Question 1

Reserves increase if the Federal Reserve

Accepted Answer

A) raises the discount rate or auctions more credit. 
B) raises the discount rate but not if it auctions more credit. 
C) lowers the discount rate or auctions more credit. 
D) lowers the discount rate but not if it auctions more credit. 
A) raises the discount rate or auctions more credit. 
B) raises the discount rate but not if it auctions more credit. 
C) lowers the discount rate or auctions more credit. 
D) lowers the discount rate but not if it auctions more credit.

Question 2

If the reserve requirement is 10 percent,which of the following pairs of changes would both allow a bank to lend out an additional $10,000?

Accepted Answer

A) the Fed buys a $10,000 bond from the bank or someone deposits $10,000 in the bank 
B) the Fed buys a $10,000 bond from the bank or the Fed lends the bank $10,000 
C) the Fed sells a $10,000 bond to the bank or someone deposits $10,000 in the bank 
D) the Fed sells a $10,000 bond to the bank or the Fed lends the bank $10,000 
A) the Fed buys a $10,000 bond from the bank or someone deposits $10,000 in the bank 
B) the Fed buys a $10,000 bond from the bank or the Fed lends the bank $10,000 
C) the Fed sells a $10,000 bond to the bank or someone deposits $10,000 in the bank 
D) the Fed sells a $10,000 bond to the bank or the Fed lends the bank $10,000

Question 3

Which tool of monetary policy does the Federal Reserve use most often?

Accepted Answer

A) term auctions 
B) open-market operations 
C) changes in reserve requirements 
D) changes in the discount rate 
A) term auctions 
B) open-market operations 
C) changes in reserve requirements 
D) changes in the discount rate

Question 4

If the federal funds rate were above the level the Federal Reserve had targeted,the Fed could move the rate back towards its target by

Accepted Answer

A) buying bonds.This buying would reduce reserves. 
B) buying bonds.This buying would increase reserves. 
C) selling bonds.This selling would reduce reserves. 
D) selling bonds.This selling would increase reserves. 
A) buying bonds.This buying would reduce reserves. 
B) buying bonds.This buying would increase reserves. 
C) selling bonds.This selling would reduce reserves. 
D) selling bonds.This selling would increase reserves.

Question 5

When the Fed conducts open-market sales,

Accepted Answer

A) it sells Treasury securities,which increases the money supply. 
B) it sells Treasury securities,which decreases the money supply. 
C) it auctions term loans,which increases the money supply. 
D) it auctions term loans,which decreases the money supply. 
A) it sells Treasury securities,which increases the money supply. 
B) it sells Treasury securities,which decreases the money supply. 
C) it auctions term loans,which increases the money supply. 
D) it auctions term loans,which decreases the money supply.

Question 6

If the money multiplier is 3 and the Fed buys $50,000 worth of bonds,what happens to the money supply?

Accepted Answer

A) it increases by $100,000 
B) it increases by $150,000 
C) it decreases by $100,000 
D) it decreases by $200,000 
A) it increases by $100,000 
B) it increases by $150,000 
C) it decreases by $100,000 
D) it decreases by $200,000

Question 7

When the Fed purchases $1000 worth of government bonds from the public,the U.S.money supply eventually increases by

Accepted Answer

A) more than $1000. 
B) exactly $1000. 
C) less than $1000. 
D) None of the above are correct. 
A) more than $1000. 
B) exactly $1000. 
C) less than $1000. 
D) None of the above are correct.

Question 8

If the reserve ratio is 15 percent,and banks do not hold excess reserves,and people hold only deposits and no currency,then when the Fed sells $25.5 million worth of bonds to the public,bank reserves

Accepted Answer

A) increase by $25.5 million and the money supply eventually increases by $382.5 million. 
B) increase by $25.5 million and the money supply eventually increases by $170 million. 
C) decrease by $25.5 million and the money supply eventually decreases by $382.5 million. 
D) decrease by $25.5 million and the money supply eventually decreases by $170 million. 
A) increase by $25.5 million and the money supply eventually increases by $382.5 million. 
B) increase by $25.5 million and the money supply eventually increases by $170 million. 
C) decrease by $25.5 million and the money supply eventually decreases by $382.5 million. 
D) decrease by $25.5 million and the money supply eventually decreases by $170 million.

Question 9

If people decide to hold more currency relative to deposits,the money supply

Accepted Answer

A) falls.The Fed could lessen the impact of this by buying Treasury bonds. 
B) falls.The Fed could lessen the impact of this by selling Treasury bonds. 
C) rises.The Fed could lessen the impact of this by buying Treasury bonds. 
D) rises.The Fed could lessen the impact of the by selling Treasury bonds. 
A) falls.The Fed could lessen the impact of this by buying Treasury bonds. 
B) falls.The Fed could lessen the impact of this by selling Treasury bonds. 
C) rises.The Fed could lessen the impact of this by buying Treasury bonds. 
D) rises.The Fed could lessen the impact of the by selling Treasury bonds.

