Question 1

Open market operations refer to:

Accepted Answer

A)  the buying and selling of stocks in the stock market. 
B)  the buying and selling of government bonds by the Fed. 
C)  decisions by the Fed to raise or lower interest rates. 
D)  decisions by the Fed to increase or decrease the money multiplier. 
A)  the buying and selling of stocks in the stock market. 
B)  the buying and selling of government bonds by the Fed. 
C)  decisions by the Fed to raise or lower interest rates. 
D)  decisions by the Fed to increase or decrease the money multiplier.

Question 2

Checkable deposits are deposits on which the owner may write checks.

Accepted Answer

A) True 
 B)False

Question 3

When the Federal Reserve conducts monetary policy, the Federal Reserve usually focuses on:

Accepted Answer

A)  M1. 
B)  M2. 
C)  the Federal Funds rate. 
D)  the discount rate. 
A)  M1. 
B)  M2. 
C)  the Federal Funds rate. 
D)  the discount rate.

Question 4

Which asset is MOST liquid?

Accepted Answer

A)  a money market mutual fund 
B)  cash 
C)  a house 
D)  antique furniture 
A)  a money market mutual fund 
B)  cash 
C)  a house 
D)  antique furniture

Question 5

Use the following to answer questions: Table: Statistics for a Small Economy $$\begin{array} { l c } 
\hline \text { Item } & \text { Value in dollars (\$) } \
\hline \text { Cash held by public } & 7 \text { million } \
\text { Small-time deposits } & 30 \text { million } \
\text { Money market mutual funds } & 18 \text { million } \
\text { Checkable deposits } & 36 \text { million } \
\text { Currency \& total reserves at the Fed } & 12 \text { million } \
\text { Large-time deposits } & 20 \text { million } \
\text { Demand deposits } & 14 \text { million } \
\hline
\end{array}$$
-(Table: Statistics for a Small Economy) Refer to the table. The table shows some statistics for a small economy. Using only the information provided, M2 in this country amounts to:

Accepted Answer

A)  $105 million. 
B)  $121 million. 
C)  $137 million. 
D)  $129 million. 
A)  $105 million. 
B)  $121 million. 
C)  $137 million. 
D)  $129 million.

Question 6

The single largest category of means of payment in the United States is:

Accepted Answer

A)  currency. 
B)  reserves held at the Fed. 
C)  checkable deposits. 
D)  savings deposits. 
A)  currency. 
B)  reserves held at the Fed. 
C)  checkable deposits. 
D)  savings deposits.

Question 7

The money supply in the United States is measured as the amount of currency, including coins, in circulation.

Accepted Answer

A) True 
 B)False

Question 8

If the Fed decides to increase the money supply by $200 million, it can accomplish this by buying fewer than $200 million worth of government bonds in the open market.

Accepted Answer

A) True 
 B)False

Question 9

What is systemic risk and how does the Fed deal with it?

Accepted Answer

Systemic risk is the risk that failure o

Question 10

Table: Money Supply $$\begin{array} { l l } 
\hline \text { Reserves held at by banks at the Fed } & \$ 100 \text { billion } \
\text { Currency } & \$ 650 \text { billion } \
\text { Checkable deposits } & \$ 500 \text { billion } \
\text { Savings deposits } & \$ 325 \text { billion } \
\text { Small-time deposits } & \$ 550 \text { billion } \
\text { Large-time deposits } & \$ 670 \text { billion } \
\text { Money market mutual funds } & \$ 270 \text { billion } \
\hline
\end{array}$$ 
Using information in the table shown, calculate the amount of the monetary base, M1, and M2.

Accepted Answer

The monetary base = currency + reserves

Question 11

If the Fed wants to decrease the money supply, it will:

Accepted Answer

A)  buy government bonds. 
B)  lower the discount rate on lending. 
C)  set up the Term Auction Facility. 
D)  increase the rate of interest paid on reserves. 
A)  buy government bonds. 
B)  lower the discount rate on lending. 
C)  set up the Term Auction Facility. 
D)  increase the rate of interest paid on reserves.

Question 12

The effective reserve ratio is determined primarily by:

Accepted Answer

A)  how liquid banks wish to be. 
B)  how greedy banks wish to be. 
C)  the number of bank customers. 
D)  the size of banks' vaults. 
A)  how liquid banks wish to be. 
B)  how greedy banks wish to be. 
C)  the number of bank customers. 
D)  the size of banks' vaults.

