Questions:
1. If the Fed purchases $1 million in securities from the nonbank public, the monetary base will rise by $1 million
if the public holds the proceeds as currency.
if the public deposits the proceeds as checkable deposits.
if the public deposits the proceeds with the Treasury in a monetary base account.
whether the public holds the proceeds as currency or deposits them as checkable deposits.
2. Which of the following assumptions made in deriving the simple deposit multiplier is unrealistic?
The Fed sets the required reserve ratio.
The Fed is able to affect the level of reserves in the banking system.
Banks loan out all of their excess reserves.
The simple deposit multiplier is equal to 1 divided by the required reserve ratio.
3. What is the most direct method the Fed uses to change the monetary base?
open market operations
changing the required reserve ratio
changing the federal funds rate
changing the level of discount loans
4. If the Fed purchases $1 million worth of securities and the required reserve ratio is 8%, by how much will deposits increase (assuming no change in excess reserves or the public's currency holdings)?
rise by $1 million
decline by $1 million
rise by $8 million
rise by $12.5 million
5. Open market operations generally involve
the Fed making discount loans to depository institutions.
the Fed buying and selling common stock in order to affect the liquidity of the stock market.
the Fed buying and selling U.S. government securities.
private investors buying and selling securities directly on exchanges, rather than through brokers.
6. If the Fed buys securities worth $10 million, then
bank reserves will increase by $10 million.
bank reserves will decrease by $10 million.
currency in circulation will increase by $10 million.
bank holdings of securities increase by $10 million.
7. The percentage of deposits that banks must hold as reserves is called the
percentage rate.
required reserve ratio.
Fed rate.
discount rate.
8. The benchmark default-free interest rate of the financial system is generally considered to be:
the federal funds rate
the interest rate on the 10-year Treasury note
the discount rate
the 30-year fixed rate mortgage
9. If the required reserve ratio is 5%, what is the value of the simple deposit multiplier?
0.05
0.20
5
20
10. The money multiplier
equals 1 over the required reserve ratio.
is an expression that converts the monetary base to the money supply.
is larger than the simple deposit multiplier.
is completely controlled by the Fed.