First National Bank has ________ million dollars in required reserves. A) one B) two C) nine D) ten

A) one (Ch. 17)

Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and nine million dollars in excess reserves. Given this information, we can say First National Bank has ________ million dollars in required reserves. A) one B) two C) eight D) ten

A) one (Ch. 17)

Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, nine million dollars in excess reserves, and faces a required reserve ratio of ten percent. Given this information, we can say First National Bank has ________ million dollars in required reserves. A) one B) two C) eight D) ten

A) one (Ch. 17)

In the model of the money supply process, borrowers from banksʹ role in influencing the money supply is represented by A) only market interest rates. B) both the excess reserve ratio and the market interest rate. C) only the currency ratio. D) both borrowed reserves and the market interest rate.

A) only market interest rates. (Ch. 17)

The primary goal of the European Central Bank is A) price stability. B) exchange rate stability. C) interest rate stability. D) high employment.

A) price stability. (Ch. 19)

The discount rate refers to the interest rate on A) primary credit. B) secondary credit. C) seasonal credit. D) federal funds.

A) primary credit (Ch. 18)

Economists believe that countries recently suffering hyperinflation have experienced A) reduced growth. B) increased growth. C) reduced prices. D) lower interest rates.

A) reduced growth (Ch. 19)

Suppose your payroll check is directly deposited to your checking account. Everything else held constant, total reserves in the banking system ________ and the monetary base ________. A) remain unchanged; remains unchanged B) remain unchanged; increases C) decrease; increases D) decrease; decreases

A) remain unchanged; remains unchanged (Ch. 17)

Reserves are equal to the sum of A) required reserves and excess reserves. B) required reserves and vault cash reserves. C) excess reserves and vault cash reserves. D) vault cash reserves and total reserves.

A) required reserves and excess reserves (Ch. 17)

High-powered money minus currency in circulation equals A) reserves. B) the borrowed base. C) the nonborrowed base. D) discount loans.

A) reserves (Ch. 17)

The monetary base minus currency in circulation equals A) reserves. B) the borrowed base. C) the nonborrowed base. D) discount loans.

A) reserves (Ch. 17)

High unemployment is undesirable because it A) results in a loss of output. B) always increases inflation. C) always increases interest rates. D) reduces idle resources.

A) results in a loss of output. (Ch. 19)

In the market for reserves, an open market ________ the supply of reserves, raising the federal funds interest rate, everything else held constant. A) sale decreases B) sale increases C) purchase increases D) purchase decreases

A) sale decreases (Ch. 18)

Which of the following are duties of the Board of Governors of the Federal Reserve System? A) Setting margin requirements, the fraction of the purchase price of the securities that has to be paid for with cash B) Setting the maximum interest rates payable on certain types of time deposits under Regulation Q C) Regulating credit with the approval of the president under the Credit Control Act of 1969 D) All governors advise the president of the United States on economics policy.

A) setting margin requirements, the fraction of the purchase price f the securities that has to be paid for with cash (Ch. 16)

In the simple deposit expansion model, a decline in checkable deposits of $1,000 when the required reserve ratio is equal to 20 percent implies that the Fed A) sold $200 in government bonds. B) sold $500 in government bonds. C) purchased $200 in government bonds. D) purchased $500 in government bonds.

A) sold $200 in government bonds (Ch. 17)

The Fedʹs support of the Depository Institutions Deregulation and Monetary Control Act of 1980 stemmed in part from its A) concern over declining Fed membership. B) belief that all banking regulations should be eliminated. C) belief that interest rate ceilings were too high. D) belief that depositors had to become more knowledgeable of banking operations.

A) concern over declining Fed membership (Ch. 16)

The monetary base minus reserves equals A) currency in circulation. B) the borrowed base. C) the nonborrowed base. D) discount loans.

A) currency in circulation (Ch. 17)

Over short time periods, changes in the ________ can have a major impact on the money supply. A) currency ratio B) excess reserve ratio C) required reserve ratio D) borrowed base

A) currency ratio (Ch. 17)

In the market for reserves, a decline in the reserve requirement ________ the ________ curve of reserves and causes the federal funds interest rate to fall, everything else held constant. A) decreases; demand B) increases; demand C) increases; supply D) decreases; supply

A) decreases; demand (Ch. 18)

In the market for reserves, a decline in the reserve requirement ________ the demand of reserves, ________ the federal funds rate, everything else held constant. A) decreases; lowering B) increases; lowering C) increases; raising D) decreases; raising

A) decreases; lowering (Ch. 18)

The total amount of reserves in the banking system is equal to the ________ required reserves and excess reserves. A) sum of B) difference between C) product of D) ratio between

A) sum of (Ch. 17)

Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and nine million dollars in excess reserves. Given this information, we can say First National Bank faces a required reserve ratio of ________ percent. A) ten B) twenty C) eighty D) ninety

A) ten (Ch. 17)

Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and one million dollars in required reserves. Given this information, we can say First National Bank faces a required reserve ratio of ________ percent. A) ten B) twenty C) eighty D) ninety

A) ten (Ch. 17)

If reserves in the banking system increase by $100, then checkable deposits will increase by $2,000 in the simple model of deposit creation when the required reserve ratio is A) 0.01. B) 0.05. C) 0.10. D) 0.20.

B) 0.05 (Ch. 17)

If the required reserve ratio is one-third, currency in circulation is $300 billion, and checkable deposits are $900 billion, then the currency ratio is A) 0.25. B) 0.33. C) 0.67. D) 0.375.

B) 0.33. (Ch. 17)

If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the currency ratio is A) 0.25. B) 0.50. C) 0.40. D) 0.05.

B) 0.50. (Ch. 17)

The interest rate for primary credit is set ________ basis points ________ the federal funds rate. A) 50; below B) 100; above C) 100; below D) 50; above

B) 100; above (Ch. 18)

The Federal Reserve has had the authority to vary reserve requirements since the A) 1920ʹs. B) 1930ʹs. C) 1940ʹs. D) 1950ʹs.

B) 1930ʹs. (Ch. 18)

If the required reserve ratio is 5 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the M1 money multiplier is A) 2.5. B) 2.72. C) 2.3. D) 0.551.

B) 2.72. (Ch. 17)

If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $1000 billion, and excess reserves total $1 billion, then the M1 money multiplier is A) 2.5. B) 2.8. C) 2.0. D) 0.7.

B) 2.8. (Ch. 17)

A simple deposit multiplier equal to two implies a required reserve ratio equal to A) 100 percent. B) 50 percent. C) 25 percent. D) 0 percent.

B) 50 percent (Ch. 17)

There are ________ members of the Board of Governors of the Federal Reserve System. A) 5 B) 7 C) 12 D) 19

B) 7 (Ch. 16)

Recognizing the distinction between borrowed reserves and the nonborrowed monetary base, the money supply model is specified as A) M = m × (MBn - BR). B) M = m × (MBn + BR). C) M=m+(MBn-BR). D) M = m - (MBn + BR).

B) M = m × (MBn + BR). (Ch. 17)

The formula linking the money supply to the monetary base is A) M = m/MB. B) M = m × MB. C) m=M×MB. D) MB = M × m. E) M = m + MB.

B) M = m × MB. (Ch. 17)

The Federal Reserve Bank of ________ plays a special role in the Federal Reserve System because it houses the open market desk. A) Boston B) New York C) Chicago D) San Francisco

B) New York (Ch. 16)

Which of the following is NOT an entity of the Federal Reserve System? A) Federal Reserve Banks B) The Comptroller of the Currency C) The Board of Governors D) The Federal Open Market Committee

B) The Comptroller of the Currency (Ch. 16)

Everything else held constant, a decrease in the currency-checkable deposit ratio will mean A) an increase in currency in circulation and an increase in the money supply. B) an increase in money supply. C) a decrease in the money supply. D) an increase in currency in circulation but no change in the money supply.

B) an increase in money supply. (Ch. 17)

Everything else held constant, a decrease in the required reserve ratio on checkable deposits will mean A) a decrease in the money supply. B) an increase in the money supply. C) a decrease in checkable deposits. D) an increase in discount loans.

B) an increase in the money supply. (Ch. 17)

Discount policy affects the money supply by affecting the volume of ________ and the ________. A) excess reserves; monetary base B) borrowed reserves; monetary base C) excess reserves; money multiplier D) borrowed reserves; money multiplier

B) borrowed reserves; monetary base (Ch. 18)

In the model of the money supply process, the bankʹs role in influencing the money supply process is represented by A) only the excess reserve ratio. B) both the excess reserve ratio and the market interest rate. C) only the currency ratio. D) only borrowed reserves.

B) both the excess reserve ratio and the market interest rate. (Ch. 17)

The simple deposit multiplier can be expressed as the ratio of the A) change in reserves in the banking system divided by the change in deposits. B) change in deposits divided by the change in reserves in the banking system. C) required reserve ratio divided by the change in reserves in the banking system. D) change in deposits divided by the required reserve ratio.

B) change in deposits divided by the change in reserves in the banking system (Ch. 17)

An important function of the regional Federal Reserve Banks is A) setting reserve requirements. B) clearing checks. C) determining monetary policy. D) setting margin requirements.

B) clearing checks (Ch. 16)

High-powered money minus reserves equals A) reserves. B) currency in circulation. C) the monetary base. D) the nonborrowed base.

B) currency in circulation (Ch. 17)

The monetary liabilities of the Federal Reserve include A) government securities and discount loans. B) currency in circulation and reserves. C) government securities and reserves. D) currency in circulation and discount loans.

