1.
Which of the following will increase commercial bank reserves?
A.
the purchase of government bonds in the open market by the Federal Reserve Banks
B.
a decrease in the reserve ratio
C.
an increase in the discount rate
D.
the sale of government bonds in the open market by the Federal Reserve Banks
2.
Assume the reserve ratio is 25 percent and Federal Reserve Banks buy $4 million of U.S. securities from the public, which deposits this amount into checking accounts. As a result of these transactions, the supply of money is:
not directly affected, but the money-creating potential of the commercial banking system is increased by $12 million.
directly increased by $4 million and the money-creating potential of the commercial banking system is increased by $16 million.
directly reduced by $4 million and the money-creating potential of the commercial banking system is decreased by $12 million.
directly increased by $4 million and the money-creating potential of the commercial banking system is increased by $12 million.
3.
Assume the legal reserve ratio is 25 percent and the Fourth National Bank borrows $10,000 from the Federal Reserve Bank in its district. As a result:
commercial bank reserves are increased by $10,000.
the supply of money automatically declines by $7,500.
commercial bank reserves are increased by $7,500.
the supply of money is automatically increased by $10,000.
4.
"Open-market operations" refers to:
purchases of stocks in the New York Stock Exchange.
the purchase or sale of government securities by the Fed.
central bank lending to commercial banks.
the specifying of margin requirements on stock purchases.
5.
Assume that a single commercial bank has no excess reserves and that the reserve ratio is 20 percent. If this bank sells a bond for $1,000 to a Federal Reserve Bank, it can expand its loans by a maximum of:
$1,000.
$2,000.
$800.
$5,000.
6.
Answer the next question(s) on the basis of the following simplified consolidated balance sheets for the commercial banking system and the twelve Federal Reserve Banks. Do not cumulate your answers; that is, return to the data given in the original balance sheets in answering each question. Assume a required reserve ratio of 25 percent. All figures are in billions of dollars.
CONSOLIDATED BALANCE SHEET: COMMERCIAL BANKING SYSTEM
Reserves $ 72 Securities 110 Loans 60
Reserves
$ 72
Securities
110
Loans
60
Demand deposits $ 240 Loans from Federal Reserve Banks 2
Demand deposits
$ 240
Loans from Federal Reserve Banks
2
CONSOLIDATED BALANCE SHEET: FEDERAL RESERVE BANKS
Securities $ 240 Loans to commercial banks 2 Federal Reserve Notes 140
Loans to commercial banks
Federal Reserve Notes
140
Liabilities and net worth
Reserves of commercial banks $ 72 Treasury deposits 310
Reserves of commercial banks
Treasury deposits
310
R-1 REF15023
Refer to the above balance sheets. Suppose the Federal Reserve Banks buy $2 in securities from the public, which deposits this amount into checking accounts. As a result of these transactions, the supply of money will:
be unaffected but the money-creating potential of the commercial banking system will increase by $6.
directly decrease by $2 and the money-creating potential of the commercial banking system will be unaffected.
directly increase by $8 and the money-creating potential of the commercial banking system will increase by $32.
directly increase by $2 and the money-creating potential of the commercial banking system will increase by $6.
7.
Refer to the above balance sheets. Suppose the Federal Reserve Banks sell $2 in securities directly to the commercial banks. As a result of this transaction the supply of money:
will decrease by $2, but the money-creating potential of the commercial banking system will not be affected.
is not directly affected, but the money-creating potential of the commercial banking system will decrease by $8.
will directly increase by $2 and the money-creating potential of the commercial banking system will decrease by $8.
will directly increase by $2 and the money-creating potential of the commercial banking system will increase by $8.
8.
The Federal Reserve System regulates the money supply primarily by:
controlling the production of coins at the United States mint.
altering the reserve requirements of commercial banks and thereby the ability of banks to make loans.
altering the reserves of commercial banks, largely through sales and purchases of government bonds.
restricting the issuance of Federal Reserve Notes because paper money is the largest portion of the money supply.