Question 10

The interest rate that the Fed charges banks that borrow reserves from it is the

Accepted Answer

A) federal funds rate. 
B) discount rate. 
C) reserve requirement. 
D) prime rate. 
A) federal funds rate. 
B) discount rate. 
C) reserve requirement. 
D) prime rate.

Question 11

When the Fed makes open-market sales bank

Accepted Answer

A) withdrawals and lending increase. 
B) withdrawals increase and lending decreases. 
C) deposits and lending increase. 
D) deposits increase and lending decreases. 
A) withdrawals and lending increase. 
B) withdrawals increase and lending decreases. 
C) deposits and lending increase. 
D) deposits increase and lending decreases.

Question 12

During the Great Depression in the early 1930s,

Accepted Answer

A) bank runs closed many banks. 
B) the money supply rose sharply. 
C) the Fed decreased reserve requirements. 
D) both a and b are correct. 
A) bank runs closed many banks. 
B) the money supply rose sharply. 
C) the Fed decreased reserve requirements. 
D) both a and b are correct.

Question 13

Reserve requirements are regulations concerning

Accepted Answer

A) the amount banks are allowed to borrow from the Fed. 
B) the amount of reserves banks must hold against deposits. 
C) reserves banks must hold based on the number and type of loans they make. 
D) the interest rate at which banks can borrow from the Fed. 
A) the amount banks are allowed to borrow from the Fed. 
B) the amount of reserves banks must hold against deposits. 
C) reserves banks must hold based on the number and type of loans they make. 
D) the interest rate at which banks can borrow from the Fed.

Question 14

The federal funds rate is the interest rate

Accepted Answer

A) the Federal Reserve charges for loans it makes to the federal government. 
B) the Federal Reserve charges banks for short-term loans. 
C) banks charge each other for short-term loans of reserves. 
D) on newly issued one-year Treasury bonds. 
A) the Federal Reserve charges for loans it makes to the federal government. 
B) the Federal Reserve charges banks for short-term loans. 
C) banks charge each other for short-term loans of reserves. 
D) on newly issued one-year Treasury bonds.

Question 15

The federal funds rate is the

Accepted Answer

A) percentage of face value that the Federal Reserve is willing to pay for Treasury Securities. 
B) percentage of deposits that banks must hold as reserves. 
C) interest rate at which the Federal Reserve makes short-term loans to banks. 
D) interest rate at which banks lend reserves to each other overnight. 
A) percentage of face value that the Federal Reserve is willing to pay for Treasury Securities. 
B) percentage of deposits that banks must hold as reserves. 
C) interest rate at which the Federal Reserve makes short-term loans to banks. 
D) interest rate at which banks lend reserves to each other overnight.

Question 16

The interest rate the Fed charges on loans it makes to banks is called

Accepted Answer

A) the prime rate. 
B) the federal funds rate. 
C) the discount rate. 
D) the LIBOR. 
A) the prime rate. 
B) the federal funds rate. 
C) the discount rate. 
D) the LIBOR.

Question 17

The money supply increases when the Fed

Accepted Answer

A) lowers the discount rate.The increase will be larger the smaller the reserve ratio is. 
B) lowers the discount rate.The increase will be larger the larger the reserve ratio is. 
C) raises the discount rate.The increase will be larger the smaller the reserve ratio is. 
D) raises the discount rate.The increase will be larger the larger the reserve ratio is. 
A) lowers the discount rate.The increase will be larger the smaller the reserve ratio is. 
B) lowers the discount rate.The increase will be larger the larger the reserve ratio is. 
C) raises the discount rate.The increase will be larger the smaller the reserve ratio is. 
D) raises the discount rate.The increase will be larger the larger the reserve ratio is.

Question 18

If the money multiplier is 3 and the Fed wants to increase the money supply by $900,000,it could

Accepted Answer

A) buy $300,000 worth of bonds. 
B) buy $225,000 worth of bonds. 
C) sell $300,000 worth of bonds. 
D) sell $225,000 worth of bonds. 
A) buy $300,000 worth of bonds. 
B) buy $225,000 worth of bonds. 
C) sell $300,000 worth of bonds. 
D) sell $225,000 worth of bonds.

Question 19

The banking system currently has $100 billion of reserves,none of which are excess.People hold only deposits and no currency,and the reserve requirement is 10 percent.If the Fed lowers the reserve requirement to 5 percent and at the same time buys $10 billion worth of bonds,then by how much does the money supply change?

Accepted Answer

A) It rises by $200 billion. 
B) It rises by $800 billion. 
C) It rises by $1,200 billion. 
D) None of the above is correct. 
A) It rises by $200 billion. 
B) It rises by $800 billion. 
C) It rises by $1,200 billion. 
D) None of the above is correct.

