Question 1

A gold sale by the U.S. Treasury

Accepted Answer

A)  reduces bank reserves. 
B)  increases bank reserves. 
C)  increases Federal Reserve assets. 
D)  leaves bank reserves unaffected. 
A)  reduces bank reserves. 
B)  increases bank reserves. 
C)  increases Federal Reserve assets. 
D)  leaves bank reserves unaffected. A

Question 2

If the government collects taxes to pay for expenditures of an equal amount, bank reserves

Accepted Answer

A)  are unaffected. 
B)  rise by an equal amount. 
C)  rise by a multiple amount. 
D)  fall by an equal amount. 
A)  are unaffected. 
B)  rise by an equal amount. 
C)  rise by a multiple amount. 
D)  fall by an equal amount. A

Question 3

A Treasury expenditure financed through borrowing from the Federal Reserve will cause the money supply

Accepted Answer

A)  and bank reserves to rise by an equal amount. 
B)  and bank reserves to fall by an equal amount. 
C)  to rise but bank reserves to rise by a greater amount. 
D)  to rise by a greater amount than the rise in bank reserves. 
A)  and bank reserves to rise by an equal amount. 
B)  and bank reserves to fall by an equal amount. 
C)  to rise but bank reserves to rise by a greater amount. 
D)  to rise by a greater amount than the rise in bank reserves. D

Question 4

U.S. Treasury deposits at the Fed are

Accepted Answer

A)  part of M1, M2, and M3. 
B)  part of M1 and M2. 
C)  part of M1. 
D)  not part of the money supply. 
A)  part of M1, M2, and M3. 
B)  part of M1 and M2. 
C)  part of M1. 
D)  not part of the money supply.

Question 5

Assume the Treasury borrows $5 billion from the non-bank public and spends it. The effect on bank reserves is that they will __________ by $5 billion when the Treasury borrows and then bank reserves will __________ by $5 billion when the Treasury spends the money.

Accepted Answer

A)  rise; fall 
B)  fall; rise 
C)  rise; rise 
D)  fall; fall 
A)  rise; fall 
B)  fall; rise 
C)  rise; rise 
D)  fall; fall

Question 6

The largest item on the liability side of the Federal Reserve's balance sheet is

Accepted Answer

A)  commercial bank deposits. 
B)  U.S. government securities. 
C)  cash items in the process of collection. 
D)  Federal Reserve notes outstanding. 
A)  commercial bank deposits. 
B)  U.S. government securities. 
C)  cash items in the process of collection. 
D)  Federal Reserve notes outstanding.

Question 7

A severe storm that slows postal delivery will cause

Accepted Answer

A)  a decrease in Federal Reserve float. 
B)  a decrease in Federal Reserve notes outstanding. 
C)  an increase in Federal Reserve float. 
D)  an increase in Federal Reserve notes outstanding. 
A)  a decrease in Federal Reserve float. 
B)  a decrease in Federal Reserve notes outstanding. 
C)  an increase in Federal Reserve float. 
D)  an increase in Federal Reserve notes outstanding.

Question 8

Bank reserves will decrease if

Accepted Answer

A)  Fed liabilities decrease. 
B)  currency held by the public decreases. 
C)  float decreases. 
D)  Fed assets increase. 
A)  Fed liabilities decrease. 
B)  currency held by the public decreases. 
C)  float decreases. 
D)  Fed assets increase.

Question 9

If the federal government collects $10 billion in taxes and then spends it on the public, the money supply

Accepted Answer

A)  rises by $20 billion. 
B)  rises by $10 billion. 
C)  falls by $10 billion. 
D)  is unaffected. 
A)  rises by $20 billion. 
B)  rises by $10 billion. 
C)  falls by $10 billion. 
D)  is unaffected.

Question 10

Repos and reverse repos are

Accepted Answer

A)  permanent injections or deletions of reserves. 
B)  always dynamic policy tools. 
C)  temporary injections or deletions of reserves. 
D)  sometimes defense, but most often dynamic policy tools. 
A)  permanent injections or deletions of reserves. 
B)  always dynamic policy tools. 
C)  temporary injections or deletions of reserves. 
D)  sometimes defense, but most often dynamic policy tools.

Question 11

If the Treasury finances an expenditure by borrowing from the banking system, the money supply will not be affected if the banks

Accepted Answer

A)  borrowed from the discount window to buy the government bonds. 
B)  had no excess reserves when they bought the bonds. 
C)  were not members of the Federal Reserve System. 
D)  had no other government securities in their portfolios. 
A)  borrowed from the discount window to buy the government bonds. 
B)  had no excess reserves when they bought the bonds. 
C)  were not members of the Federal Reserve System. 
D)  had no other government securities in their portfolios.

Question 12

A sound monetary policy response to a sudden temporary increase in currency held by the public would be to

Accepted Answer

A)  reduce the rate of currency printing. 
B)  carry out defensive open market operations. 
C)  carry out dynamic open market operations. 
D)  raise reserve requirements. 
A)  reduce the rate of currency printing. 
B)  carry out defensive open market operations. 
C)  carry out dynamic open market operations. 
D)  raise reserve requirements.

Question 13

Assume a money multiplier of 3. If the Treasury finances a $30 million expenditure by selling securities to the Fed, the effect of this transaction on the money supply is that it will

Accepted Answer

A)  remain unchanged. 
B)  rise by $3 million. 
C)  rise by $30 million. 
D)  rise by $90 million. 
A)  remain unchanged. 
B)  rise by $3 million. 
C)  rise by $30 million. 
D)  rise by $90 million.

Question 14

When the U.S. Treasury sells gold, the immediate effect is that __________ and __________.

