Question 1

An increase in the money supply might indicate that the Fed had

Accepted Answer

A)  purchased bonds in an attempt to increase the federal funds rate.
B)  purchased bonds in an attempt to reduce the federal funds rate.
C)  sold bonds in an attempt to increase the federal funds rate.
D)  sold bonds in an attempt to reduce the federal funds rate.

Question 2

When the Fed makes open-market purchases bank

Accepted Answer

A)  withdrawals and lending increase.
B)  withdrawals increase and lending decreases.
C)  deposits and lending increase.
D)  deposits increase and lending decreases.

Question 3

In a fractional-reserve banking system,a decrease in reserve requirements

Accepted Answer

A)  increases both the money multiplier and the money supply.
B)  decreases both the money multiplier and the money supply.
C)  increases the money multiplier,but decreases the money supply.
D)  decreases the money multiplier,but increases the money supply.

Question 4

To increase the money supply,the Fed could

Accepted Answer

A)  sell government bonds.
B)  increase the discount rate.
C)  decrease the reserve requirement.
D)  None of the above is correct.

Question 5

The Fed's primary tool to change the money supply is

Accepted Answer

A)  changing the interest rate on reserves.
B)  changing the reserve requirement.
C)  conducting open market operations.
D)  redeeming Federal Reserve notes.

Question 6

In December 1999 people feared that there might be computer problems at banks as the century changed.Consequently,people wanted to hold relatively more in currency and relatively less in deposits.In anticipation banks raised their reserve ratios to have enough cash on hand to meet depositors' demands.These actions by the public

Accepted Answer

A)  would increase the multiplier.If the Fed wanted to offset the effect of this on the size of the money supply,it could have sold bonds.
B)  would increase the multiplier.If the Fed wanted to offset the effect of this on the size of the money supply,it could have bought bonds.
C)  would reduce the multiplier.If the Fed wanted to offset the effect of this on the size of the money supply,it could have sold bonds.
D)  would reduce the multiplier.If the Fed wanted to offset the effect of this on the size of the money supply,it could have bought bonds.

Question 7

If the federal funds rate were below the level the Federal Reserve had targeted,the Fed could move the rate back towards its target by

Accepted Answer

A)  buying bonds.This buying would reduce reserves.
B)  buying bonds.This buying would increase reserves.
C)  selling bonds.This selling would reduce reserves.
D)  selling bonds.This selling would increase reserves.

Question 8

During recessions,banks typically choose to hold more excess reserves relative to their deposits.This action

Accepted Answer

A)  increases the money multiplier and increases the money supply.
B)  decreases the money multiplier and decreases the money supply.
C)  does not change the money multiplier,but increases the money supply.
D)  does not change the money multiplier,but decreases the money supply.

Question 9

A decrease in the money supply might indicate that the Fed had

Accepted Answer

A)  purchased bonds to increase banks reserves.
B)  purchased bonds to decrease banks reserves.
C)  sold bonds to increase banks reserves.
D)  sold bonds to decrease banks reserves.

Question 10

The Fed sets the interest that borrowers pay on loans from

Accepted Answer

A)  the discount window and the term auction facility
B)  the discount window but not the term auction facility
C)  the term auction facility but not the discount window
D)  neither the discount window nor the term auction facility

Question 11

If the Federal Reserve increases the interest rate on bank deposits at the Fed,banks will want to hold

Accepted Answer

A)  fewer reserves,so the reserve ratio will fall.
B)  fewer reserves,so the reserve ratio will rise.
C)  more reserves,so the reserve ratio will fall.
D)  more reserves,so the reserve ratio will rise.

Question 12

A problem that the Fed faces when it attempts to control the money supply is that

Accepted Answer

A)  the 100-percent-reserve banking system in the U.S.makes it difficult for the Fed to carry out its monetary policy.
B)  the Fed has to get the approval of the U.S.Treasury Department whenever it uses any of its monetary policy tools.
C)  the Fed does not have a tool that it can use to change the money supply by either a small amount or a large amount.
D)  the Fed does not control the amount of money that households choose to hold as deposits in banks.

Question 13

The reserve requirement is 4 percent,banks hold no excess reserves and people hold no currency.If the Fed sells $10,000 worth of bonds,what happens to the money supply?

Accepted Answer

A)  it increases by $250,000
B)  it increases by $200,000
C)  it decreases by $200,000
D)  it decreases by $250,000

Question 14

The Federal Deposit Insurance Corporation

Accepted Answer

A)  protects depositors in the event of bank failures.
B)  has become insolvent in recent years due to a large number of bank failures.
C)  is part of the Federal Reserve System.
D)  in practice has seldom been of much use.

Question 15

A decrease in the money supply might indicate that the Fed had

Accepted Answer

A)  purchased bonds in an attempt to increase the federal funds rate.
B)  purchased bonds in an attempt to reduce the federal funds rate.
C)  sold bonds in an attempt to increase the federal funds rate.
D)  sold bonds in an attempt to reduce the federal funds rate.

Question 16

If the money multiplier decreased from 20 to 12.5,then

Accepted Answer

A)  the Fed increased the reserve ratio from 5 percent to 8 percent.
B)  the Fed increased the fed funds rate from 5 percent to 8 percent.
C)  the Fed decreased the reserve ratio from 8 percent to 5 percent.
D)  the Fed decreased the fed funds rate from 8 percent to 5 percent.