B) currency in circulation and reserves (Ch. 17)

Both ________ and ________ are monetary liabilities of the Fed. A) government securities; discount loans B) currency in circulation; reserves C) government securities; reserves D) currency in circulation; discount loans

B) currency in circulation; reserves (Ch. 17)

What makes the Federal Reserve so unique compared to other central banks around the world is its A) centralized structure. B) decentralized structure. C) regulatory functions. D) monetary policy functions.

B) decentralized structure (Ch. 16)

Assuming initially that r = 15%, c = 40%, and e = 5%, an increase in e to 10% causes the M1 money multiplier to _____, everything else held constant. A) increase from 2.15 to 2.33 B) decrease from 2.33 to 2.15 C) increase from 1.54 to 1.67 D) decrease from 1.67 to 1.54

B) decrease from 2.33 to 2.15 (Ch. 17)

Assuming initially that r = 10%, c = 40%, and e = 0, an increase in c to 50% causes the M1 money multiplier to _____, everything else held constant. A) increase from 2.5 to 2.8 B) decrease from 2.8 to 2.5 C) increase from 2.33 to 2.8 D) decrease from 2.8 to 2.33

B) decrease from 2.8 to 2.5 (Ch. 17)

Assuming initially that r = 10%, c = 40%, and e = 0, an increase in r to 15% causes the M1 money multiplier to _____, everything else held constant. A) increase from 2.55 to 2.8 B) decrease from 2.8 to 2.55 C) increase from 1.82 to 2 D) decrease from 2 to 1.82

B) decrease from 2.8 to 2.55 (Ch. 17)

Suppose on any given day there is an excess demand of reserves in the federal funds market. If the Federal Reserve wishes to keep the federal funds rate at its current level, then the appropriate action for the Federal Reserve to take is a ________ open market ________, everything else held constant. A) defensive; sale B) defensive; purchase C) dynamic; sale D) dynamic; purchase

B) defensive; purchase (Ch. 18)

When banks borrow money from the Federal Reserve, these funds are called A) federal funds. B) discount loans. C) federal loans. D) Treasury funds.

B) discount loans (Ch. 17)

Everything else held constant, the vertical section of the supply curve of reserves is shortened when the A) discount rate increases. B) discount rate decreases. C) federal funds rate rises. D) federal funds rate falls.

B) discount rate decreases (Ch. 18)

The mandate for the monetary policy goals that has been given to the Federal Reserve System is an example of a ________ mandate. A) primary B) dual C) secondary D) hierarchical

B) dual (Ch. 19)

The political business cycle refers to the phenomenon that just before elections, politicians enact _________ policies. After the elections, the bad effects of these policies (for example, ________ ) have to be counteracted with ________ policies. A) expansionary; higher unemployment; contractionary B) expansionary; a higher inflation rate; contractionary C) contractionary; higher unemployment; expansionary D) contractionary; a higher inflation rate; expansionary

B) expansionary; a higher inflation rate; contractionary (Ch. 16)

Member commercial banks have purchased stock in their district Fed banks; the dividend paid by that stock is limited by law to ________ percent annually. A) four B) five C) six D) eight

B) five (Ch. 16)

An increase in ________ leads to an equal ________ in the monetary base in the short run. A) float; decrease B) float; increase C) discount loans; decrease D) Treasury deposits at the Fed; increase

B) float; increase (Ch. 17)

Suppose on any given day there is an excess supply of reserves in the federal funds market. If the Federal Reserve wishes to keep the federal funds rate at its current level, then the appropriate action for the Federal Reserve to take is a ________ open market ________, everything else held constant. A) defensive; sale B) defensive; purchase C) dynamic; sale D) dynamic; purchase

A) defensive; sale (Ch. 18)

Everything else held constant, the vertical section of the supply curve of reserves is lengthened when the A) discount rate increases. B) discount rate decreases. C) federal funds rate rises. D) federal funds rate falls.

A) discount rate increases. (Ch. 18)

Total reserves are the sum of ________ and ________. A) excess reserves; borrowed reserves. B) required reserves; currency in circulation C) vault cash; excess reserves D) excess reserves; required reserves

A) excess reserves; borrowed reserves (Ch. 17)

The Fed can exert more precise control over ________ than it can over ________. A) high-powered money; reserves B) high-powered money; the monetary base C) the monetary base; high-powered money D) reserves; high-powered money

A) high-powered money; reserves (Ch. 17)

When the Fed buys $100 worth of bonds from First National Bank, reserves in the banking system A) increase by $100. B) increase by more than $100. C) decrease by $100. D) decrease by more than $100.

A) increase by $100 (Ch. 17)

When the Fed extends a $100 discount loan to the First National Bank, reserves in the banking system A) increase by $100. B) increase by more than $100. C) decrease by $100. D) decrease by more than $100.

A) increase by $100 (Ch. 17)

When workers voluntarily leave work while they look for better jobs, the resulting unemployment is called A) structural unemployment. B) frictional unemployment. C) cyclical unemployment. D) underemployment.

B) frictional unemployment. (Ch. 19)

The ability of a central bank to set monetary policy goals is A) political independence. B) goal independence. C) policy independence. D) instrument independence.

B) goal independence (Ch. 16)

The research document given to the Federal Open Market Committee that contains the forecast of national economic variables for the next two years is called the A) beige book. B) green book. C) blue book. D) black book.

B) green book (Ch. 16)

Assuming initially that r = 15%, c = 40%, and e = 5%, a decrease in e to 0% causes the M1 money multiplier to _____, everything else held constant. A) increase from 2.33 to 2.55 B) decrease from 2.55 to 2.33 C) increase from 1.67 to 1.82 D) decrease from 1.82 to 1.67

A) increase from 2.33 to 2.55 (Ch. 17)

Assuming initially that r = 10%, c = 40%, and e = 0, a decrease in r to 5% causes the M1 money multiplier to _____, everything else held constant. A) increase from 2.8 to 3.11 B) decrease from 3.11 to 2.8 C) increase from 2 to 2.22 D) decrease from 2.22 to 2

A) increase from 2.8 to 3.11 (Ch. 17)

Assuming initially that r = 10%, c = 40%, and e = 0, an decrease in c to 30% causes the M1 money multiplier to _____, everything else held constant. A) increase from 2.8 to 3.25 B) decrease from 3.25 to 2.8 C) increase from 2.8 to 3.5 D) decrease from 3.5 to 2.8

A) increase from 2.8 to 3.25 (Ch. 17)

When a bank sells a government bond to the Federal Reserve, reserves in the banking system ________ and the monetary base ________, everything else held constant. A) increase; increases B) increase; decreases C) decrease; increases D) decrease; decreases

A) increase; increases (Ch. 17)

During the bank panics of the Great Depression the currency ratio A) increased sharply. B) decreased sharply. C) increased slightly. D) decreased slightly.

A) increased sharply. (Ch. 17)

During the bank panics of the Great Depression the excess reserve ratio A) increased sharply. B) decreased sharply. C) increased slightly. D) decreased slightly.

A) increased sharply. (Ch. 17)

An assumption in the model of the money supply process is that the desired levels of currency and excess reserves A) are given as constants. B) grow proportionally with checkable deposits. C) grow proportionally with high-powered money. D) grow proportionally over time.

B) grow proportionally with checkable deposits. (Ch. 17)

The Second Bank of the United States A) was disbanded in 1811 when its charter was not renewed. B) had its charter renewal vetoed in 1832. C) is considered to be the primary cause of the bank panic of 1907. D) None of the above.

B) had its charter renewal vetoed in 1832 (Ch. 16)

The effect of an open market purchase on reserves differs depending on how the seller of the bonds keeps the proceeds. If the proceeds are kept in currency, the open market purchase ________ reserves; if the proceeds are kept as deposits, the open market purchase ________ reserves. A) has no effect on; has no effect on B) has no effect on; increases C) increases; has no effect on D) decreases; increases

B) has no effect on; increases (Ch. 17)

When an individual sells a $100 bond to the Fed, she may either deposit the check she receives or cash it for currency. In both cases A) reserves increase. B) high-powered money increases. C) reserves decrease. D) high-powered money decreases.

B) high-powered money increases (Ch. 17)

Every thing else held constant, a decrease in the excess reserves ratio causes the M1 money multiplier to _____ and the money supply to _____. A) decrease; increase B) increase; increase C) decrease; decrease D) increase; decrease

B) increase; increase (Ch. 17)

Everything else held constant, a decrease in the currency ratio causes the M1 money multiplier to _____ and the money supply to _____. A) decrease; increase B) increase; increase C) decrease; decrease D) increase; decrease

B) increase; increase (Ch. 17)

Everything else held constant, a decrease in the required reserve ratio on checkable deposits causes the M1 money multiplier to _____ and the money supply to _____. A) decrease; increase B) increase; increase C) decrease; decrease D) increase; decrease

B) increase; increase (Ch. 17)

When the Fed supplies the banking system with an extra dollar of reserves, deposits ________ by ________ than one dollar -- a process called multiple deposit creation. A) increase; less B) increase; more C) decrease; less D) decrease; more

B) increase; more (Ch. 17)

In the market for reserves, an increase in the reserve requirement ________ the ________ for reserves and causes the federal funds interest rate to rise, everything else held constant. A) decreases; demand B) increases; demand C) increases; supply D) decreases; supply

B) increases; demand (Ch. 18)

In the market for reserves, an open market purchase ________ the supply of reserves and causes the federal funds interest rate to ________, everything else held constant. A) decreases; fall B) increases; fall C) increases; rise D) decreases; rise

B) increases; fall (Ch. 18)

The theory of bureaucratic behavior when applied to the Fed helps to explain why the Fed A) is supportive of congressional attempts to limit the central bankʹs autonomy. B) is so secretive about the conduct of future monetary policy. C) sought less control over banks in the 1980s. D) is willing to take on powerful groups that may threaten its autonomy.

