Question 1

Table 29-1
Effects of an open-market transaction on the balance sheets of banks and the fed (in millions of dollars)   ​
-Assume the required reserve ratio is 20 percent and the FOMC orders an open-market purchase of $100 million in government securities from member banks.If the oversimplified money multiplier is assumed, then the money supply will

Accepted Answer

A)  increase by $500 million.
B)  increase by $100 million.
C)  decrease by $100 million.
D)  decrease by $500 million.E) C) and D)
F) A) and D)

Question 2

If there is 100 percent reserve banking, the money supply is unaffected by the proportion of the dollars that the public chooses to hold as currency versus deposits.

Accepted Answer

A) True 
 B)False

Question 3

If the Fed buys $5 million in government bonds, how much will the money supply change?

Accepted Answer

A)  It will increase by $5 million.
B)  It will increase by more than $5 million.
C)  It will decrease by $5 million.
D)  It will decrease by more than $5 million.E) A) and C)
F) B) and C)

Question 4

Required reserves are a fixed percentage of their

Accepted Answer

A)  deposits.
B)  loans.
C)  government bonds.
D)  none of these.E) None of the above
F) A) and B)

Question 5

Money and income are used interchangeably by noneconomists but mean different things.

Accepted Answer

A) True 
 B)False

Question 6

When the Federal Reserve System was first established, its founders intended the Fed to

Accepted Answer

A)  assist the Treasury in collecting taxes.
B)  be primarily responsible for government regulations.
C)  pursue an active monetary policy to stabilize the economy.
D)  provide protection against financial panics by acting as the lender of last resort.E) B) and C)
F) A) and B)

Question 7

Generally, most of the world's industrial countries believe that central banks should be independent of their governments.

Accepted Answer

A) True 
 B)False

Question 8

How are Treasury bond prices affected when the interest rate falls?

Accepted Answer

A)  The purchaser of the bond needs to spend less money to obtain a given number of dollars of interest per year, so the price of the bond must decrease.
B)  The purchaser of the bond needs to spend more money to obtain a given number of dollars of interest per year, so the price of the bond must increase.
C)  The purchaser of the bond needs to spend more money to obtain a given number of dollars of interest per year, so the price of the bond must decrease.
D)  The purchaser of the bond needs to spend less money to obtain a given number of dollars of interest per year, so the price of the bond must increase.E) A) and B)
F) A) and C)

Question 9

If the Fed raises the discount rate, what will be the effect on the money supply?

Accepted Answer

A)  It will decrease the money supply.
B)  It will increase the money supply.
C)  No change in the money supply
D)  Not enough data to give an answerE) A) and B)
F) All of the above

Question 10

Explain the concept of "lender of last resort." What is discount rate?

Accepted Answer

When risky business prospects make comme...

Question 11

An open-market purchase of Treasury bills by the Fed not only raises the money supply but also

Accepted Answer

A)  drives up T-bill prices and pushes interest rates down.
B)  drives up T-bill prices and drives interest rates up.
C)  pushes T-bill prices down and pushes interest rates down.
D)  none of these.E) None of the above
F) A) and B)

Question 12

People are often heard saying, "She makes good money." An economic interpretation of this statement would be that

Accepted Answer

A)  she has an honest job.
B)  she makes money that is not counterfeit.
C)  she has a high income.
D)  there is little inflation.E) All of the above
F) A) and C)

Question 13

The Federal Reserve System is a(n)

Accepted Answer

A)  corporation owned by its member banks.
B)  independent branch of the U.S.government.
C)  corporation owned by the government and member banks.
D)  agency created by presidential executive order.E) All of the above
F) A) and B)

Question 14

If the Fed increases the required reserve ratio, how will this affect excess reserves and the money supply?

Accepted Answer

A)  Both will increase.
B)  Excess reserves increase and the money supply decreases.
C)  Both will decrease.
D)  Excess reserves decrease and the money supply increases.E) All of the above
F) A) and D)

Question 15

The reserves supply schedule has a positive slope because

Accepted Answer

A)  the Fed lowers the discount rate as interest rates rise.
B)  the Fed makes more money available at higher interest rates.
C)  as interest rates rise, banks will find loans more profitable.
D)  as interest rates rise, people will demand more loans.E) All of the above
F) A) and C)

Question 16

Suppose that all banks maintain a 100 percent reserve ratio.If an individual deposits $ 3,000 of currency in a bank,

Accepted Answer

A)  the money supply is unaffected.
B)  the money supply rises by more than $3,000.
C)  the money supply rises by less than $3,000.
D)  the money supply decreased by less than $3,000.E) A) and C)
F) A) and D)

Question 17

The Federal Reserve System can be described as a bank for bankers.

Accepted Answer

A) True 
 B)False

Question 18

If the Fed purchases $100,000 of government bonds, and the reserve requirement is 20 percent, the maximum increase in the money supply is $ 500,000.

