Exam 15: The Federal Reserve System and Open Market Operations

The more liquid an asset, the more it can serve as money.

Which is NOT a widely used means of payment in the United States today?

If the Fed increases the amount of bank reserves by $100 million, the total money supply will potentially increase by more than $100 million.

The interest rate that the Fed charges to commercial banks when they borrow money from the Fed is called the Federal Funds rate.

Paying a higher interest rate on reserves held at the Fed will tend to:

The Federal Funds rate is the:

Which asset is the LEAST liquid?

Use the AD-AS model to illustrate how real GDP and inflation rate will change in the short run and in the long run if the Fed conducts an open market purchase.

Use the following to answer questions: For this table, assume that all banks observe the same required reserve ratio requirement. Also assume that the banks are listed in sequential order (thus the loans from the First National Bank become the deposits for the Second National Bank, and the loans from the Second National Bank become the deposits for the Third National Bank, and so on.) Also, the bank's balance sheets must always be balanced. Table: Multiple Deposit Expansion First National Bank ASSETS LIABILITIES Required reserves Deposits \ 400,000 Loans \ 368,000 TOTAL TOTAL Second National Bank ASSETS LIABILITIES Required reserves Deposits Loans TOTAL TOTAL $\text { Third National Bank }$ ASSETS LIABILITIES Required reserves Deposits Loans TOTAL TOTAL -(Table: Multiple Deposit Expansion) Refer to the table. For the multiple deposit expansion process described in this table, what is the maximum amount of loans that the Second National Bank can make if it holds only the required reserves?

Which is NOT included in the U.S. money supplies M1 and M2?

What is the reserve requirement?

The members of the Board of Governors of the Federal Reserve have 14-year nonrenewable terms. Thus:

When a bank has short-term liabilities that are greater than its short-term assets, but overall its assets are greater than its liabilities, the bank is considered:

An asset that without loss of value can be quickly converted into money:

Which is the LEAST liquid asset?

If money is neutral in the long run, why would the Fed want to increase the money supply? Explain carefully.

Which is NOT used by the Fed to control the money supply?

If you owe your banker one million dollars and can't pay, you have a problem. If you owe your banker one billion dollars and can't pay, your banker has a problem.

The goal of an open market sale by the Federal Reserve is to:

What was the rationale for the Fed lending billions of dollars to the insurance company American International Group (AIG)?