Q&A Hero

Q: The percentage of deposits that banks must hold in reserve is the A. excess reserve ratio. B. required reserve ratio. C. total reserve ratio. D. currency ratio.

Q: The amount of deposits that banks must hold in reserve is A. excess reserves. B. required reserves. C. total reserves. D. vault cash.

Q: Total Reserves minus vault cash equals A. bank deposits with the Fed. B. excess reserves. C. required reserves. D. currency in circulation.

Q: Excess reserves are equal to A. total reserves minus discount loans. B. vault cash plus deposits with Federal Reserve banks minus required reserves. C. vault cash minus required reserves. D. deposits with the Fed minus vault cash plus required reserves.

Q: Total reserves are the sum of ________ and ________. A. excess reserves; borrowed reserves B. required reserves; currency in circulation C. vault cash; excess reserves D. excess reserves; required reserves

Q: Reserves are equal to the sum of A. required reserves and excess reserves. B. required reserves and vault cash reserves. C. excess reserves and vault cash reserves. D. vault cash reserves and total reserves.

Q: Total reserves minus bank deposits with the Fed equals A. vault cash. B. excess reserves. C. required reserves. D. currency in circulation.

Q: The monetary base consists of A. currency in circulation and Federal Reserve notes. B. currency in circulation and the U.S. Treasury's monetary liabilities. C. currency in circulation and reserves. D. reserves and Federal Reserve Notes.

Q: The sum of the Fed's monetary liabilities and the U.S. Treasury's monetary liabilities is called A. the money supply. B. currency in circulation. C. bank reserves. D. the monetary base.

Q: Both ________ and ________ are monetary liabilities of the Fed. A. securities; loans to financial institutions B. currency in circulation; reserves C. securities; reserves D. currency in circulation; loans to financial institutions

Q: The monetary liabilities of the Federal Reserve include A. securities and loans to financial institutions. B. currency in circulation and reserves. C. securities and reserves. D. currency in circulation and loans to financial institutions.

Q: Both ________ and ________ are Federal Reserve assets. A. currency in circulation; reserves B. currency in circulation; securities C. securities; loans to financial institutions D. securities; reserves

Q: Of the three players in the money supply process, most observers agree that the most important player is A. the United States Treasury. B. the Federal Reserve System. C. the FDIC. D. the Office of Thrift Supervision.

Q: The three players in the money supply process include A. banks, depositors, and the U.S. Treasury. B. banks, depositors, and borrowers. C. banks, depositors, and the central bank. D. banks, borrowers, and the central bank.

Q: Individuals that lend funds to a bank by opening a checking account are called A. policyholders. B. partners. C. depositors. D. debt holders.

Q: The government agency that oversees the banking system and is responsible for the conduct of monetary policy in the United States is A. the Federal Reserve System. B. the United States Treasury. C. the U.S. Gold Commission. D. the House of Representatives.

Q: The monetary base increased by 20% during the contraction of 1929-1933, but the money supply fell by 25%. Explain why this occurred. How can the money supply fall when the base increases?

Q: In the early 1930s, the currency-deposit ratio rose, as did the level of excess reserves. Money supply analysis predicts that, everything else held constant, the money supply should have a. risen. b. fallen. c. remain unchanged. d. either risen, fallen, or remain unchanged.

Q: During the bank panics of the Great Depression the excess reserve ratio A. increased sharply. B. decreased sharply. C. increased slightly. D. decreased slightly.

Q: During the bank panics of the Great Depression the currency ratio a. increased sharply. b. decreased sharply. c. increased slightly. d. decreased slightly.

Q: The declining trend in the currency-deposit ratio during 2007-2014 can be explained by a. the increased holdings of U.S. currency by foreigners. b. bank panics. c. a drop in the rate of interest paid on checking deposits. d. the increasing use of debit cards.

Q: The upward trend in the currency-deposit ratio during 1994-2007 can be explained by a. the increased holdings of U.S. currency by foreigners. b. bank panics. c. a drop in the rate of interest paid on checking deposits. d. high taxes and illegal activities.

Q: The increase in the currency ratio during World War II was due to a. bank panics. b. a drop in the rate of interest paid on checking deposits. c. the spread of ATMs. d. high taxes and illegal activities.

Q: The factor accounting for the steepest rise in the currency ratio since 1892 is a. taxes. b. bank panics. c. illegal activity. d. an increase in wealth.