Question 20

The Fed purchases $200 worth of government bonds from the public.The reserve requirement is 12.5 percent,people hold no currency,and the banking system keeps no excess reserves.The U.S.money supply eventually increases by

Accepted Answer

A) $25. 
B) between $200 and $300. 
C) $1,600. 
D) $2,500. 
A) $25. 
B) between $200 and $300. 
C) $1,600. 
D) $2,500.

Exam 16: The Monetary System: The Feds Tools of Monetary Control

Reserves increase if the Federal Reserve

If the reserve requirement is 10 percent,which of the following pairs of changes would both allow a bank to lend out an additional $10,000?

Which tool of monetary policy does the Federal Reserve use most often?

If the federal funds rate were above the level the Federal Reserve had targeted,the Fed could move the rate back towards its target by

When the Fed conducts open-market sales,

If the money multiplier is 3 and the Fed buys $50,000 worth of bonds,what happens to the money supply?

When the Fed purchases $1000 worth of government bonds from the public,the U.S.money supply eventually increases by

If the reserve ratio is 15 percent,and banks do not hold excess reserves,and people hold only deposits and no currency,then when the Fed sells $25.5 million worth of bonds to the public,bank reserves

If people decide to hold more currency relative to deposits,the money supply

The interest rate that the Fed charges banks that borrow reserves from it is the

When the Fed makes open-market sales bank

During the Great Depression in the early 1930s,

Reserve requirements are regulations concerning

The federal funds rate is the interest rate

The federal funds rate is the

The interest rate the Fed charges on loans it makes to banks is called

The money supply increases when the Fed

If the money multiplier is 3 and the Fed wants to increase the money supply by $900,000,it could

The Fed purchases $200 worth of government bonds from the public.The reserve requirement is 12.5 percent,people hold no currency,and the banking system keeps no excess reserves.The U.S.money supply eventually increases by

Ten Principles of Economics

Ten Principles of Economics: How People Make Decisions

Ten Principles of Economics: How People Interact

Ten Principles of Economics: How the Economy As a Whole Works

Ten Principles of Economics: Part A

Ten Principles of Economics: Part B

Thinking Like an Economist

Thinking Like an Economist: The Economist As Scientist

Thinking Like an Economist: The Economist As Policy Adviser

Thinking Like an Economist: Why Economists Disagree

Thinking Like an Economist: Lets Get Going

Thinking Like an Economist: Graphing a Brief Review

Thinking Like an Economist: Part A

Thinking Like an Economist: Part B

Interdependence and the Gains From Trade

Interdependence and the Gains From Trade: A Parable for the Modern Economy

Interdependence and the Gains From Trade: Comparative Advantage the Driving Force of Specialization

Interdependence and the Gains From Trade: Applications of Comparative Advantage

Interdependence and the Gains From Trade: Conclusion

Interdependence and the Gains From Trade: Part A

Interdependence and the Gains From Trade: Part B

The Market Forces of Supply and Demand

The Market Forces of Supply and Demand:Markets and Competition

The Market Forces of Supply and Demand: Demand

The Market Forces of Supply and Demand: Supply

The Market Forces of Supply and Demand: Supply and Demand Together

The Market Forces of Supply and DemandConclusion How Prices Allocate Resources

The Market Forces of Supply and Demand: Part A

The Market Forces of Supply and Demand: Part B

Elasticity and Its Applications

Elasticity and Its Applications: The Elasticity of Demand

Elasticity and Its Applications: The Elasticity of Supply

Elasticity and Its Applications: Three Applications of Supply,demand,and Elasticity

Elasticity and Its Applications: Part A

Elasticity and Its Applications: Part B

Supply Demand and Government Policies

Supply Demand and Government Policies: Controls on Prices

Supply Demand and Government Policies: Taxes

Supply Demand and Government Policies: Part A

Supply Demand and Government Policies: Part B

Consumers Producers and the Efficiency of Markets

Consumers Producers and the Efficiency of Markets: Consumer Surplus

Consumers Producers and the Efficiency of Markets: Producer Surplus

Consumers Producers and the Efficiency of Markets: Market Efficiency

Consumers Producers and the Efficiency of Markets: Conclusion Market Efficiency and Market Failure

Consumers Producers and the Efficiency of Markets: Part A

Consumers Producers and the Efficiency of Markets: Part B

Application the Cost of Taxation

Application the Cost of Taxation: The Deadweight Loss of Taxation

Application the Cost of Taxation: The Determinants of the Deadweight Loss

Application the Cost of Taxation: Deadweight Loss and Tax Revenue As Taxes Vary

Application the Cost of Taxation: Conclusion

Application the Cost of Taxation: Part A

Application the Cost of Taxation: Part B

Application International Trade

Application International Trade: The Determinants of Trade

Application International Trade: The Winners and Losers From Trade

Application International Trade: The Arguments for Restricting Trade

Application International Trade: Conclusion

Application International Trade: Part A