Question 13

Money is best defined as:

Accepted Answer

A)  anything that has a high nominal value. 
B)  anything that is a widely accepted means of payment. 
C)  only the amount we spend in a given period. 
D)  the total amount of fixed assets we own. 
A)  anything that has a high nominal value. 
B)  anything that is a widely accepted means of payment. 
C)  only the amount we spend in a given period. 
D)  the total amount of fixed assets we own.

Question 14

The risk that the failure of one financial institution can lead to the failure of other financial institutions is called:

Accepted Answer

A)  systemic risk. 
B)  moral hazard. 
C)  liquidity risk. 
D)  solvency risk. 
A)  systemic risk. 
B)  moral hazard. 
C)  liquidity risk. 
D)  solvency risk.

Question 15

M2 refers to:

Accepted Answer

A)  currency. 
B)  currency plus total reserves held at the Fed. 
C)  currency plus checkable deposits. 
D)  currency, checkable deposits, savings deposits, money market mutual funds, and small-time deposits. 
A)  currency. 
B)  currency plus total reserves held at the Fed. 
C)  currency plus checkable deposits. 
D)  currency, checkable deposits, savings deposits, money market mutual funds, and small-time deposits.

Question 16

The Federal Reserve:

Accepted Answer

A)  clears all checks. 
B)  conducts monetary policy. 
C)  prints all currency. 
D)  makes loans to individuals. 
A)  clears all checks. 
B)  conducts monetary policy. 
C)  prints all currency. 
D)  makes loans to individuals.

Question 17

The Fed's Term Auction Facility is designed to encourage borrowing by banks.

Accepted Answer

A) True 
 B)False

Question 18

Money is:

Accepted Answer

A)  anything that is widely accepted as a means of payment. 
B)  currency only. 
C)  another name for income. 
D)  stocks and bonds. 
A)  anything that is widely accepted as a means of payment. 
B)  currency only. 
C)  another name for income. 
D)  stocks and bonds.

Question 19

M1 and M2 are the largest components of the money pyramid.

Accepted Answer

A) True 
 B)False

Question 20

Explain how the Fed is structured and controlled.

Accepted Answer

The Fed is a quasi-private, quasi-public

Open market operations refer to:

Checkable deposits are deposits on which the owner may write checks.

When the Federal Reserve conducts monetary policy, the Federal Reserve usually focuses on:

Which asset is MOST liquid?

The single largest category of means of payment in the United States is:

The money supply in the United States is measured as the amount of currency, including coins, in circulation.

If the Fed decides to increase the money supply by $200 million, it can accomplish this by buying fewer than $200 million worth of government bonds in the open market.

What is systemic risk and how does the Fed deal with it?

If the Fed wants to decrease the money supply, it will:

The effective reserve ratio is determined primarily by:

Money is best defined as:

The risk that the failure of one financial institution can lead to the failure of other financial institutions is called:

M2 refers to:

The Federal Reserve:

The Fed's Term Auction Facility is designed to encourage borrowing by banks.

Money is:

M1 and M2 are the largest components of the money pyramid.

Explain how the Fed is structured and controlled.

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

Filters

Exam 15: The Federal Reserve System and Open Market Operations

Open market operations refer to:

Checkable deposits are deposits on which the owner may write checks.

When the Federal Reserve conducts monetary policy, the Federal Reserve usually focuses on:

Which asset is MOST liquid?

The single largest category of means of payment in the United States is:

The money supply in the United States is measured as the amount of currency, including coins, in circulation.

If the Fed decides to increase the money supply by $200 million, it can accomplish this by buying fewer than $200 million worth of government bonds in the open market.

What is systemic risk and how does the Fed deal with it?

If the Fed wants to decrease the money supply, it will:

The effective reserve ratio is determined primarily by:

Money is best defined as:

The risk that the failure of one financial institution can lead to the failure of other financial institutions is called:

M2 refers to:

The Federal Reserve:

The Fed's Term Auction Facility is designed to encourage borrowing by banks.

Money is:

M1 and M2 are the largest components of the money pyramid.

Explain how the Fed is structured and controlled.

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

Filters