Q: The steepest increase in the currency ratio since 1892 occurred during a. World War II. b. the Great Depression. c. the interwar years. d. the past twenty years.

Q: The increase in the availability of ATMs has caused the cost of acquiring currency to ________ which will cause the currency ratio to ________, everything else held constant. a. increase; increase b. increase; decrease c. decrease; increase d. decrease; decrease

Q: Everything else held constant, an increase in the interest rate paid on checkable deposits will cause ________ in the amount of checkable deposits held relative to currency holdings and ________ in the currency ratio. a. an increase; an increase b. an increase; a decrease c. a decrease; an increase d. a decrease; a decrease

Q: Everything else held constant, an increase in wealth will cause the holdings of checkable deposits to the holdings of currency to ________ and the currency ratio will ________. a. increase; increase b. increase; decrease c. decrease; increase d. decrease; decrease

Q: Part of the increase in currency holdings in the 1960s and 1970s can be attributed to a. increases in income tax rates. b. the switch from progressive to proportional income taxes. c. the adoption of regressive taxes. d. bracket creep due to inflation and progressive income taxes.

Q: Factors causing an increase in currency holdings include a. an increase in the interest rates paid on checkable deposits. b. an increase in the cost of acquiring currency. c. a decrease in bank panics. d. an increase in illegal activity.

Q: Everything else held constant, an increase in the excess reserve ratio will mean ________ in the M1 money multiplier and ________ in the M2 money multiplier. a. an increase; an increase b. no change; an increase c. a decrease; a decrease d. no change; a decrease

Q: Everything else held constant, an increase in the excess reserve ratio will mean ________ in the M2 money multiplier and ________ in the M2 money supply. a. an increase; an increase b. an increase; a decrease c. a decrease; an increase d. a decrease; a decrease

Q: Everything else held constant, an increase in the money market fund ratio will result in ________ in the M1 money multiplier and ________ in the M2 money multiplier. a. an increase; an increase b. no change; an increase c. a decrease; a decrease d. no change; a decrease

Q: Everything else held constant, an increase in the money market fund ratio will mean ________ in the M2 money multiplier and ________ in the M2 money supply.a. an increase; an increaseb. an increase; a decreasec. a decrease; an increased. a decrease; a decrease

Q: Everything else held constant, an increase in the time deposit ratio will result in ________ in the M1 money multiplier and ________ in the M2 money multiplier. a. an increase; an increase b. no change; an increase c. a decrease; a decrease d. no change; a decrease

Q: Everything else held constant, an increase in the time deposit ratio will mean ________ in the M2 money multiplier and ________ in the M2 money supply. a. an increase; an increase b. an increase; a decrease c. a decrease; an increase d. a decrease; a decrease

Q: Everything else held constant, an increase in the required reserve ratio will result in ________ in M1 and ________ in M2. a. an increase; an increase b. an increase; a decrease c. a decrease; an increase d. a decrease; a decrease

Q: Everything else held constant, an increase in the required reserve ratio will mean ________ in the M2 money multiplier and ________ in the M2 money supply. a. an increase; an increase b. an increase; a decrease c. a decrease; an increase d. a decrease; a decrease

Q: Everything else held constant, a decrease in the currency ratio will mean ________ in the M1 money multiplier and ________ in the M2 money multiplier. a. an increase; an increase b. an increase; a decrease c. a decrease; an increase d. a decrease; a decrease

Q: Everything else held constant, an increase in the currency ratio will mean ________ in the M2 money multiplier and ________ in the M2 money supply. a. an increase; an increase b. an increase; a decrease c. a decrease; an increase d. a decrease; a decrease

Q: The M2 money multiplier is a. negatively related to high-powered money. b. positively related to the time deposit ratio. c. positively related to the required reserve ratio. d. positively related to the excess reserves ratio.

Q: The M2 money supply is represented by a. M2 = × MB. b. M2 = × . c. MB = × M2. d. MB = × .

Q: In the model of the money supply process for M2, the relationship between checkable deposits and the M2 money supply is represented by a. D = × M2. b. D = (1 + c + t + mm) × M2. c. M2 = × D. d. M2 = .

Q: The equation that represents M2 in the model of the money supply process is a. M2 = C + D. b. M2 = C + D + T - MMF. c. M2 = C + D - T + MMF. d. M2 = C + D + T + MMF.