Accepted Answer

A)  reserves increase; currency in circulation decreases 
B)  reserves decrease; currency in circulation increases 
C)  reserves increase; Treasury deposits decrease 
D)  reserves decrease; Treasury deposits increase 
A)  reserves increase; currency in circulation decreases 
B)  reserves decrease; currency in circulation increases 
C)  reserves increase; Treasury deposits decrease 
D)  reserves decrease; Treasury deposits increase

Question 15

If total Fed assets __________, then reserves have to __________, everything else being equal.

Accepted Answer

A)  fall; rise 
B)  rise; fall 
C)  fall; fall 
D)  None of the above. 
A)  fall; rise 
B)  rise; fall 
C)  fall; fall 
D)  None of the above.

Question 16

The five options available to the U.S. Treasury for financing government spending are as follows: collecting taxes, printing currency, borrowing from the Federal Reserve, borrowing from the public, and

Accepted Answer

A)  expanding the money supply. 
B)  devaluing the dollar. 
C)  borrowing from the banking system. 
D)  raising bank reserve requirements. 
A)  expanding the money supply. 
B)  devaluing the dollar. 
C)  borrowing from the banking system. 
D)  raising bank reserve requirements.

Question 17

Which of the following appears as a liability on the Federal Reserves balance sheet?

Accepted Answer

A)  U.S. Treasury deposits 
B)  Special drawing rights 
C)  U.S. government securities held under repurchase agreements 
D)  Loans to commercial banks 
A)  U.S. Treasury deposits 
B)  Special drawing rights 
C)  U.S. government securities held under repurchase agreements 
D)  Loans to commercial banks

Question 18

When currency outstanding decreases,

Accepted Answer

A)  gold certificates rise. 
B)  the money supply increases. 
C)  Fed assets decline. 
D)  bank deposits at the Fed increase. 
A)  gold certificates rise. 
B)  the money supply increases. 
C)  Fed assets decline. 
D)  bank deposits at the Fed increase.

Question 19

If total Fed liabilities __________, then reserves have to __________, everything else being equal.

Accepted Answer

A)  fall; rise 
B)  rise; rise 
C)  fall; fall 
D)  None of the above. 
A)  fall; rise 
B)  rise; rise 
C)  fall; fall 
D)  None of the above.

Question 20

When the Fed receives an inflow of Federal Reserve notes, its

Accepted Answer

A)  assets rise. 
B)  liabilities decline. 
C)  liabilities increase. 
D)  assets decline. 
A)  assets rise. 
B)  liabilities decline. 
C)  liabilities increase. 
D)  assets decline.

Exam 20: Understanding Movements in Bank Reserves

A gold sale by the U.S. Treasury

If the government collects taxes to pay for expenditures of an equal amount, bank reserves

A Treasury expenditure financed through borrowing from the Federal Reserve will cause the money supply

U.S. Treasury deposits at the Fed are

Assume the Treasury borrows $5 billion from the non-bank public and spends it. The effect on bank reserves is that they will __________ by $5 billion when the Treasury borrows and then bank reserves will __________ by $5 billion when the Treasury spends the money.

The largest item on the liability side of the Federal Reserve's balance sheet is

A severe storm that slows postal delivery will cause

Bank reserves will decrease if

If the federal government collects $10 billion in taxes and then spends it on the public, the money supply

Repos and reverse repos are

If the Treasury finances an expenditure by borrowing from the banking system, the money supply will not be affected if the banks

A sound monetary policy response to a sudden temporary increase in currency held by the public would be to

Assume a money multiplier of 3. If the Treasury finances a $30 million expenditure by selling securities to the Fed, the effect of this transaction on the money supply is that it will

When the U.S. Treasury sells gold, the immediate effect is that __________ and __________.

If total Fed assets __________, then reserves have to __________, everything else being equal.

The five options available to the U.S. Treasury for financing government spending are as follows: collecting taxes, printing currency, borrowing from the Federal Reserve, borrowing from the public, and

Which of the following appears as a liability on the Federal Reserves balance sheet?

When currency outstanding decreases,

If total Fed liabilities __________, then reserves have to __________, everything else being equal.

When the Fed receives an inflow of Federal Reserve notes, its

Introducing Money, Banking, and Financial Markets

The Role of Money in the Macroeconomy

Financial Instruments, Markets, and Institutions

Interest Rate Measurement and Behavior

The Term and Risk Structure of Interest Rates

The Structure and Performance of Securities Markets

The Pricing of Risky Financial Assets

Money and Capital Markets

Demystifying Derivatives

Understanding Foreign Exchange

The Nature of Financial Intermediation

Depository Financial Institutions

Nondepository Financial Institutions

Understanding Financial Contracts

The Regulation of Markets and Institutions

Financial System Design

Who's in Charge Here?

Bank Reserves and the Money Supply

The Instruments of Central Bankin

Monetary Policy Strategy

The Classical Foundations

The Keynesian Framework

The ISLM World

Money and Economic Stability in the ISLM World

An Aggregate Supply and Demand Perspective on Money and Economic Stability

Rational Expectations: Theory and Policy Implications

Empirical Evidence on the Effectiveness of Monetary Policy

Tying It All Together

Filters

Assume the Treasury borrows $5 billion from the non-bank public and spends it. The effect on bank reserves is that they will by $5 billion when the Treasury borrows and then bank reserves will by $5 billion when the Treasury spends the money.

When the U.S. Treasury sells gold, the immediate effect is that and .

If total Fed assets , then reserves have to , everything else being equal.

If total Fed liabilities , then reserves have to , everything else being equal.