The+Economics+of+Money,+Banking,+and+Financial+Markets,+9e[1].doc

1) 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 Answer: B2) 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 Answer: C3) The interest rate charged on overnight loans of reserves between banks is theA) prime rate.B) discount rate.C) federal funds rate.D) Treasury bill rate.Answer: C4) The primary indicator of the Feds stance on monetary policy isA) the discount rate.B) the federal funds rate.C) the growth rate of the monetary base.D) the growth rate of M2.Answer: B5) 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. Answer: C6) Everything else held constant, when the federal funds rate is _ the interest rate paid on reserves, the quantity of reserves demanded rises when the federal funds rate _.A) above, risesB) above, fallsC) below, risesD) below, fallsAnswer: B19) In the market for reserves, if the federal funds rate is above the interest rate paid on excess 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; increaseD) decreases; increaseAnswer: DOpen Market Operations1) _ are the most important monetary policy tool because they are the primary determinant of changes in the _, the main source of fluctuations in the money supply. A) Open market operations; monetary base B) Open market operations; money multiplier C) Changes in reserve requirements; monetary base D) Changes in reserve requirements; money multiplier Answer: A2) Open market purchases raise the _ thereby raising the _.A) money multiplier; money supplyB) money multiplier; monetary baseC) monetary base; money supplyD) monetary base; money multiplierAnswer: C3) Open market purchases _ reserves and the monetary base thereby _ the money supply.A) raise; loweringB) raise; raisingC) lower; loweringD) lower; raisingAnswer: B4) Open market sales shrink _ thereby lowering _.A) the money multiplier; the money supplyB) the money multiplier; reserves and the monetary baseC) reserves and the monetary base; the money supplyD) the money base; the money multiplierAnswer: C5) Open market sales _ reserves and the monetary base thereby _ the money supply.A) raise; loweringB) raise; raisingC) lower; loweringD) lower; raisingAnswer: C6) The two types of open market operations areA) offensive and defensive.B) dynamic and reactionary.C) active and passive.D) dynamic and defensive.Answer: D7) There are two types of open market operations: _ open market operations are intended to change the level of reserves and the monetary base, and _ open market operations are intended to offset movements in other factors that affect the monetary base.A) defensive; dynamicB) defensive; staticC) dynamic; defensiveD) dynamic; staticAnswer: C8) Open market operations intended to offset movements in noncontrollable factors (such as float) that affect reserves and the monetary base are calledA) defensive open market operations.B) dynamic open market operations.C) offensive open market operations.D) reactionary open market operations.Answer: A9) When the Federal Reserve engages in a repurchase agreement to offset a withdrawal of Treasury funds from the Federal Reserve, the open market operation is said to beA) defensive.B) offensive.C) dynamic.D) reactionary.Answer: A10) The Federal Open Market Committee makes the Feds decisions on the purchase or sale of government securities, but these purchases or sales are executed by the Federal Reserve Bank ofA) Chicago.B) Boston.C) New York.D) San Francisco.Answer: C27) If the Fed wants to temporarily inject reserves into the banking system, it will engage inA) a repurchase agreement.B) a matched sale-purchase transaction.C) a reverse repurchase agreement.D) an open market sale.Answer: A Discount Policy 1) Discount policy affects the money supply by affecting the volume of _ and the _.A) excess reserves; monetary baseB) borrowed reserves; monetary baseC) excess reserves; money multiplierD) borrowed reserves; money multiplierAnswer: B2) The discount rate isA) 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.Answer: A3) 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. Answer: C4) 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 Answer: B5) 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. Answer: C6) The Feds 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 Answer: C7) The discount rate is _ kept _ the federal funds rate. A) always; below B) typically; below C) typically; equal to D) typically; above Answer: D8) The discount rate refers to the interest rate onA) primary credit.B) secondary credit.C) seasonal credit.D) federal funds.Answer: A19) 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. Answer: BReserve Requirements1) An increase in _ reduces the money supply since it causes the _ to fall.A) reserve requirements; monetary baseB) reserve requirements; money multiplierC) margin requirements; monetary baseD) margin requirements; money multiplierAnswer: B2) A decrease in _ increases the money supply since it causes the _ to rise.A) reserve requirements; monetary baseB) reserve requirements; money multiplierC) margin requirements; monetary baseD) margin requirements; money multiplierAnswer: B3) The Federal Reserve has had the authority to vary reserve requirements since theA) 1920s.B) 1930s.C) 1940s.D) 1950s.Answer: B4) Since 1980, _ are subject to reserve requirements.A) only commercial banksB) only the member institutions of the Federal ReserveC) only nationally chartered depository institutionsD) all depository institutionsAnswer: D5) Funds held in _ are subject to reserve requirements.A) all checkable depositsB) all checkable and time depositsC) all checkable, time, and money market fund depositsD) all time depositsAnswer: A6) The policy tool of changing reserve requirements isA) the most widely used.B) the preferred tool from the banks perspective.C) no longer used.D) still used, even with its disadvantages.Answer: CThree Players in the Money Supply Process1) The government agency that oversees the banking system and is responsible for the conduct of monetary policy in the United States isA) the Federal Reserve System.B) the United States Treasury.C) the U.S. Gold Commission.D) the House of Representatives.Answer: