Question 1

As the government's bank, the Fed does NOT:

Accepted Answer

A)  manage the borrowing of the U.S. Treasury. 
B)  maintain the bank account of the U.S. Treasury. 
C)  conduct the issuing, transferring, and redeeming of U.S. Treasury bonds. 
D)  approve the transactions involving corporate bonds and stocks. 
A)  manage the borrowing of the U.S. Treasury. 
B)  maintain the bank account of the U.S. Treasury. 
C)  conduct the issuing, transferring, and redeeming of U.S. Treasury bonds. 
D)  approve the transactions involving corporate bonds and stocks. D

Question 2

If the average reserve ratio in the banking system is 20% and the Fed increases bank reserves by $100,000, what will be the total potential increase in the money supply?

Accepted Answer

A)  $100,000 
B)  $120,000 
C)  $500,000 
D)  $2 million 
A)  $100,000 
B)  $120,000 
C)  $500,000 
D)  $2 million C

Question 3

Which concept describes the ease with which an asset can be quickly converted into money without losing its value?

Accepted Answer

A)  solvency 
B)  opportunity cost 
C)  liquidity 
D)  moral hazard 
A)  solvency 
B)  opportunity cost 
C)  liquidity 
D)  moral hazard C

Question 4

The Federal Reserve provided a loan to finance J. P. Morgan's purchase of Bear Stearns because Bear Stearns was too:

Accepted Answer

A)  big to let fail. 
B)  important to the check clearing process to let fail. 
C)  interconnected with other banks to let fail. 
D)  large of a holder of U.S. Treasury deposits. 
A)  big to let fail. 
B)  important to the check clearing process to let fail. 
C)  interconnected with other banks to let fail. 
D)  large of a holder of U.S. Treasury deposits.

Question 5

Which is NOT a duty performed by the Federal Reserve System?

Accepted Answer

A)  manage the nation's payment system 
B)  print money 
C)  regulate the U.S. banking system 
D)  maintain the bank account for the U.S. Treasury 
A)  manage the nation's payment system 
B)  print money 
C)  regulate the U.S. banking system 
D)  maintain the bank account for the U.S. Treasury

Question 6

If banks are holding 100% of deposits in reserves, the money multiplier will be:

Accepted Answer

A) 0. 
B) 1. 
C) 10. 
D) 100. 
A) 0. 
B) 1. 
C) 10. 
D) 100.

Question 7

Do you think banks set a higher reserve ratio on checking accounts or savings accounts? Explain.

Accepted Answer

Banks typically set higher reserve ratio

Question 8

When a person withdraws money from a savings account, M2 decreases but M1 increases.

Accepted Answer

A) True 
 B)False

Question 9

Which does NOT serve as means of payment in the United States?

Accepted Answer

A)  paper bills and coins 
B)  mutual funds 
C)  checking or debit account 
D)  savings deposits 
A)  paper bills and coins 
B)  mutual funds 
C)  checking or debit account 
D)  savings deposits

Question 10

Which rate does the Fed actually set?

Accepted Answer

A)  the Federal Funds rate 
B)  market interest rates 
C)  the discount rate 
D)  the prime rate 
A)  the Federal Funds rate 
B)  market interest rates 
C)  the discount rate 
D)  the prime rate

Question 11

Most of the time, a majority of banks borrow from the Federal Reserve.

Accepted Answer

A) True 
 B)False

Question 12

The existence of the discount window makes private bank loans work more smoothly, even if the discount window isn't being used.

Accepted Answer

A) True 
 B)False

Question 13

The discount rate is the interest rate:

Accepted Answer

A)  that one bank pays another to borrow overnight. 
B)  that the best customers pay a major bank. 
C)  banks pay when they borrow directly from the Fed. 
D)  that is approximately the daily rate divided by 365. 
A)  that one bank pays another to borrow overnight. 
B)  that the best customers pay a major bank. 
C)  banks pay when they borrow directly from the Fed. 
D)  that is approximately the daily rate divided by 365.

Question 14

The most liquid asset is cash.

Accepted Answer

A) True 
 B)False

Question 15

The narrowest measure of the U.S. money supply is:

Accepted Answer

A)  the monetary base. 
B)  M1. 
C)  M2. 
D)  M3. 
A)  the monetary base. 
B)  M1. 
C)  M2. 
D)  M3.

Question 16

An increase in money growth will cause the economy's AD curve to:

Accepted Answer

A)  not shift. 
B)  shift inward. 
C)  shift outward. 
D)  shift outward during expansions and inward during contractions. 
A)  not shift. 
B)  shift inward. 
C)  shift outward. 
D)  shift outward during expansions and inward during contractions.

Question 17

The United States has a fractional reserve banking system.

Accepted Answer

A) True 
 B)False

Question 18

Why did the Federal Reserve begin to pay interest on reserves held by banks?

Accepted Answer

The Federal Reserve began to pay interes

Question 19

The reserve ratio (RR) is the:

Accepted Answer

A)  amount the money supply expands with each dollar increase in reserves. 
B)  overnight lending rate from one major bank to another. 
C)  ratio of deposits to reserves. 
D)  ratio of reserves to deposits. 
A)  amount the money supply expands with each dollar increase in reserves. 
B)  overnight lending rate from one major bank to another. 
C)  ratio of deposits to reserves. 
D)  ratio of reserves to deposits.

Question 20

Bank notes are issued by:

Accepted Answer

A)  the leading financial institutions of the United States. 
B)  investment houses and banks. 
C)  the Federal Reserve only. 
D)  private banks and the Federal Reserve. 
A)  the leading financial institutions of the United States. 
B)  investment houses and banks. 
C)  the Federal Reserve only. 
D)  private banks and the Federal Reserve.

Exam 15: The Federal Reserve System and Open Market Operations

As the government's bank, the Fed does NOT:

If the average reserve ratio in the banking system is 20% and the Fed increases bank reserves by $100,000, what will be the total potential increase in the money supply?

Which concept describes the ease with which an asset can be quickly converted into money without losing its value?

The Federal Reserve provided a loan to finance J. P. Morgan's purchase of Bear Stearns because Bear Stearns was too:

Which is NOT a duty performed by the Federal Reserve System?

If banks are holding 100% of deposits in reserves, the money multiplier will be:

Do you think banks set a higher reserve ratio on checking accounts or savings accounts? Explain.

When a person withdraws money from a savings account, M2 decreases but M1 increases.

Which does NOT serve as means of payment in the United States?

Which rate does the Fed actually set?

Most of the time, a majority of banks borrow from the Federal Reserve.

The existence of the discount window makes private bank loans work more smoothly, even if the discount window isn't being used.

The discount rate is the interest rate:

The most liquid asset is cash.

The narrowest measure of the U.S. money supply is:

An increase in money growth will cause the economy's AD curve to:

The United States has a fractional reserve banking system.

Why did the Federal Reserve begin to pay interest on reserves held by banks?

The reserve ratio (RR) is the:

Bank notes are issued by:

The Big Ideas

The Power of Trade and Comparative Advantage

Supply and Demand

Equilibrium: How Supply and Demand Determine Prices

Price Ceilings and Floors

GDP and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth, Capital Accumulation and the Economics of Ideas: Catching up Vs the Cutting Edge

Saving, Investment, and the Financial System

Stock Markets and Personal Finance

Unemployment and Labor Force Participation

Inflation and the Quantity Theory of Money

Business Fluctuations: Aggregate Demand and Supply

Transmission and Amplification Mechanisms

Monetary Policy

The Federal Budget: Taxes and Spending

Fiscal Policy

International Trade

International Finance

Political Economy and Public Choice

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