Q: Suppose the Bank of China permanently decreases its purchases of U.S. government bonds and, instead, holds more dollars on deposit at the Federal Reserve. Everything else held constant, a open market ________ would be the appropriate monetary policy action for the Fed to take to offset the expected ________ in the monetary base in the United States.a. purchase; decreaseb. purchase; increasec. sale; decreased. sale; increase

Q: Suppose, while cleaning out its closets, a worker at the Federal Reserve bank branch in Memphis discovers a painting of Elvis (medium: acrylic on velvet) that used to grace the walls of the conference room. Suppose further that, at a public auction, the bank sells the painting for $19.95. This sale will cause ________ in the monetary base, everything else held constant. a. an increase of $19.95 b. an increase of more than $19.95 c. a decrease of $19.95 d. a decrease of more than $19.95

Q: An increase in which of the following leads to a decline in the monetary base? a. float b. discount loans c. foreign deposits at the Fed d. SDRs

Q: U.S. Treasury deposits at the Fed are ________ for the Fed but ________ for the Treasury. Thus an increase in U.S. Treasury deposits ________ the monetary base. a. a liability; an asset; increases b. a liability; an asset; decreases c. an asset; a liability; increases d. an asset; a liability; decreases

Q: An increase in U.S. Treasury deposits at the Fed reduces both ________ and the ________. a. reserves; monetary base b. Fed liabilities; money multiplier c. Fed assets; monetary base d. Fed assets; money multiplier

Q: An increase in Treasury deposits at the Fed causes a. the monetary base to increase. b. the monetary base to decrease. c. Fed assets to increase but has no effect on the monetary base. d. Fed assets to decrease but has no effect on the monetary base.

Q: A Fed purchase of gold, SDRs, a deposit denominated in a foreign currency or any other asset is just an open market ________ of these assets, ________ the monetary base. a. purchase; raising b. sale; raising c. purchase; lowering d. sale; lowering

Q: Which of the following statements about central bank structure and independence is TRUE? A. In recent years, with the exception of the Bank of England and the Bank of Japan, most countries have reduced the independence of their central banks, subjecting them to greater democratic control. B. Before the Bank of England was granted greater independence, the Federal Reserve was the most independent of the world's central banks. C. Both theory and experience suggest that more independent central banks produce better monetary policy. D. While the European Central Bank is independent, it is not as independent as the Federal Reserve.

Q: The trend in recent years is that more and more governments A. have been granting greater independence to their central banks. B. have been reducing the independence of their central banks to make them more accountable for poor economic performance. C. have mandated that their central banks focus on controlling inflation. D. have required their central banks to cooperate more with their Ministers of Finance.

Q: Regarding central bank independence A. the Fed is more independent than the European Central Bank. B. the European Central Bank is more independent than the Fed. C. the trend in industrialized nations has been to reduce central bank independence. D. the Bank of England has the longest tradition of independence of any central bank in the world.

Q: While legislation enacted in 1998 granted the Bank of Japan new powers and greater autonomy, its critics contend that its independence is A. limited by the Ministry of Finance's veto power over a portion of its budget. B. too great because it need not pursue a policy of price stability even if that is the popular will of the people. C. too great since the Ministry of Finance no longer has veto power over the bank's budget. D. limited since the Ministry of Finance can dismiss senior bank officials.

Q: The oldest central bank, having been founded in 1694, is the A. Bank of England. B. Deutsche Bundesbank. C. Bank of Japan. D. Federal Reserve System.

Q: On paper, the Bank of Canada has ________ instrument independence and ________ goal independence when compared to the Federal Reserve System. A. less; less B. less; more C. more; less D. more; more

Q: Explain the similarities and differences between the European System of Central Banks and the Federal Reserve System.

Q: The central bank which is generally regarded as the most independent in the world because its charter cannot be changed by legislation is the A. Bank of England. B. Bank of Canada. C. European Central Bank. D. Bank of Japan.

Q: In the Governing Council, the decision of what policy to implement is made by A. majority vote of the Executive Board members. B. majority vote of the heads of the National Banks. C. consensus. D. majority vote of all members of the Governing Council.