A2) Individuals that lend funds to a bank by opening a checking account are calledA) policyholders.B) partners.C) depositors.D) debt holders.Answer: C3) The three players in the money supply process includeA) banks, depositors, and the U.S. Treasury.B) banks, depositors, and borrowers.C) banks, depositors, and the central bank.D) banks, borrowers, and the central bank.Answer: C4) Of the three players in the money supply process, most observers agree that the most important player isA) the United States Treasury.B) the Federal Reserve System.C) the FDIC.D) the Office of Thrift Supervision.Answer: BThe Feds Balance Sheet 1) Both _ and _ are Federal Reserve assets.A) currency in circulation; reservesB) currency in circulation; government securitiesC) government securities; discount loansD) government securities; reservesAnswer: C2) The monetary liabilities of the Federal Reserve includeA) government securities and discount loans.B) currency in circulation and reserves.C) government securities and reserves.D) currency in circulation and discount loans.Answer: B3) Both _ and _ are monetary liabilities of the Fed.A) government securities; discount loansB) currency in circulation; reservesC) government securities; reservesD) currency in circulation; discount loansAnswer: B4) The sum of the Feds monetary liabilities and the U.S. Treasurys monetary liabilities is calledA) the money supply.B) currency in circulation.C) bank reserves.D) the monetary base.Answer: D5) The monetary base consists ofA) currency in circulation and Federal Reserve notes.B) currency in circulation and the U.S. Treasurys monetary liabilities.C) currency in circulation and reserves.D) reserves and Federal Reserve Notes.Answer: C6) Total reserves minus bank deposits with the Fed equalsA) vault cash.B) excess reserves.C) required reserves.D) currency in circulation.Answer: A7) Reserves are equal to the sum ofA) 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.Answer: A8) Total reserves are the sum of _ and _.A) excess reserves; borrowed reservesB) required reserves; currency in circulationC) vault cash; excess reservesD) excess reserves; required reservesAnswer: D9) Excess reserves are equal toA) 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.Answer: B10) Total Reserves minus vault cash equalsA) bank deposits with the Fed.B) excess reserves.C) required reserves.D) currency in circulation.Answer: A11) The amount of deposits that banks must hold in reserve isA) excess reserves.B) required reserves.C) total reserves.D) vault cash.Answer: B12) The percentage of deposits that banks must hold in reserve is theA) excess reserve ratio.B) required reserve ratio.C) total reserve ratio.D) currency ratio.Answer: B13) 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) threeB) nineC) tenD) elevenAnswer: B14) 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) tenB) twentyC) eightyD) ninetyAnswer: A15) 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) oneB) twoC) eightD) tenAnswer: A16) 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) tenB) twentyC) eightyD) ninetyAnswer: AControl of the Monetary Base 1) The monetary base minus currency in circulation equalsA) reserves.B) the borrowed base.C) the nonborrowed base.D) discount loans.Answer: A2) The monetary base minus reserves equalsA) currency in circulation.B) the borrowed base.C) the nonborrowed base.D) discount loans.Answer: A3) High-powered money minus reserves equalsA) reserves.B) currency in circulation.C) the monetary base.D) the nonborrowed base.Answer: B4) High-powered money minus currency in circulation equalsA) reserves.B) the borrowed base.C) the nonborrowed base.D) discount loans.Answer: A5) Purchases and sales of government securities by the Federal Reserve are calledA) discount loans.B) federal fund transfers.C) open market operations.D) swap transactions.Answer: C6) 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; increasesB) increase; decreasesC) decrease; increasesD) decrease; decreasesAnswer: A7) 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; increasesB) increase; decreasesC) decrease; increasesD) decrease; decreasesAnswer: D8) 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; increasesB) increase; decreasesC) decrease; increasesD) decrease; decreasesAnswer: A9) 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; increasesB) increase; decreasesC) decrease; increasesD) decrease; decreasesAnswer: D10) When the Fed buys $100 worth of bonds from First National Bank, reserves in the banking systemA) increase by $100.B) increase by more than $100.C) decrease by $100.D) decrease by more than $100.Answer: A11) When the Fed sells $100 worth of bonds to First National Bank, reserves in the banking systemA) increase by $100.B) increase by more than $100.C) decrease by $100.D) decrease by more than $100.Answer: C12) If a person selling bonds to the Fed cashes the Feds check, then reserves _ and currency in circulation _, everything else held constant.A) remain unchanged; declinesB) remain unchanged; increasesC) decline; remains unchangedD) increase; remains unchangedAnswer: BMultiple Deposit Creation: A Simple Model 1) When the Fed supplies the banking system with an extra dollar of reserves, deposits increase by more than one dollara process calledA) extra deposit creation.B) multiple deposit creation.C) expansionary deposit creation.D) stimulative deposit creation.Answer: B2) When the Fed supplies the banking system with an extra dollar of reserves, deposits _ by _ than one dollara process called multiple deposit creation.A) increase; lessB) increase; moreC) decrease; lessD) decrease; moreAnswer: B4) 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 byA) $10.B) $100.C) $100 times the reciprocal of the required reserve ratio.D) $100 times the required reserve ratio.Answer: B6) 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 byA) $10.B) $100.C) $100 times the reciprocal of the required reserve ratio.D) $100 times the required reserve ratio.Answer: B8) The formula for the simple deposit multiplier can be expressed asA) R = TB) D = RC) r = TD) R = DAnswer: B10) The simple deposit multiplier can be expressed as the ratio of theA) change