9.
An increase in the legal reserve ratio:
increases the money supply by increasing excess reserves and increasing the monetary multiplier.
decreases the money supply by decreasing excess reserves and decreasing the monetary multiplier.
increases the money supply by decreasing excess reserves and decreasing the monetary multiplier.
decreases the money supply by increasing excess reserves and decreasing the monetary multiplier.
10.
The discount rate is the interest:
rate at which the central banks lend to the U.S. Treasury.
rate at which the Federal Reserve Banks lend to commercial banks.
yield on long-term government bonds.
rate at which commercial banks lend to the public.
11.
Which of the following best describes the cause-effect chain of an easy money policy?
A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.
A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP.
An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP.
An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.
12.
If the Federal Reserve authorities were attempting to reduce demand-pull inflationary pressures, the proper policies would be to:
sell government securities, raise reserve requirements, and raise the discount rate.
buy government securities, raise reserve requirements, and raise the discount rate.
sell government securities, lower reserve requirements, and lower the discount rate.
sell government securities, raise reserve requirements, and lower the discount rate.
13.
R-2 F15066
Refer to the above diagrams. The numbers in parentheses after the AD 1, AD 2, and AD 3 labels indicate the levels of investment spending associated with each curve. All figures are in billions. If the money supply is M s 1 and the goal of the monetary authorities is full-employment output Qf, they should:
increase the money supply from $80 to $100.
increase the money supply from $80 to $120.
maintain the money supply at $80.
decrease the money supply from $80 to $60.
14.
Refer to the above diagrams. The numbers in parentheses after the AD 1, AD2, and AD 3 labels indicate the levels of investment spending associated with each curve. All figures are in billions. Which of the following would shift the money supply curve from M s 1 to M s 3?
purchases of bonds by the Fed in the open market
sales of bonds by the Fed in the open market
an increase in the reserve ratio
15.
Refer to the above diagrams. The numbers in parentheses after the AD 1, AD 2, and AD 3 labels indicate the levels of investment spending associated with each curve. All figures are in billions. If the MPC for the economy described by the figures is .8:
an increase in the money supply from $80 to $100 will shift the aggregate demand curve rightward by $50 billion at each price level.
an increase in the money supply from $80 to $100 will shift the aggregate demand curve leftward by $40 billion at each price level.
a decrease in the interest rate from 9 percent to 6 percent will shift the aggregate demand curve leftward by $100 billion at each price level.
a decrease in the interest rate from 6 percent to 3 percent will shift the aggregate demand curve leftward by $50 billion at each price level.
16.
Monetary policy is thought to be:
equally effective in moving the economy out of a depression as in controlling demand-pull inflation.
more effective in moving the economy out of a depression than in controlling demand-pull inflation.
more effective in controlling demand-pull inflation than in moving the economy out of a depression.
only effective in moving the economy out of a depression.
17.
The sale of government bonds by the Federal Reserve Banks to commercial banks will:
increase aggregate supply.
decrease aggregate supply.
increase aggregate demand.
decrease aggregate demand.
18.
One of the strengths of monetary policy relative to fiscal policy is that monetary policy:
can be implemented more quickly.
is subject to closer political scrutiny.
does not produce a net export effect.
entails a larger spending income multiplier effect on real GDP.
19.
The problem of "cyclical asymmetry" refers to the idea that:
a tight money policy can force a contraction of the money supply, but an easy money policy may not achieve an expansion of the money supply.
the monetary authorities have been less willing to use an easy money policy than they have a tight money policy.
cyclical downswings are typically of longer duration than cyclical upswings.
an easy money policy can force an expansion of the money supply, but a tight money policy may not achieve a contraction of the money supply.
20.
A tight money policy in the United States is most likely to:
depreciate the international value of the dollar and increase American net exports.
depreciate the international value of the dollar and decrease American net exports.
appreciate the international value of the dollar and increase American net exports.
appreciate the international value of the dollar and decrease American net exports.