1. Assume total reserves are $1 million, checkable deposits are $5 million, and the reserve requirement is 10 percent. What are the excess reserves? a. $4 million b. $6 million c. $1 million d. $500,000
2. When the Fed conducts open-market operations, it primarily uses a. Treasury bills b. long-term U. S. government bonds c. bonds of publicly traded corporations d. overnight loans of major banks
3. If depositors withdraw their funds and create a shortage of reserves, bankers a. have no alternative but to call in outstanding loans b. can borrow reserves from the Fed c. must close their operations until their reserves increase d. must sell bank stock to replenish reserves
4. Changes in the discount rate are initiated by a. the Federal Open Market Committee b. Federal Reserve Banks c. member banks of the Fed d. the president of the New York Federal Reserve Bank
5. If the Fed is following policies to reduce inflation, it is most likely to be a. lowering interest rates b. raising the money supply c. lowering the money supply d. both lowering interest rates and raising the money supply