B) is supportive of congressional attempts to limit the central bank's autonomy (Ch. 16)

A financial panic was averted in October 1987 following ʺBlack Mondayʺ when the Fed announced that A) it was lowering the discount rate. B) it would provide discount loans to any bank that would make loans to the security industry. C) it stood ready to purchase common stocks to prevent a further slide in stock prices. D) it was raising the discount rate.

B) it would provide discount loans to any bank that would make loans to the security industry. (Ch. 18)

Everything else held constant, in the market for reserves, when the federal funds rate equals the discount rate, lowering the discount rate A) increases the federal funds rate. B) lowers the federal funds rate. C) has no effect on the federal funds rate. D) has an indeterminate effect of the federal funds rate.

B) lowers the federal funds rate. (Ch. 18)

When the Fed supplies the banking system with an extra dollar of reserves, deposits increase by more than one dollara process called A) extra deposit creation. B) multiple deposit creation. C) expansionary deposit creation. D) stimulative deposit creation.

B) multiple deposit creation (Ch. 17)

All ________ are required to be members of the Fed. A) state chartered banks B) nationally chartered banks C) banks with assets less than $100 million D) banks with assets less than $500 million

B) nationally chartered banks (Ch. 16)

The amount of borrowed reserves is ________ related to the discount rate, and is ________ related to the market interest rate. A) negatively; negatively B) negatively; positively C) positively; negatively D) positively; positively

B) negatively; positively (Ch. 17)

The money supply is _____ related to expected deposit outflows, and is _____ related to the market interest rate. A) negatively; negatively B) negatively; positively C) positively; negatively D) positively; positively

B) negatively; positively (Ch. 17)

Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and one million dollars in required reserves. Given this information, we can say First National Bank has ________ million dollars in excess reserves. A) three B) nine C) ten D) eleven

B) nine (Ch. 17)

The quantity of reserves supplied equals A) nonborrowed reserves minus borrowed reserves. B) nonborrowed reserves plus borrowed reserves. C) required reserves plus borrowed reserves. D) total reserves minus required reserves.

B) nonborrowed reserves plus borrowed reserves. (Ch. 18)

An increase in the monetary base that goes into currency is ________, while an increase that goes into deposits is ________. A) multiplied; multiplied B) not multiplied; multiplied C) multiplied; not multiplied D) not multiplied; not multiplied

B) not multiplied; multiplied (Ch. 17)

Each governor on the Board of Governors can serve A) only one nonrenewable fourteen-year term. B) one full nonrenewable fourteen-year term plus part of another term. C) only one nonrenewable eight-year term. D) one full nonrenewable eight-year term plus part of another term.

B) one full nonrenewable fourteen-year term plus part of another term (Ch. 16)

The Fed uses three policy tools to manipulate the money supply: ________, which affect reserves and the monetary base; changes in ________, which affect the monetary base; and changes in ________, which affect the money multiplier. A) open market operations; borrowed reserves; margin requirements B) open market operations; borrowed reserves; reserve requirements C) borrowed reserves; open market operations; margin requirements D) borrowed reserves; open market operations; reserve requirements

B) open market operations; borrowed reserves; reserve requirements (Ch. 18)

The most important advantage of discount policy is that the Fed can use it to A) precisely control the monetary base. B) perform its role as lender of last resort. C) control the money supply. D) punish banks that have deficient reserves.

B) perform its role as lender of last resort. (Ch. 18)

Either a dual or hierarchial mandate is acceptable as long as ________ is the primary goal in the ________. A) price stability; short run B) price stability; long run C) reducing business-cycle fluctuations; short run D) reducing business-cycle fluctuations; long run

B) price stability; long run (Ch. 19)

The most common type of discount lending, ________ credit loans, are intended to help healthy banks with short-term liquidity problems that often result from temporary deposit outflows. A) secondary B) primary C) temporary D) seasonal

B) primary (Ch. 18)

The Federal Reserve System was created to A) make it easier to finance budget deficits. B) promote financial market stability. C) lower the unemployment rate. D) promote rapid economic growth.

B) promote financial market stability. (Ch. 19)

Suppose, at a given federal funds rate, there is an excess demand for reserves in the federal funds market. If the Fed wants the federal funds rate to stay at that level, then it should undertake an open market ________ of bonds, everything else held constant. If the Fed does nothing, however, the federal funds rate will ________. A) sale; increase B) purchase; increase C) sale; decrease D) purchase; decrease

B) purchase; increase (Ch. 18)

If a person selling bonds to the Fed cashes the Fedʹs check, then reserves ________ and currency in circulation ________, everything else held constant. A) remain unchanged; declines B) remain unchanged; increases C) decline; remains unchanged D) increase; remains unchanged

B) remain unchanged; increases (Ch. 17)

The percentage of deposits that banks must hold in reserve is the A) excess reserve ratio. B) required reserve ratio. C) total reserve ratio. D) currency ratio.

B) required reserve ratio (Ch. 17)

The amount of deposits that banks must hold in reserve is A) excess reserves. B) required reserves. C) total reserves. D) vault cash.

B) required reserves (Ch. 17)

A decrease in ________ increases the money supply since it causes the ________ to rise. A) reserve requirements; monetary base B) reserve requirements; money multiplier C) margin requirements; monetary base D) margin requirements; money multiplier

B) reserve requirements; money multiplier (Ch. 18)

An increase in ________ reduces the money supply since it causes the ________ to fall. A) reserve requirements; monetary base B) reserve requirements; money multiplier C) margin requirements; monetary base D) margin requirements; money multiplier

B) reserve requirements; money multiplier (Ch. 18)

All else constant, a rise in market interest rates leads to a A) rise in excess reserves and a rise in the money supply. B) rise in borrowed reserves and a rise in the money supply. C) fall in excess reserves and a fall in the money supply. D) fall in borrowed reserves and a rise in the money supply.

B) rise in borrowed reserves and a rise in the money supply. (Ch. 17)

In the market for reserves, a ________ in the reserve requirement ________ the demand for reserves, raising the federal funds interest rate, everything else held constant. A) rise; decreases B) rise; increases C) decline; increases D) decline; decreases

B) rise; increases (Ch. 18)

Which of the following are not current duties of the Board of Governors of the Federal Reserve System? A) Setting margin requirements, the fraction of the purchase price of the securities that has to be paid for with cash B) Setting the maximum interest rates payable on certain types of time deposits under Regulation Q C) Approving the discount rate ʺestablishedʺ by the Federal Reserve banks D) Representing the United States in negotiations with foreign governments on economic matters

B) setting the maximum interest rates payable on certain types of time deposits under regulation Q (Ch. 16)

In the simple model of multiple deposit creation in which banks do not hold excess reserves, the increase in checkable deposits equals the product of the change in excess reserves and the A) reciprocal of the excess reserve ratio. B) simple deposit expansion multiplier. C) reciprocal of the simple deposit multiplier. D) discount rate.

B) simple deposit expansion multiplier (Ch. 17)

In the simple deposit expansion model, a decline in checkable deposits of $500 when the required reserve ratio is equal to 20 percent implies that the Fed A) sold $250 in government bonds. B) sold $100 in government bonds. C) sold $50 in government bonds. D) purchased $100 in government bonds.

B) sold $100 in government bonds (Ch. 17)

In the simple deposit expansion model, a decline in checkable deposits of $500 when the required reserve ratio is equal to 10 percent implies that the Fed A) sold $500 in government bonds. B) sold $50 in government bonds. C) purchased $50 in government bonds. D) purchased $500 in government bonds.

B) sold $50 in government bonds (Ch. 17)

In the simple deposit expansion model, a decline in checkable deposits of $1,000 when the required reserve ratio is equal to 10 percent implies that the Fed A) sold $1,000 in government bonds. B) sold $100 in government bonds. C) purchased $1,000 in government bonds. D) purchased $100 in government bonds.

B) sold in $100 government bonds (Ch. 17)

Unemployment resulting from a mismatch of workersʹ skills and job requirements is called A) frictional unemployment. B) structural unemployment. C) seasonal unemployment. D) cyclical unemployment.

B) structural unemployment. (Ch. 19)

Which of the following is an entity of the Federal Reserve System? A) The U.S. Treasury Secretary B) The FOMC C) The Comptroller of the Currency D) The FDIC

B) the FOMC (Ch. 16)

Of the four players in the money supply process, most observers agree that the most important player is A) the United States Treasury. B) the Federal Reserve System. C) the FDIC. D) the Office of Thrift Supervision.

B) the Federal Reserve System (Ch. 17)

The primary indicator of the Fedʹs stance on monetary policy is A) the discount rate. B) the federal funds rate. C) the growth rate of the monetary base. D) the growth rate of M2.

B) the federal funds rate. (Ch. 18)

Prior to 1980, member banks left the Federal Reserve System due to A) the high cost of discount loans. B) the high cost of required reserves. C) a desire to avoid interest rate regulations. D) a desire to avoid credit controls.

B) the high cost of required reserves (Ch. 16)

An increase in the nonborrowed monetary base, everything else held constant, will cause: A) the money supply to fall. B) the money supply to rise. C) no change in the money supply. D) demand deposits to fall.