Accepted Answer

A) True 
 B)False

Question 19

Open-market operations refer to the purchase and sales of stocks listed on the New York Stock Exchange.

Accepted Answer

A) True 
 B)False

Question 20

An increase in the reserve supply

Accepted Answer

A)  will result in inflation if the unemployment rate is high.
B)  causes interest rates to rise.
C)  shifts the aggregate demand curve inward.
D)  will probably cause inflation if the economy is at potential GDP.E) A) and C)
F) B) and C)

Exam 29: Monetary Policy: Conventional and Unconventional

If the Fed increases the required reserve ratio, how will this affect excess reserves and the money supply?

Correct Answer
verified

The reserves supply schedule has a positive slope because

Correct Answer
verified

If the Fed raises the discount rate, what will be the effect on the money supply?

Correct Answer
verified

If the Fed buys $5 million in government bonds, how much will the money supply change?

Correct Answer
verified

Required reserves are a fixed percentage of their

Correct Answer
verified

If the Fed purchases $100,000 of government bonds, and the reserve requirement is 20 percent, the maximum increase in the money supply is $ 500,000.

Correct Answer
verified

An open-market purchase of Treasury bills by the Fed not only raises the money supply but also

Correct Answer
verified

If there is 100 percent reserve banking, the money supply is unaffected by the proportion of the dollars that the public chooses to hold as currency versus deposits.

Correct Answer
verified

Explain the concept of "lender of last resort." What is discount rate?

Correct Answer
verified
When risky business prospects make comme...
View Answer

Generally, most of the world's industrial countries believe that central banks should be independent of their governments.

Correct Answer
verified

The Federal Reserve System can be described as a bank for bankers.

Correct Answer
verified

The Federal Reserve System is a(n)

Correct Answer
verified

When the Federal Reserve System was first established, its founders intended the Fed to

Correct Answer
verified

Open-market operations refer to the purchase and sales of stocks listed on the New York Stock Exchange.

Correct Answer
verified

Suppose that all banks maintain a 100 percent reserve ratio.If an individual deposits $ 3,000 of currency in a bank,

Correct Answer
verified

People are often heard saying, "She makes good money." An economic interpretation of this statement would be that

Correct Answer
verified

How are Treasury bond prices affected when the interest rate falls?

Correct Answer
verified

Money and income are used interchangeably by noneconomists but mean different things.

Correct Answer
verified

An increase in the reserve supply

Correct Answer
verified

Correct Answer
verified

Exam 29: Monetary Policy: Conventional and Unconventional

If the Fed increases the required reserve ratio, how will this affect excess reserves and the money supply?

Correct AnswerverifiedShow Answer

The reserves supply schedule has a positive slope because

Correct AnswerverifiedShow Answer

If the Fed raises the discount rate, what will be the effect on the money supply?

Correct AnswerverifiedShow Answer

If the Fed buys $5 million in government bonds, how much will the money supply change?

Correct AnswerverifiedShow Answer

Required reserves are a fixed percentage of their

Correct AnswerverifiedShow Answer

If the Fed purchases $100,000 of government bonds, and the reserve requirement is 20 percent, the maximum increase in the money supply is $ 500,000.

Correct AnswerverifiedShow Answer

An open-market purchase of Treasury bills by the Fed not only raises the money supply but also

Correct AnswerverifiedShow Answer

If there is 100 percent reserve banking, the money supply is unaffected by the proportion of the dollars that the public chooses to hold as currency versus deposits.

Correct AnswerverifiedShow Answer

Explain the concept of "lender of last resort." What is discount rate?

Correct AnswerverifiedWhen risky business prospects make comme...View AnswerShow Answer

Generally, most of the world's industrial countries believe that central banks should be independent of their governments.

Correct AnswerverifiedShow Answer

The Federal Reserve System can be described as a bank for bankers.

Correct AnswerverifiedShow Answer

The Federal Reserve System is a(n)

Correct AnswerverifiedShow Answer

When the Federal Reserve System was first established, its founders intended the Fed to

Correct AnswerverifiedShow Answer

Open-market operations refer to the purchase and sales of stocks listed on the New York Stock Exchange.

Correct AnswerverifiedShow Answer

Suppose that all banks maintain a 100 percent reserve ratio.If an individual deposits $ 3,000 of currency in a bank,

Correct AnswerverifiedShow Answer

People are often heard saying, "She makes good money." An economic interpretation of this statement would be that

Correct AnswerverifiedShow Answer

How are Treasury bond prices affected when the interest rate falls?

Correct AnswerverifiedShow Answer

Money and income are used interchangeably by noneconomists but mean different things.

Correct AnswerverifiedShow Answer

An increase in the reserve supply

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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When risky business prospects make comme...
View Answer

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verified

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verified

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