Exam 15: The Federal Reserve System and Open Market Operations

Under fractional reserve banking, banks hold:

If the reserve ratio is one-tenth, then a $1,000 injection of reserves will increase the money supply by $100.

Which is MOST liquid?

The relationship between bond prices and interest rates is:

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 Third National Bank can make if it decides to hold 1% of deposits as excess reserves?

Suppose the Fed carries out an open market purchase and credits the account of a bank by $160,000. Further suppose that the reserve ratio (RR) is 10%. By how much is the money supply expected to change?

The members of the Board of Governors of the Federal Reserve are appointed for:

Which is NOT true of the Federal Reserve System?

For a given money multiplier, a decrease in the banking system's reserves will cause the money supply to:

Federal Deposit Insurance Corporation insures deposits for up to _____ for each depositor named on the account.

An increase in the reserve ratio will _____ banks' ability to make loans.

The discount rate is the interest rate that banks:

If you use a credit card for a payment, you have made a money transaction.

If the average reserve ratio in the banking system is 25% and the Fed increases bank reserves by $20,000, then the change in the money supply will be equal to $500,000.

The Federal Reserve has direct control over:

Banks might not borrow at the discount window for fear that such borrowing will be viewed as a sign of weakness.

If the reserve ratio is 5%, then an increase in bank deposits by $100,000 could expand the money supply by:

The key difference between quantitative easing and a typical open market purchase is that quantitative easing:

If $1 in cash is held in reserve for every $20 of deposits, the reserve ratio is:

If the Fed credits Alex's checking account with $8,000 and Alex's bank decides to keep the entire $8,000 in the form of reserves instead of lending it out, how much does the money supply increase?