B) the money supply to rise. (Ch. 17)

Members of the Board of Governors are A) chosen by the Federal Reserve Bank presidents. B) appointed by the newly elected president of the United States, as are cabinet positions. C) appointed by the president of the United States and confirmed by the Senate as members resign. D) never allowed to serve more than 7-year terms.

C) appointed by the president by the president of United States and confirmed by Senate as the members resign (Ch. 16)

The four players in the money supply process include A) banks, depositors, borrowers, and the U.S. Treasury. B) banks, depositors, the central bank, and the U.S. Treasury. C) banks, depositors, the central bank, and borrowers. D) banks, borrowers, the central bank, and the U.S. Treasury.

C) bank, depositors, the central bank, borrowers (Ch. 17)

The research document given to the Federal Open Market Committee that contains forecasts of the money aggregates conditional on different monetary policy stances is called the A) beige book. B) green book. C) blue book. D) black book.

C) blue book (Ch. 16)

The Fed does not tightly control the monetary base because it does not completely control A) open market purchases. B) open market sales. C) borrowed reserves. D) the discount rate.

C) borrowed reserves. (Ch. 17)

The monetary base consists of A) currency in circulation and Federal Reserve notes. B) currency in circulation and the U.S. Treasuryʹs monetary liabilities. C) currency in circulation and reserves. D) reserves and Federal Reserve Notes.

C) currency in circulation (Ch. 17)

The effect of an open market purchase on reserves differs depending on how the seller of the bonds keeps the proceeds. If the proceeds are kept in ________, the open market purchase has no effect on reserves; if the proceeds are kept as ________, reserves increase by the amount of the open market purchase. A) deposits; deposits B) deposits; currency C) currency; deposits D) currency; currency

C) currency; deposits (Ch. 17)

Decisions by depositors to increase their holdings of ________, or of banks to hold excess reserves will result in a ________ expansion of deposits than the simple model predicts. A) deposits; smaller B) deposits; larger C) currency; smaller D) currency; larger

C) currency; smaller (Ch. 17)

In the market for reserves, a ________ in the reserve requirement decreases the demand for reserves, ________ the federal funds interest rate, everything else held constant. A) rise; lowering B) decline; raising C) decline; lowering D) rise; raising

C) decline; lowering (Ch. 18)

All else the same, when the Fed calls in a $100 discount loan previously extended to the First National Bank, reserves in the banking system A) increase by $100. B) increase by more than $100. C) decrease by $100. D) decrease by more than $100.

C) decrease by $100 (Ch. 17)

When the Fed sells $100 worth of bonds to First National Bank, reserves in the banking system A) increase by $100. B) increase by more than $100. C) decrease by $100. D) decrease by more than $100.

C) decrease by $100 (Ch. 17)

Everything else hed constant, an increase in the required reserve ratio on checkable deposits causes the M1 money multiplier to _____ and the money supply to _____. A) decrease; increase B) increase; increase C) decrease; decrease D) increase; decrease

C) decrease; decrease (Ch. 17)

Everything else held constant, an increase in the currency ratio causes the M1 money multiplier to _____ and the money supply to _____. A) decrease; increase B) increase; decrease C) decrease; decrease D) increase; increase

C) decrease; decrease (Ch. 17)

Everything else held constant, an increase in the excess reserves ratio causes the M1 money multiplier to _____ and the money supply to _____. A) decrease; increase B) increase; increase C) decrease; decrease D) increase; decrease

C) decrease; decrease (Ch. 17)

Suppose a person cashes his payroll check and holds all the funds in the form of currency. Everything else held constant, total reserves in the banking system _________ and the monetary base ________. A) remain unchanged; increases B) decrease; increases C) decrease; remains unchanged D) decrease; decreases

C) decrease; remains unchanged (Ch. 17)

When the Federal Reserve calls in a discount loan from a bank, the monetary base ________ and reserves ________. A) remains unchanged; decrease B) remains unchanged; increase C) decreases; decrease D) decreases; remains unchanged

C) decreases; decrease (Ch. 17)

In the market for reserves, an open market sale ________ the ________ of reserves, causing the federal funds rate to increase, everything else held constant. A) increases; supply B) increases; demand C) decreases; supply D) decreases; demand

C) decreases; supply (Ch. 18)

Individuals that lend funds to a bank by opening a checking account are called A) policyholders. B) partners. C) depositors. D) debt holders.

C) depositors (Ch. 17)

The interest rate the Fed charges banks borrowing from the Fed is the A) federal funds rate. B) Treasury bill rate. C) discount rate. D) prime rate.

C) discount rate (Ch. 17)

Suppose on any given day the prevailing equilibrium federal funds rate is below the Federal Reserveʹs federal funds target rate. If the Federal Reserve wishes for the federal funds rate to be at their target level, then the appropriate action for the Federal Reserve to take is a ________ open market ________, everything else held constant. A) defensive; sale B) defensive; purchase C) dynamic; sale D) dynamic; purchase

C) dynamic; sale (Ch. 18)

The Federal Open Market Committee usually meets ________ times a year. A) four B) six C) eight D) twelve

C) eight (Ch. 16)

Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, nine million dollars in excess reserves, and faces a required reserve ratio of ten percent. Given this information, we can say First National Bank has ________ million dollars on deposit with the Federal Reserve. A) one B) two C) eight D) ten

C) eight (Ch. 17)

Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, one million dollars in required reserves, and faces a required reserve ratio of ten percent. Given this information, we can say First National Bank has ________ million dollars on deposit with the Federal Reserve. A) one B) two C) eight D) ten

C) eight (Ch. 17)

The interest rate charged on overnight loans of reserves between banks is the A) prime rate. B) discount rate. C) federal funds rate. D) Treasury bill rate.

C) federal funds rate. (Ch. 18)

The Chairman of the Board of Governors is chosen from among the seven governors and serves a ________ term. A) one-year B) two-year C) four-year D) eight-year

C) four-year (Ch. 16)

Both ________ and ________ are Federal Reserve assets. A) currency in circulation; reserves B) currency in circulation; government securities C) government securities; discount loans D) government securities; reserves

C) government securities; discount loans (Ch. 17)

Everything else held constant, in the market for reserves, when the demand for federal funds intersects the reserve supply curve on the vertical section, increasing the discount rate A) increases the federal funds rate. B) lowers the federal funds rate. C) has no effect on the federal funds rate. D) has an indeterminate effect on the federal funds rate.

C) has no effect on the federal funds rate. (Ch. 18)

Everything else held constant, in the market for reserves, when the federal funds rate is 3%, raising the discount rate from 5% to 6% A) lowers the federal funds rate. B) raises the federal funds rate. C) has no effect on the federal funds rate. D) has an indeterminate effect on the federal funds rate.

C) has no effect on the federal funds rate. (Ch. 18)

The Federal Open Market Committeeʹs ʺbalance of risksʺ is an assessment of whether, in the future, its primary concern will be A) higher exchange rates or higher unemployment. B) higher inflation or a stronger economy. C) higher inflation or a weaker economy. D) lower inflation or a stronger economy.

C) higher inflation or a weaker economy (Ch. 16)

When the Federal Reserve extends a discount loan to a bank, the monetary base ________ and reserves ________. A) remains unchanged; decrease B) remains unchanged; increase C) increases; increase D) increases; remain unchanged

C) increases; increase (Ch. 17)

In the market for reserves, an increase in the reserve requirement ________ the demand for reserves, ________ the federal funds rate, everything else held constant. A) decreases; lowering B) increases; lowering C) increases; raising D) decreases; raising

C) increases; raising (Ch. 18)

In the market for reserves, an increase in the reserve requirement ________ the demand of reserves and causes the federal funds interest rate to ________, everything else held constant. A) decreases; fall B) increases; fall C) increases; rise D) decreases; rise

C) increases; rise (Ch. 18)

The theory that monetary policy conducted on a discretionary, day-by-day basis leads to poor long-run outcomes is referred to as the A) adverse selection problem. B) moral hazard problem. C) time-inconsistency problem. D) nominal-anchor problem.

C) time-inconsistency problem. (Ch. 19)

The formula that links checkable deposits to the money supply is A) M = (1 + c)/ D B)M= (1/(1+c))×D C)D= (1/(1+c))×M D) D = (1 + c) × M

C)D= (1/(1+c))×M (Ch. 17)

________ the Federal Reserve earn income while ________ the Federal Reserve cost nothing. A) Currency in circulation by; assets of B) Reserves of; assets of C) Liabilities of; assets of D) Assets of; liabilities of

D) Assets of; liabilities of (Ch. 17)

While the discount rate is ʺestablishedʺ by the regional Federal Reserve Banks, in truth, the rate is determined by A) Congress. B) the president of the United States. C) the Senate. D) the Board of Governors.

D) Board of Governors (Ch. 16)

The president from which Federal Reserve Bank always has a vote in the Federal Open Market Committee? A) Philadelphia B) Boston C) San Francisco D) New York

D) New York (Ch. 16)

The Depository Institutions Deregulation and Monetary Control Act of 1980 A) established higher reserve requirements for nonmember than for member banks. B) established higher reserve requirements for member than for nonmember banks. C) abolished reserve requirements. D) established uniform reserve requirements for all banks.

D) established uniform reserve requirements for all banks (Ch. 16)

If a member of the nonbank public purchases a government bond from the Federal Reserve in exchange for currency, the monetary base will ________, but reserves will ________. A) remain unchanged; rise B) remain unchanged; fall C) rise; remain unchanged D) fall; remain unchanged

D) fall; remain unchanged (Ch. 17)

The quantity of reserves demanded rises when the A) discount rate rises. B) discount rate falls. C) federal funds rate rises. D) federal funds rate falls.