Question 17

If the discount rate is raised then banks borrow

Accepted Answer

A)  more from the Fed so reserves increase.
B)  more from the Fed so reserves decrease.
C)  less from the Fed so reserves increase.
D)  less from the Fed so reserves decrease.

Question 18

Scenario 29-1.
The monetary policy of Namdian is determined by the Namdian Central Bank.The local currency is the dia.Namdian banks collectively hold 100 million dias of required reserves,25 million dias of excess reserves,250 million dias of Namdian Treasury Bonds,and their customers hold 1,000 million dias of deposits.Namdians prefer to use only demand deposits and so the money supply consists of demand deposits.
-Refer to Scenario 29-1.Assuming the only other item Namdian banks have on their balance sheets is loans,what is the value of existing loans made by Namdian banks?

Accepted Answer

A)  625 million dias
B)  875 million dias
C)  1,125 million dias
D)  None of the above is correct.

Question 19

The Fed increases the reserve requirement,but it wants to offset the effects on the money supply.Which of the following should it do?

Accepted Answer

A)  sell bonds to increase reserves
B)  sell bonds to decrease reserves
C)  buy bonds to increase reserves
D)  buy bonds to decrease reserves

Question 20

The tool most often used by the Fed to control the money supply is

Accepted Answer

A)  changing reserve requirements.
B)  open market operations.
C)  buying and selling of equities.
D)  altering the discount rate.

Exam 16: The Monetary System: The Feds Tools of Monetary Control

The Fed sets the interest that borrowers pay on loans from

Correct Answer
verified

Correct Answer
verified

If the federal funds rate were below the level the Federal Reserve had targeted,the Fed could move the rate back towards its target by

Correct Answer
verified

The tool most often used by the Fed to control the money supply is

Correct Answer
verified

The Fed increases the reserve requirement,but it wants to offset the effects on the money supply.Which of the following should it do?

Correct Answer
verified

During recessions,banks typically choose to hold more excess reserves relative to their deposits.This action

Correct Answer
verified

In a fractional-reserve banking system,a decrease in reserve requirements

Correct Answer
verified

When the Fed makes open-market purchases bank

Correct Answer
verified

A problem that the Fed faces when it attempts to control the money supply is that

Correct Answer
verified

To increase the money supply,the Fed could

Correct Answer
verified

Correct Answer
verified

The Fed's primary tool to change the money supply is

Correct Answer
verified

A decrease in the money supply might indicate that the Fed had

Correct Answer
verified

A decrease in the money supply might indicate that the Fed had

Correct Answer
verified

The reserve requirement is 4 percent,banks hold no excess reserves and people hold no currency.If the Fed sells $10,000 worth of bonds,what happens to the money supply?

Correct Answer
verified

If the Federal Reserve increases the interest rate on bank deposits at the Fed,banks will want to hold

Correct Answer
verified

If the money multiplier decreased from 20 to 12.5,then

Correct Answer
verified

An increase in the money supply might indicate that the Fed had

Correct Answer
verified

If the discount rate is raised then banks borrow

Correct Answer
verified

The Federal Deposit Insurance Corporation

Correct Answer
verified

Exam 16: The Monetary System: The Feds Tools of Monetary Control

The Fed sets the interest that borrowers pay on loans from

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the federal funds rate were below the level the Federal Reserve had targeted,the Fed could move the rate back towards its target by

Correct AnswerverifiedShow Answer

The tool most often used by the Fed to control the money supply is

Correct AnswerverifiedShow Answer

The Fed increases the reserve requirement,but it wants to offset the effects on the money supply.Which of the following should it do?

Correct AnswerverifiedShow Answer

During recessions,banks typically choose to hold more excess reserves relative to their deposits.This action

Correct AnswerverifiedShow Answer

In a fractional-reserve banking system,a decrease in reserve requirements

Correct AnswerverifiedShow Answer

When the Fed makes open-market purchases bank

Correct AnswerverifiedShow Answer

A problem that the Fed faces when it attempts to control the money supply is that

Correct AnswerverifiedShow Answer

To increase the money supply,the Fed could

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Fed's primary tool to change the money supply is

Correct AnswerverifiedShow Answer

A decrease in the money supply might indicate that the Fed had

Correct AnswerverifiedShow Answer

A decrease in the money supply might indicate that the Fed had

Correct AnswerverifiedShow Answer

The reserve requirement is 4 percent,banks hold no excess reserves and people hold no currency.If the Fed sells $10,000 worth of bonds,what happens to the money supply?

Correct AnswerverifiedShow Answer

If the Federal Reserve increases the interest rate on bank deposits at the Fed,banks will want to hold

Correct AnswerverifiedShow Answer

If the money multiplier decreased from 20 to 12.5,then

Correct AnswerverifiedShow Answer

An increase in the money supply might indicate that the Fed had

Correct AnswerverifiedShow Answer

If the discount rate is raised then banks borrow

Correct AnswerverifiedShow Answer

The Federal Deposit Insurance Corporation

Correct AnswerverifiedShow Answer

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