Q: The Governing Council usually meets ________ times a year. A. four B. six C. eight D. twelve

Q: Which of the following statements comparing the European System of Central Banks and the Federal Reserve System is TRUE? A. The budgets of the Federal Reserve Banks are controlled by the Board of Governors, while the National Central Banks control their own budgets and the budget of the European Central Bank. B. The European Central Bank has similar power over the National Central Banks when compared to the level of power the Board of Governors has over the Federal Reserve Banks. C. Just like the Federal Reserve System, monetary operations are centralized in the European System of Central Banks with the European Central Bank. D. The European Central Bank's involvement in supervision and regulation of financial institutions is comparable to the Board of Governors' involvement.

Q: Members of the Executive Board of the European System of Central Banks are appointed to ________ year, nonrenewable terms. A. four B. eight C. ten D. fourteen

Q: Under the European System of Central Banks, the National Central Banks have the same role as the ________ of the Federal Reserve System. A. Board of Governors B. Federal Open Market Committee C. Federal Reserve Banks D. Federal Advisory Council

Q: Under the European System of Central Banks, the Governing Council is similar in structure to the ________ of the Federal Reserve System. A. Board of Governors B. Federal Open Market Committee C. Federal Reserve Banks D. Federal Advisory Council

Q: Under the European System of Central Banks, the Executive Board is similar in structure to the ________ of the Federal Reserve System. A. Board of Governors B. Federal Open Market Committee C. Federal Reserve Banks D. Federal Advisory Council

Q: What is the theory of bureaucratic behavior and how can it be used to explain the behavior of the Federal Reserve?

Q: The theory of bureaucratic behavior when applied to the Fed helps to explain why the Fed A. was supportive of congressional attempts to limit the central bank's autonomy. B. was so secretive about the conduct of future monetary policy. C. sought less control over banks in the 1980s. D. was willing to take on powerful groups that may threaten its autonomy.

Q: The theory of bureaucratic behavior suggests that the objective of a bureaucracy is to maximize A. the public's welfare. B. profits. C. its own welfare. D. conflict with the executive and legislative branches of government.

Q: Make the case for and against an independent Federal Reserve.

Q: Recent research indicates that inflation performance (low inflation) has been found to be best in countries with A. the most independent central banks. B. political control of monetary policy. C. money financing of budget deficits. D. a policy of always keeping interest rates low.

Q: Critics of the current system of Fed independence contend that A. the current system is undemocratic. B. voters have too much say about monetary policy. C. the president has too much control over monetary policy on a day-to-day basis. D. the Board of Governors is held responsible for policy missteps.

Q: The strongest argument for an independent Federal Reserve rests on the view that subjecting the Fed to more political pressures would impart A. an inflationary bias to monetary policy. B. a deflationary bias to monetary policy. C. a disinflationary bias to monetary policy. D. a countercyclical bias to monetary policy.

Q: The political business cycle refers to the phenomenon that just before elections, politicians enact ________ policies. After the elections, the bad effects of these policies (for example, ________ ) have to be counteracted with ________ policies. A. expansionary; higher unemployment; contractionary B. expansionary; a higher inflation rate; contractionary C. contractionary; higher unemployment; expansionary D. contractionary; a higher inflation rate; expansionary

Q: The case for Federal Reserve independence does NOT include the idea that A. political pressure would impart an inflationary bias to monetary policy. B. a politically insulated Fed would be more concerned with long-run objectives and thus be a defender of a sound dollar and a stable price level. C. policy is always performed better by an elite group such as the Fed. D. a Federal Reserve under the control of Congress or the president might make the so-called political business cycle more pronounced.

Q: Explain two concepts of central bank independence. Is the Fed politically independent? Why do economists think central bank independence is important?

Q: Members of Congress are able to influence monetary policy, albeit indirectly, through their ability to A. withhold appropriations from the Board of Governors. B. withhold appropriations from the Federal Open Market Committee. C. propose legislation that would force the Fed to submit budget requests to Congress, as must other government agencies. D. instruct the General Accounting Office to audit the foreign exchange market functions of the Federal Reserve.

Q: The ability of a central bank to set monetary policy goals is A. political independence. B. goal independence. C. policy independence. D. instrument independence.

Q: Goal independence is the ability of ________ to set monetary policy ________. A. the central bank; goals B. Congress; goals C. Congress; instruments D. the central bank; instruments

Q: The ability of a central bank to set monetary policy instruments is A. political independence. B. goal independence. C. policy independence. D. instrument independence.