D) federal funds rate falls. (Ch. 18)

Each Fed bank president attends FOMC meetings; although only ________ Fed bank presidents vote on policy, all ________ provide input. A) three; ten B) five; ten C) three; twelve D) five; twelve

D) five; twelve (Ch. 16)

The mandate for the monetary policy goals that has been given to the European Central Bank is an example of a ________ mandate. A) primary B) dual C) secondary D) hierarchical

D) hierarchical (Ch. 19)

Supply-side economic policies seek to A) raise interest rates through contractionary monetary policy. B) increase federal government expenditures. C) increase consumption expenditures by increasing taxes. D) increase saving and investment using tax incentives.

D) increase saving and investment using tax incentives. (Ch. 19)

If the Fed injects reserves into the banking system and they are held as excess reserves, then the monetary base ________ and the money supply ________. A) remains unchanged; remains unchanged B) remains unchanged; increases C) increases; increases D) increases; remains unchanged

D) increases; remains unchanged (Ch. 17)

The ability of a central bank to set monetary policy instruments is A) political independence. B) goal independence. C) policy independence. D) instrument independence.

D) instrumental independence (Ch. 16)

The most common definition that central bankers use for price stability is A) low and stable deflation. B) an inflation rate of zero percent. C) high and stable inflation. D) low and stable inflation.

D) low and stable inflation. (Ch. 19)

In the channel-corridor system A) control of the overnight interest rate is impossible. B) reserve requirements are essential for monetary control. C) the overnight rate always equals the Lombard rate. D) monetary control can be exercised with no required reserves.

D) monetary control can be exercised with no required reserves. (Ch. 18)

Over the long run the primary determinant of movements in the money supply is the A) currency ratio. B) excess reserves ratio. C) required reserve ratio. D) nonborrowed base.

D) nonborrowed base. (Ch. 17)

In the simple deposit expansion model, an expansion in checkable deposits of $1,000 when the required reserve ratio is equal to 10 percent implies that the Fed A) sold $1,000 in government bonds. B) sold $100 in government bonds. C) purchased $1000 in government bonds. D) purchased $100 in government bonds.

D) purchased $100 in government bonds (Ch. 17)

In the market for reserves, a ________ in the reserve requirement increases the demand for reserves, ________ the federal funds interest rate, everything else held constant. A) rise; lowering B) decline; raising C) decline; lowering D) rise; raising

D) rise; raising (Ch. 18)

If a member of the nonbank public sells a government bond to the Federal Reserve in exchange for currency, the monetary base will ________, but ________. A) remain unchanged; reserves will fall B) remain unchanged; reserves will rise C) rise; currency in circulation will remain unchanged D) rise; reserves will remain unchanged

D) rise; reserves will remain unchanged (Ch. 17)

A decrease in ________ leads to an equal ________ in the monetary base in the long run. A) float; increase B) float; decrease C) securities; increase D) securities; decrease

D) securities; decreases (Ch. 17)

Each Federal Reserve bank has nine directors. Of these ________ are appointed by the member banks and ________ are appointed by the Board of Governors. A) three; six B) four; five C) five; four D) six; three

D) six; three (Ch. 16)

While the discount rate is ʺestablishedʺ by the regional Federal Reserve Banks, in truth, the rate is determined by A) Congress. B) the president of the United States. C) the Senate. D) the Board of Governors.

D) the Senate (Ch. 16)

Instrument independence is the ability of ________ to set monetary policy ________. A) the central bank; goals B) Congress; goals C) Congress; instruments D) the central bank; instruments

D) the central bank; instruments (Ch. 16)

The opportunity cost of holding excess reserves is A) the discount rate. B) the prime rate. C) the Treasury bill rate. D) the federal funds rate.

D) the federal funds rate. (Ch. 18)

The sum of the Fedʹs monetary liabilities and the U.S. Treasuryʹs monetary liabilities is called A) the money supply. B) currency in circulation. C) bank reserves. D) the monetary base.

D) the monetary base (Ch. 17)

1) Models describing the determination of the money supply and the Fedʹs role in this process normally focus on ________ rather than ________, since Fed actions have a more predictable effect on the former. A) reserves; the monetary base B) reserves; high-powered money C) the monetary base; high-powered money D) the monetary base; reserves

D) the monetary base; reserves (Ch. 17)

The majority of members of the Federal Open Market Committee are A) Federal Reserve Bank presidents. B) members of the Federal Advisory Council. C) presidents of member banks. D) the seven Federal Reserve governors.

D) the seven Federal Reserve Governors (Ch. 16)

The monetary base declines when A) the Fed extends discount loans. B) Treasury deposits at the Fed decrease. C) float increases. D) the Fed sells securities.

D) treasury deposits at the fed decrease (Ch. 17)

The discount rate is ________ kept ________ the federal funds rate. A) always; below B) typically; below C) typically; equal to D) typically; above

D) typically; above (Ch. 18)

In the model of the money supply process, the Federal Reserveʹs role in influencing the money supply is represented by A) both the required reserve ratio and the market interest rate. B) the required reserve ratio, nonborrowed reserves, borrowed reserves, and the market interest rate. C) only borrowed reserves. D) only nonborrowed reserves.

B) the required reserve ratio, nonborrowed reserves, borrowed reserves, and the market interest rate. (Ch. 17)

When the federal funds rate equals the discount rate A) the supply curve of reserves is vertical. B) the supply curve of reserves is horizontal. C) the demand curve for reserves is vertical. D) the demand curve for reserves is horizontal.

B) the supply curve of reserves is horizontal. (Ch. 18)

The ________ problem of discretionary policy arises because economic behavior is influenced by what firms and people expect the monetary authorities to do in the future. A) moral hazard B) time-inconsistency C) nominal-anchor D) rational-expectation

B) time-inconsistency (Ch. 19)

Suppose that from a new checkable deposit, First National Bank holds eight million dollars on deposit with the Federal Reserve, nine million dollars in excess reserves, and faces a required reserve ratio of ten percent. Given this information, we can say First National Bank has ________ million dollars in vault cash. A) one B) two C) nine D) ten

B) two (Ch. 17)

Excess reserves are equal to A) total reserves minus discount loans. B) vault cash plus deposits with Federal Reserve banks minus required reserves. C) vault cash minus required reserves. D) deposits with the Fed minus vault cash plus required reserves.

B) vault cash plus deposits with Federal Reserve banks minus the required reserves (Ch. 17)

Everything else held constant, in the market for reserves, increases in the discount rate affect the federal funds rate A) when the funds rate is below the discount rate. B) when the funds rate equals the discount rate. C) when the demand for federal funds intersects the vertical section of the reserve supply curve. D) when the demand for federal funds equals zero.

B) when the funds rate equals the discount rate. (Ch. 18)

The formula for the simple deposit multiplier can be expressed as A) △R = 1r × △T B) △D = 1r × △R C) △r = R1 × △T D) △R = 1r × △D

B) △D = 1r × △R (Ch. 17)

In the simple deposit expansion model, if the Fed purchases $100 worth of bonds from a bank that previously had no excess reserves, deposits in the banking system can potentially increase by A) $10. B) $100. C) $100 times the reciprocal of the required reserve ratio. D) $100 times the required reserve ratio.

C) $100 times the reciprocal of the required reserve ratio (Ch. 17)

If the required reserve ratio is one-third, currency in circulation is $300 billion, and checkable deposits are $900 billion, then the money supply is A) $2700. B) $3000. C) $1200. D) $1800.

C) $1200. (Ch. 17)

If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $1000 billion, and excess reserves total $1 billion, then the money supply is A) $10,000. B) $4000. C) $1400. D) $10,400.

C) $1400. (Ch. 17)

If a bank has excess reserves of $5,000 and demand deposit liabilities of $80,000, and if the reserve requirement is 20 percent, then the bank has actual reserves of A) $11,000. B) $20,000. C) $21,000. D) $26,000.

C) $21,000 (Ch. 17)

If a bank has excess reserves of $10,000 and demand deposit liabilities of $80,000, and if the reserve requirement is 20 percent, then the bank has actual reserves of A) $16,000. B) $20,000. C) $26,000. D) $36,000.

C) $26,000 (Ch. 17)

If a bank has excess reserves of $15,000 and demand deposit liabilities of $80,000, and if the reserve requirement is 20 percent, then the bank has total reserves of A) $11,000. B) $21,000. C) $31,000. D) $41,000.

C) $31,000 (Ch. 17)

In the simple deposit expansion model, if the required reserve ratio is 20 percent and the Fed increases reserves by $100, checkable deposits can potentially expand by A) $100. B) $250. C) $500. D) $1,000.

C) $500 (Ch. 17)

A bank has excess reserves of $1,000 and demand deposit liabilities of $80,000 when the reserve requirement is 20 percent. If the reserve requirement is lowered to 10 percent, the bankʹs excess reserves will be A) $1,000. B) $8,000. C) $9,000. D) $17,000.

C) $9,000 (Ch. 17)

If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $1000 billion, and excess reserves total $1 billion, then the excess reserves-checkable deposit ratio is A) 0.01. B) 0.10. C) 0.001. D) 0.05.

C) 0.001. (Ch. 17)

If reserves in the banking system increase by $100, then checkable deposits will increase by $667 in the simple model of deposit creation when the required reserve ratio is A) 0.01. B) 0.05. C) 0.15. D) 0.20.

C) 0.15 (Ch. 17)

If reserves in the banking system increase by $200, then checkable deposits will increase by $500 in the simple model of deposit creation when the required reserve ratio is A) 0.04. B) 0.25. C) 0.40. D) 0.50.

