Questions:
Question 1
The actual change in the money supply equals
the actual change in excess reserves.
the change in excess reserves times the money multiplier.
the change in required reserves times the money multiplier.
the change in reserves times the reserve requirement ratio.
Question 2
The discount rate is the
interest rate banks charge their best customers.
interest rate on short-term U.S. government securities.
interest rate the Fed charges on loans made to depository institutions.
interest rate the Fed charges to the largest and most secure manufacturing concerns in the country.
Question 3
Banks want to minimize the amount of excess reserves they hold because
the reserves they hold earn no income.
they have to pay a fee to the Fed for the excess reserves they hold.
they have to pay FDIC insurance on the excess reserves they hold.
the state collects taxes on the excess reserves they hold.
Question 4
The level of reserves in the monetary system is determined by
the Federal Open Market Committee.
the Treasury Department.
Congress.
the President of the United States.
Question 5
The amount of a change in the money supply due to a given change in reserves is the
money multiplier.
federal funds rate.
discount rate.
required reserves.
Question 6
When the Fed sells government securities
reserves increase leading to a decrease in the money supply by an amount more than the sale of the government securities.
reserves decrease leading to a increase in the money supply by an amount more than the sale of the government securities.
reserves increase leading to a increase in the money supply by an amount more than the sale of the government securities.
reserves decrease leading to a decrease in the money supply by an amount more than the sale of the government securities.
Question 7
The relationship between changes in the rate of growth of the money supply and inflation is
direct and simultaneous.
indirect and simultaneous.
direct but with a time lag.
indirect but with a time lag.
Question 8
The potential money multiplier is never reached because
the federal funds market causes leakages in the system.
of currency drains and excess reserves.
of government regulations making sure that things do not get out of hand.
the Fed engages in open market operations.
Question 9
If the Fed decreases the reserve requirement ratio from 20 percent to 10 percent, the potential money multiplier
increases from 10 to 20.
increases from 5 to 10.
decreases from 20 to 10.
decreases from 10 to 5.
Question 10
Banks do not need to keep all of their deposits on hand as reserves because
only a fraction of deposits are withdrawn at any one time.
FDIC protects banks from excessive withdrawal demands.
there is too much risk of bank robberies.
they can always generate new reserves through the money creation process.
Question 11
The difference between assets and liabilities is
a sweep account.
a balance sheet.
net worth.
legal reserves.
Question 12
The required reserve ratio is 20 percent. All banks have zero excess reserves. A check for $1 million is deposited in Bank A, written on an account from Bank B. After the check clears what are the new excess reserves at Bank A, and by how much does the money supply change if all banks make loans so that they have zero excess reserves?
$200,000; $800,000
$800,000; $1 million
$800,000; $800,000
$800,000; 0
Question 13
The required reserve ratio is 10 percent but banks have decided they want to keep 20 percent of their deposits as reserves. There are no currency drains. If the Fed buys $10 million of U.S. government securities, the money supply will
not change because of the excess reserves banks keep on hand.
increase by $8 million.
increase by $50 million.
increase by $100 million.
Question 14
When it comes to excess reserves
banks like to have large amounts so that they can cover withdrawals customers may make.
banks are required to keep 10% of their total reserves in excess reserves.
they must be held at the Fed by law.
banks have an incentive to minimize them because they produce no income.
Question 15
The value of reserves that a depository institution must hold in the form of vault cash or deposits with the Fed are
sweep reserves.
legal reserves.
required reserves.
excess reserves.
Question 16
A purchase of U.S. government securities by the Fed causes
an expansion of the money supply equal to the amount of the securities purchased.
a contraction of the money supply equal to the amount of the securities purchased.
an expansion of the money supply of more than the amount of the securities purchased.
a contraction of the money supply of more than the amount of the securities purchased.
Question 17
Legal reserves are
government securities that the depository institutions are required by law to hold as reserves.
government securities and vault cash that the depository institutions are required by law to hold as reserves.
any asset that depository institutions want to hold as reserves that have value.
anything that depository institutions are allowed by law to hold as reserves and consist of deposits at a Federal Reserve Bank and their own vault cash.
Question 18
Which of the following is a true statement?
Decreases in the money supply lead to increases in the inflation rate.
Increases in the money supply lead to a decrease in the price level.
Changes in the rate of growth of the money supply lead to increases in the inflation rate.
There is no relationship between money supply and inflation.
Question 19
The purchase and sale of existing U.S. government securities in the open private market by the Fed are
handled on the New York Stock exchange.
intended to increase excess reserves.
open market operations.
illegal.
Question 20
The potential money multiplier is 5 when
the reserve requirement ratio is 10 percent.
the reserve requirement ratio is 20 percent. [Potential Money multiplier=1/reserve ratio =1/0.2=5]
the reserve requirement ratio is 50 percent.
excess reserves expand 500 percent.