C) 0.40 (Ch. 17)

If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $1000 billion, and excess reserves total $1 billion, then the currency ratio is A) 0.25. B) 0.50. C) 0.40. D) 0.05.

C) 0.40. (Ch. 17)

If the required reserve ratio is one-third, currency in circulation is $300 billion, and checkable deposits are $900 billion, then the M1 money multiplier is A) 2.5. B) 2.8. C) 2.0. D) 0.67.

C) 2.0. (Ch. 17)

If the required reserve ratio is 15 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the M1 money multiplier is A) 2.5. B) 1.67. C) 2.3. D) 0.651.

C) 2.3. (Ch. 17)

A simple deposit multiplier equal to four implies a required reserve ratio equal to A) 100 percent. B) 50 percent. C) 25 percent. D) 0 percent.

C) 25 percent (Ch. 17)

Of all commercial banks, about ________ percent belong to the Federal Reserve System. A) 15 B) 20 C) 33 D) 50

C) 33 (Ch. 16)

If the required reserve ratio is 25 percent, the simple deposit multiplier is A) 5.0. B) 2.5. C) 4.0. D) 10.0.

C) 4.0 (Ch. 17)

The three largest Federal Reserve banks (New York, Chicago, and San Francisco) combined hold more than ________ percent of the assets of the Federal Reserve System. A) 25 B) 33 C) 50 D) 67

C) 50 (Ch. 16)

The interest rate on secondary credit is set ________ basis points ________ the primary credit rate. A) 100; above B) 100; below C) 50; above D) 50; below

C) 50; above (Ch. 18)

If the required reserve ratio is 15 percent, the simple deposit multiplier is A) 15.0. B) 1.5. C) 6.67. D) 3.33.

C) 6.67 (Ch. 17)

The relationship between borrowed reserves, the nonborrowed monetary base, and the monetary base is A) MB = MBn - BR. B) BR = MBn - MB. C) BR=MB-MBn. D) MB = BR - MBn.

C) BR=MB-MBn. (Ch. 17)

Which set of goals can, at times, conflict in the short run? A) High employment and economic growth. B) Interest rate stability and financial market stability. C) High employment and price level stability. D) Exchange rate stability and financial market stability.

C) High employment and price level stability. (Ch. 19)

The Federal Reserve entity that makes decisions regarding the conduct of open market operations is the A) Board of Governors. B) chairman of the Board of Governors. C) Federal Open Market Committee. D) Open Market Advisory Council

C) The Federal Open Market Committee (Ch. 16)

Everything else held constant, an increase in the currency-checkable deposit ratio will mean A) an increase in currency in circulation and an increase in the money supply. B) an increase in money supply but no change in reserves. C) a decrease in the money supply. D) an increase in currency in circulation but no change in the money supply.

C) a decrease in the money supply. (Ch. 17)

At its inception, the Federal Reserve was intended to be A) the Treasuryʹs banker. B) the issuer of government debt. C) a lender-of-last-resort. D) a regulator of bank holding companies.

C) a lender-of-last-resort. (Ch. 18)

The formula that links checkable deposits to the monetary base is A)m= 1/(r+e+c) B)M= 1/(r+e+c ) C)M= (1+c)/(r+e+c) D)D= 1/(r+e+c) E) D = (1/(r+e+c))×MB

E) D = (1/(r+e+c))×MB (Ch. 17)

If a bank has excess reserves of $4,000 and demand deposit liabilities of $100,000, and if the reserve requirement is 10 percent, then the bank has actual reserves of A) $14,000. B) $19,000. C) $24,000. D) $29,000.

A) $14,000 (Ch. 17)

Even if the Fed could completely control the money supply, monetary policy would have critics because A) the Fed is asked to achieve many goals, some of which are incompatible with others. B) the Fedʹs goals do not include high employment, making labor unions a critic of the Fed. C) the Fedʹs primary goal is exchange rate stability, causing it to ignore domestic economic conditions. D) it is required to keep Treasury security prices high.

A) the Fed is asked to achieve many goals, some of which are incompatible with others. (Ch. 19)

The government agency that oversees the banking system and is responsible for the conduct of monetary policy in the United States is A) the Federal Reserve System. B) the United States Treasury. C) the U.S. Gold Commission. D) the House of Representatives.

A) the Federal Reserve System (Ch. 17)

The publicʹs fear of centralized power and distrust of moneyed interests led to the demise of the first two experiments in central banking: A) the First Bank of the United States and the Second Bank of the United States. B) the First Bank of the United States and the Central Bank of the United States. C) the First Central Bank of the United States and the Second Central Bank of the United States. D) the First Bank of North America and the Second Bank of North America.

A) the First Bank of the United states and the second bank of the united states (Ch. 16)

Goal independence is the ability of ________ to set monetary policy ________. A) the central bank; goals B) Congress; goals C) Congress; instruments D) the central bank; instruments

A) the central bank; goals (Ch. 16)

Critics of the current system of Fed independence contend that A) the current system is undemocratic. B) voters have too much say about monetary policy. C) the president has too much control over monetary policy on a day-to-day basis. D) the Board of Governors is held responsible for policy missteps.

A) the current system is undemocratic (Ch. 16)

The discount rate is A) the interest rate the Fed charges on loans to banks. B) the price the Fed pays for government securities. C) the interest rate that banks charge their most preferred customers. D) the price banks pay the Fed for government securities.

A) the interest rate the Fed charges on loans to banks. (Ch. 18)

Recent research indicates that inflation performance (low inflation) has been found to be best in countries with A) the most independent central banks. B) political control of monetary policy. C) money financing of budget deficits. D) a policy of always keeping interest rates low.

A) the most independent central banks (Ch. 16)

Suppose that from a new checkable deposit, First National Bank holds eight million dollars on deposit with the Federal Reserve, one million dollars in required reserves, and faces a required reserve ratio of ten percent. Given this information, we can say First National Bank has ________ million dollars in excess reserves. A) two B) eight C) nine D) ten

A) two (Ch. 17)

Total reserves minus bank deposits with the Fed equals A) vault cash. B) excess reserves. C) required reserves. D) currency in circulation.

A) vault cash (Ch. 17)

In the market for reserves, when the federal funds interest rate is below the discount rate, the supply curve of reserves is A) vertical. B) horizontal. C) positively sloped. D) negatively sloped.

A) vertical. (Ch. 18)

The First Bank of the United States A) was disbanded in 1811 when its charter was not renewed. B) had its charter renewal vetoed in 1832. C) was fundamental in helping the Federal Government finance the War of 1812. D) None of the above.

A) was disbanded in 1811 when its charter was not renewed (Ch. 16)

In the simple deposit expansion model, if the Fed purchases $100 worth of bonds from a bank that previously had no excess reserves, the bank can now increase its loans by A) $10. B) $100. C) $100 times the reciprocal of the required reserve ratio. D) $100 times the required reserve ratio.

B) $100 (Ch. 17)

In the simple deposit expansion model, if the Fed extends a $100 discount loan to a bank that previously had no excess reserves, the bank can now increase its loans by A) $10. B) $100. C) $100 times the reciprocal of the required reserve ratio. D) $100 times the required reserve ratio.

B) $100 (Ch. 17)

If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the money supply is A) $8000. B) $1200. C) $1200.8. D) $8400.

B) $1200. (Ch. 17)

If a bank has excess reserves of $7,000 and demand deposit liabilities of $100,000, and if the reserve requirement is 10 percent, then the bank has actual reserves of A) $14,000. B) $17,000. C) $22,000. D) $27,000.

B) $17,000 (Ch. 17)

If a bank has excess reserves of $4,000 and demand deposit liabilities of $100,000, and if the reserve requirement is 15 percent, then the bank has actual reserves of A) $17,000. B) $19,000. C) $24,000. D) $29,000.

B) $19,000 (Ch. 17)

If a bank has excess reserves of $7,000 and demand deposit liabilities of $100,000, and if the reserve requirement is 15 percent, then the bank has actual reserves of A) $17,000. B) $22,000. C) $27,000. D) $29,000.

B) $22,000 (Ch. 17)

If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the monetary base is A) $480 billion. B) $480.8 billion. C) $80 billion. D) $80.8 billion.

B) $480.8 billion. (Ch. 17)

A bank has excess reserves of $1,000 and demand deposit liabilities of $80,000 when the reserve requirement is 25 percent. If the reserve requirement is lowered to 20 percent, the bankʹs excess reserves will be A) $1,000. B) $5,000. C) $8,000. D) $9,000.

B) $5000 (Ch. 17)

If the required reserve ratio is one-third, currency in circulation is $300 billion, and checkable deposits are $900 billion, then the monetary base is A) $300 billion. B) $600 billion. C) $333 billion. D) $667 billion.

B) $600 billion. (Ch. 17)

A bank has excess reserves of $4,000 and demand deposit liabilities of $100,000 when the required reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, the bankʹs excess reserves will be A) -$5,000. B) -$1,000. C) $1,000. D) $5,000.

B) -$1,000 (Ch. 17)

If reserves in the banking system increase by $100, then checkable deposits will increase by $1000 in the simple model of deposit creation when the required reserve ratio is A) 0.01. B) 0.10. C) 0.05. D) 0.20.

B) .10 (Ch. 17)

A bank has excess reserves of $6,000 and demand deposit liabilities of $100,000 when the required reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, the bankʹs excess reserves will be A) -$5,000. B) -$1,000. C) $1,000. D) $5,000.

C) $1,000 (Ch. 17)

In the simple deposit expansion model, if the Fed extends a $100 discount loan to a bank that previously had no excess reserves, deposits in the banking system can potentially increase by A) $10. B) $100. C) $100 times the reciprocal of the required reserve ratio. D) $100 times the required reserve ratio.

C) $100 time the reciprocal of the required reserve ratio (Ch. 17)

The variable that reflects the effect on the money supply of changes in factors other than the monetary base is the A) currency-checkable deposits ratio. B) required reserve ratio. C) money multiplier. D) nonborrowed base.

C) the money multiplier (Ch. 17)

A central feature of monetary policy strategies in all countries is the use of a nominal anchor, which is a nominal variable that monetary policymakers use as an A) operating target, such as the federal funds interest rate. B) intermediate target, such as the federal funds interest rate. C) intermediate target to achieve an ultimate goal such as price stability. D) operating target to achieve an ultimate goal such as exchange rate stability.

C) intermediate target to achieve an ultimate goal such as price stability. (Ch. 19)

The theory of bureaucratic behavior suggests that the objective of a bureaucracy is to maximize A) the publicʹs welfare. B) profits. C) its own welfare. D) conflict with the executive and legislative branches of government.

C) its own welfare (Ch. 16)

A nominal anchor promotes price stability by A) outlawing inflation. B) stabilizing interest rates. C) keeping inflation expectations low. D) keeping economic growth low.

C) keeping inflation expectations low. (Ch. 19)

In the market for reserves, a lower discount rate A) decreases the supply of reserves. B) increases the supply of reserves. C) lengthens the vertical section of the supply curve of reserves. D) shortens the vertical section of the supply curve of reserves.

C) lengthens the vertical section of the supply curve of reserves. (Ch. 18)

The Fed uses three policy tools to manipulate the money supply: open market operations, which affect the ________; changes in borrowed reserves, which affect the ________; and changes in reserve requirements, which affect the ________. A) money multiplier; monetary base; monetary base B) monetary base; money multiplier; monetary base C) monetary base; monetary base; money multiplier D) money multiplier; money multiplier; monetary base

C) monetary base; monetary base; money multiplier (Ch. 18)

Since the Federal Reserve sets the required reserve ratio to less than one, one dollar of reserves can support ________ of checkable deposits. A) exactly one dollar B) less than one dollar C) more than one dollar D) exactly twice the amount

C) more than one dollar (Ch. 17)

The goal for high employment should seek a level of unemployment at which the demand for labor equals the supply of labor. Economists call this level of unemployment the A) frictional level of unemployment. B) structural level of unemployment. C) natural rate level of unemployment. D) Keynesian rate level of unemployment.

C) natural rate level of unemployment. (Ch. 19)

The money multiplier is A) negatively related to high-powered money. B) positively related to the excess reserves ratio. C) negatively related to the required reserve ratio. D) positively related to holdings of excess reserves.

C) negatively related to the required reserve ratio. (Ch. 17)

Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, one million dollars in required reserves, and faces a required reserve ratio of ten percent. Given this information, we can say First National Bank has ________ million dollars in excess reserves. A) one B) two C) nine D) ten

C) nine (Ch. 17)

The policy tool of changing reserve requirements is A) the most widely used. B) the preferred tool from the bankʹs perspective. C) no longer used. D) still used, even with its disadvantanges.

C) no longer used. (Ch. 18)

The time-inconsistency problem in monetary policy can occur when the central bank conducts policy A) using a nominal anchor. B) using a strict and inflexible rule. C) on a discretionary, day-by-day basis. D) using a flexible, discretionary rule.

C) on a discretionary, day-by-day basis. (Ch. 19)

Purchases and sales of government securities by the Federal Reserve are called A) discount loans. B) federal fund transfers. C) open market operations. D) swap transactions.

C) open market operations (Ch. 17)

For which of the following is the change in reserves necessarily different from the change in the monetary base? A) Open market purchases from a bank B) Open market purchases from an individual who deposits the check in a bank C) Open market purchases from an individual who cashes the check D) Open market sale to a bank

C) open market purchases from an individual who cashes the check (Ch. 17)

The case for Federal Reserve independence does not include the idea that A) political pressure would impart an inflationary bias to monetary policy. B) a politically insulated Fed would be more concerned with long-run objectives and thus be a defender of a sound dollar and a stable price level. C) policy is always performed better by an elite group such as the Fed. D) a Federal Reserve under the control of Congress or the president might make the so-called political business cycle more pronounced.

C) policy is always performed better by an elite group such as the Fed (Ch. 16)

Monetary policy is considered time-inconsistent because A) of the lag times associated with the implementation of monetary policy and its effect on the economy. B) policymakers are tempted to pursue discretionary policy that is more contractionary in the short run. C) policymakers are tempted to pursue discretionary policy that is more expansionary in the short run. D) of the lag times associated with the recognition of a potential economic problem and the implementation of monetary policy.

C) policymakers are tempted to pursue discretionary policy that is more expansionary in the short run. (Ch. 19)

The excess reserves ratio is _____ related to expected deposit outflows, and is _____ related to the market interest rate. A) negatively; negatively B) negatively; positively C) positively; negatively D) positively; positively

C) positively; negatively (Ch. 17)

The money supply is ________ related to the nonborrowed monetary base, and ________ related to the level of borrowed reserves. A) positively; negatively B) negatively; not C) positively; positively D) negatively; negatively

C) positively; positively (Ch. 17)

The most common type of discount lending that the Fed extends to banks is called A) seasonal credit. B) secondary credit. C) primary credit. D) installment credit.

C) primary credit. (Ch. 18)

Everything else held constant, an increase in the required reserve ratio on checkable deposits will cause A) the money supply to rise. B) the money supply to remain constant. C) the money supply to fall. D) checkable deposits to rise.

C) the money supply to fall. (Ch. 17)

The Fedʹs discount lending is of three types: ________ is the most common category; ________ is given to a limited number of banks in vacation and agricultural areas; ________ is given to banks that have experienced severe liquidity problems. A) seasonal credit; secondary credit; primary credit B) secondary credit; seasonal credit; primary credit C) primary credit; seasonal credit; secondary credit D) seasonal credit; primary credit; secondary credit

C) primary credit; seasonal credit; secondary credit (Ch. 18)

The total amount of required reserves in the banking system is equal to the ________ the required reserve ratio and checkable deposits. A) sum of B) difference between C) product of D) ratio between

C) product of (Ch. 17)

Members of Congress are able to influence monetary policy, albeit indirectly, through their ability to A) withhold appropriations from the Board of Governors. B) withhold appropriations from the Federal Open Market Committee. C) propose legislation that would force the Fed to submit budget requests to Congress, as must other government agencies. D) instruct the General Accounting Office to audit the foreign exchange market functions of the Federal Reserve.

C) propose legislation that would force the Fed to submit budget requests to Congress, as must other government agencies (Ch. 16)

There are two ways in which the Fed can provide additional reserves to the banking system: it can ________ government bonds or it can ________ discount loans to commercial banks. A) sell; extend B) sell; call in C) purchase; extend D) purchase; call in

C) purchase; extend (Ch. 17)

In the simple deposit expansion model, an expansion in checkable deposits of $1,000 when the required reserve ratio is equal to 20 percent implies that the Fed A) sold $200 in government bonds. B) sold $500 in government bonds. C) purchased $200 in government bonds. D) purchased $500 in government bonds.

C) purchased $200 in government bonds (Ch. 17)

The quantity of reserves demanded equals A) required reserves plus borrowed reserves. B) excess reserves plus borrowed reserves. C) required reserves plus excess reserves. D) total reserves minus excess reserves.

C) required reserves plus excess reserves. (Ch. 18)

Although neither ________ nor the ________ are officially set by the Federal Open Market Committee, decisions concerning these policy tools are effectively made by the committee. A) margin requirements; discount rate B) margin requirements; federal funds rate C) reserve requirements; discount rate D) reserve requirements; federal funds rate

C) reserve requirements; discount rate (Ch. 16)

A ________ in market interest rates relative to the discount rate will cause discount borrowing to ________. A) fall; increase B) rise; decrease C) rise; increase D) fall; remain unchanged

C) rise; increase (Ch. 17)

Suppose, at a given federal funds rate, there is an excess supply of reserves in the federal funds market. If the Fed wants the federal funds rate to stay at that level, then it should undertake an open market ________ of bonds, everything else held constant. If the Fed does nothing, however, the federal funds rate will ________. A) sale; increase B) purchase; increase C) sale; decrease D) purchase; decrease

C) sale; decrease (Ch. 18)

The Fed is considering eliminating A) primary credit lending. B) secondary credit lending. C) seasonal credit lending. D) its lender of last resort function.

C) seasonal credit lending. (Ch. 18)

When the Fed acts as a lender of last resort, the type of lending it provides is A) primary credit. B) seasonal credit. C) secondary credit. D) installment credit.

C) secondary credit.

When the Fed acts as a lender of last resort, the type of lending it provides is A) primary credit. B) seasonal credit. C) secondary credit. D) installment credit.

C) secondary credit. (Ch. 18)

An increase in ________ leads to an equal ________ in the monetary base in the long run. A) float; increase B) float; decrease C) securities; increase D) securities; decrease

C) securities; increase (Ch. 17)

If the Fed decides to reduce bank reserves, it can A) purchase government bonds. B) extend discount loans to banks. C) sell government bonds. D) print more currency.

C) sell government bonds (Ch. 17)

Which of the following functions are not performed by any of the twelve regional Federal Reserve Banks? A) Check clearing B) Conducting economic research C) Setting interest rates payable on time deposits D) Issuing new currency

C) setting interest rates payable on time deposits (Ch. 16)

The Federal Open Market Committee consists of the A) five senior members of the seven-member Board of Governors. B) seven members of the Board of Governors and seven presidents of the regional Fed banks. C) seven members of the Board of Governors and five presidents of the regional Fed banks. D) twelve regional Fed bank presidents and the chairman of the Board of Governors.

C) seven members of the board of governors and Five presidents of the regional Fed banks (Ch. 16)

Compared to the Federal Reserve, the European Central Bank is less transparent because A) the European Central Bank doesnʹt publicly release its inflation rate target for the European Monetary Union while the Federal Reserve publicly releases its inflation rate target for the United States. B) the Federal Reserve holds a press conference after a policy meeting while the European Central Bank makes no public statement after its policy meetings. C) the Federal Reserve publicly releases the minutes 3 weeks after the meetings while the European Central bank waits 20 years to publicly release its minutes. D) the European Central Bank does not publicly release its economic forecasts while the Federal Reserve immediately releases its economic forecasts to the public.

C) the Federal Reserve publicly releases the minutes 3 weeks after the meetings while the European Central Bank waits 20 years to publicly release its minutes (Ch. 16)

In the model of the money supply process, the depositorʹs role in influencing the money supply is represented by A) only the currency ratio. B) both the currency ratio and excess reserve ratio. C) the currency ratio, excess reserve ratio, and the market interest rate. D) only the market interest rate.

C) the currency ratio, excess reserve ratio, and the market interest rate. (Ch. 17)

Subtracting borrowed reserves from the monetary base obtains A) reserves. B) high-powered money. C) the nonborrowed monetary base. D) the borrowed monetary base.

C) the nonborrowed monetary base. (Ch. 17)

In the simple deposit expansion model, if the required reserve ratio is 10 percent and the Fed increases reserves by $100, checkable deposits can potentially expand by A) $100. B) $250. C) $500. D) $1,000.

D) $1,000 (Ch. 17)

If a bank has excess reserves of $20,000 and demand deposit liabilities of $80,000, and if the reserve requirement is 20 percent, then the bank has total reserves of A) $16,000. B) $20,000. C) $26,000. D) $36,000.

D) $36,000 (Ch. 17)

In the simple deposit expansion model, if the banking system has excess reserves of $75, and the required reserve ratio is 20%, the potential expansion of checkable deposits is A) $75. B) $750. C) $37.50. D) $375.

D) $375 (Ch. 17)

A bank has excess reserves of $10,000 and demand deposit liabilities of $100,000 when the required reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, the bankʹs excess reserves will be A) -$5,000. B) -$1,000. C) $1,000. D) $5,000.

D) $5,000 (Ch. 17)

If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $1000 billion, and excess reserves total $1 billion, then the monetary base is A) $400 billion. B) $401 billion. C) $500 billion. D) $501 billion.

D) $501 billion. (Ch. 17)

If reserves in the banking system increase by $100, then checkable deposits will increase by $500 in the simple model of deposit creation when the required reserve ratio is A) 0.01. B) 0.10. C) 0.05. D) 0.20

D) .20 (Ch. 17)

If the required reserve ratio is one-third, currency in circulation is $300 billion, and checkable deposits are $900 billion, then the level of excess reserves in the banking system is A) $300 billion. B) $30 billion. C) $3 billion. D) 0.

D) 0. (Ch. 17)

If reserves in the banking system increase by $100, then checkable deposits will increase by $400 in the simple model of deposit creation when the required reserve ratio is A) 0.01. B) 0.10. C) 0.20. D) 0.25.

D) 0.25 (Ch. 17)

If reserves in the banking system increase by $100, then checkable deposits will increase by $100 in the simple model of deposit creation when the required reserve ratio is A) 0.01. B) 0.10. C) 0.20. D) 1.00.

D) 1.00 (Ch. 17)

If the required reserve ratio is 10 percent, the simple deposit multiplier is A) 5.0. B) 2.5. C) 100.0. D) 10.0

D) 10.0 (Ch. 17)

Much of the credit for prevention of a financial market meltdown after ʺBlack Mondayʺ (October 19, 1987) must be given to the Federal Reserve System and its chairman A) Paul Volker. B) Alan Blinder. C) Arthur Burns. D) Alan Greenspan.

D) Alan Greenspan (Ch. 18)

The financial panic of 1907 resulted in such widespread bank failures and substantial losses to depositors that the American public finally became convinced that A) the First Bank of the United States had failed to serve as a lender of last resort. B) the Second Bank of the United States had failed to serve as a lender of last resort. C) the Federal Reserve System had failed to serve as a lender of last resort. D) a central bank was needed to prevent future panics.

D) a central bank was needed to prevent future panics (Ch. 16)

Banks subject to reserve requirements set by the Federal Reserve System include A) only nationally chartered banks. B) only banks with assets less than $100 million. C) only banks with assets less than $500 million. D) all banks whether or not they are members of the Federal Reserve System.

D) all banks whether or not they are members of the Federal Reserve System (Ch. 16)

Since 1980, ________ are subject to reserve requirements. A) only commercial banks B) only the member institutions of the Federal Reserve C) only nationally chartered depository institutions D) all depository institutions

D) all depository institutions (Ch. 18)

The interest rate on seasonal credit equals A) the federal funds rate. B) the primary credit rate. C) the secondary credit rate. D) an average of the federal funds rate and rates on certificates of deposits.

D) an average of the federal funds rate and rates on certificates of deposits. (Ch. 18)

When a member of the nonbank public withdraws currency from her bank account, A) both the monetary base and bank reserves fall. B) both the monetary base and bank reserves rise. C) the monetary base falls, but bank reserves remain unchanged. D) bank reserves fall, but the monetary base remains unchanged.

D) bank reserves fall but the monetary base remains unchanged (Ch. 17)

When a member of the nonbank public deposits currency into her bank account, A) both the monetary base and bank reserves fall. B) both the monetary base and bank reserves rise. C) the monetary base falls, but bank reserves remain unchanged. D) bank reserves rise, but the monetary base remains unchanged.

D) bank reserves rise, but the monetary base remains unchanged (Ch. 17)

The Fedʹs lender-of-last-resort function A) has proven to be ineffective. B) cannot prevent runs by large depositors. C) is no longer necessary due to FDIC insurance. D) creates a moral hazard problem.

D) creates a moral hazard problem. (Ch. 18)

An increase in the monetary base that goes into ________ is not multiplied, while an increase that goes into ________ is multiplied. A) deposits; currency B) excess reserves; currency C) currency; excess reserves D) currency; deposits

D) currency; deposits (Ch. 17)

Decisions by depositors to increase their holdings of ________, or of banks to hold ________ will result in a smaller expansion of deposits than the simple model predicts. A) deposits; required reserves B) deposits; excess reserves C) currency; required reserves D) currency; excess reserves

D) currency; excess reserves (Ch. 17)

In the market for reserves, a ________ in the reserve requirement ________ the demand for reserves, lowering the federal funds interest rate, everything else held constant. A) rise; decreases B) rise; increases C) decline; increases D) decline; decreases

D) decline; decreases (Ch. 18)

When a bank buys a government bond from the Federal Reserve, reserves in the banking system ________ and the monetary base ________, everything else held constant. A) increase; increases B) increase; decreases C) decrease; increases D) decrease; decreases

D) decrease; decreases (Ch. 17)

When the Federal Reserve sells a government bond to a bank, reserves in the banking system ________ and the monetary base ________, everything else held constant. A) increase; increases B) increase; decreases C) decrease; increases D) decrease; decreases

D) decrease; decreases (Ch. 17)

In the market for reserves, an open market sale ________ the supply of reserves causing the federal funds rate to ________, everything else held constant. A) decreases; decrease B) increases; decrease C) increases; increase D) decreases; increase

D) decreases; increase (Ch. 18)

Decisions by ________ about their holdings of currency and by ________ about their holdings of excess reserves affect the money supply. A) borrowers; depositors B) banks; depositors C) depositors; borrowers D) depositors; banks

D) depositors; banks (Ch. 17)

Inflation results in A) ease of planning for the future. B) ease of comparing prices over time. C) lower nominal interest rates. D) difficulty interpreting relative price movements.

D) difficulty interpreting relative price movements. (Ch. 19)

A decrease in ________ leads to an equal ________ in the monetary base in the short run. A) float; increase B) float; decrease C) Treasury deposits at the Fed; decrease D) discount loans; increase

D) discount loans; increase (Ch. 17)

If the Fed injects reserves into the banking system and they are held as excess reserves, then the money supply A) increases by only the initial increase in reserves. B) increases by only one-half the initial increase in reserves. C) increases by a multiple of the initial increase in reserves. D) does not change.

D) does not change. (Ch. 17)

Suppose on any given day the prevailing equilibrium federal funds rate is above the Federal Reserveʹs federal funds target rate. If the Federal Reserve wishes for the federal funds rate to be at their target level, then the appropriate action for the Federal Reserve to take is a ________ open market ________, everything else held constant. A) defensive; sale B) defensive; purchase C) dynamic; sale D) dynamic; purchase

D) dynamic; purchase (Ch. 18)

The Depository Institutions Deregulation and Monetary Control Act of 1980 A) established higher reserve requirements for nonmember than for member banks. B) established higher reserve requirements for member than for nonmember banks. C) abolished reserve requirements. D) established uniform reserve requirements for all banks.

D) established higher reserve requirements for nonmember than for member banks (Ch. 16)