Q&A Hero

Q: High-powered money minus reserves equals A) reserves. B) currency in circulation. C) the monetary base. D) the nonborrowed base.

Q: The monetary base minus reserves equals A) currency in circulation. B) the borrowed base. C) the nonborrowed base. D) discount loans.

Q: The monetary base minus currency in circulation equals A) reserves. B) the borrowed base. C) the nonborrowed base. D) discount loans.

Q: When banks borrow money from the Federal Reserve, these funds are called A) federal funds. B) discount loans. C) federal loans. D) Treasury funds.

Q: The interest rate the Fed charges banks borrowing from the Fed is the A) federal funds rate. B) Treasury bill rate. C) discount rate. D) prime rate.

Q: Suppose that from a new checkable deposit, First National Bank holds eight million dollars on deposit with the Federal Reserve, nine million dollars in excess reserves, and faces a required reserve ratio of ten percent. Given this information, we can say First National Bank has ________ million dollars in vault cash. A) one B) two C) nine D) ten

Q: Suppose that from a new checkable deposit, First National Bank holds eight million dollars on deposit with the Federal Reserve, nine million dollars in excess reserves, and faces a required reserve ratio of ten percent. Given this information, we can say First National Bank has ________ million dollars in required reserves. A) one B) two C) nine D) ten

Q: Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, one million dollars in required reserves, and faces a required reserve ratio of ten percent. Given this information, we can say First National Bank has ________ million dollars on deposit with the Federal Reserve. A) one B) two C) eight D) ten

Q: Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, one million dollars in required reserves, and faces a required reserve ratio of ten percent. Given this information, we can say First National Bank has ________ million dollars in excess reserves. A) one B) two C) nine D) ten

Q: Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, nine million dollars in excess reserves, and faces a required reserve ratio of ten percent. Given this information, we can say First National Bank has ________ million dollars on deposit with the Federal Reserve. A) one B) two C) eight D) ten

Q: Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, nine million dollars in excess reserves, and faces a required reserve ratio of ten percent. Given this information, we can say First National Bank has ________ million dollars in required reserves. A) one B) two C) eight D) ten

Q: Suppose that from a new checkable deposit, First National Bank holds eight million dollars on deposit with the Federal Reserve, one million dollars in required reserves, and faces a required reserve ratio of ten percent. Given this information, we can say First National Bank has ________ million dollars in vault cash. A) two B) eight C) nine D) ten

Q: Suppose that from a new checkable deposit, First National Bank holds eight million dollars on deposit with the Federal Reserve, one million dollars in required reserves, and faces a required reserve ratio of ten percent. Given this information, we can say First National Bank has ________ million dollars in excess reserves. A) two B) eight C) nine D) ten

Q: Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and nine million dollars in excess reserves. Given this information, we can say First National Bank faces a required reserve ratio of ________ percent. A) ten B) twenty C) eighty D) ninety

Q: Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and nine million dollars in excess reserves. Given this information, we can say First National Bank has ________ million dollars in required reserves. A) one B) two C) eight D) ten

Q: Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and one million dollars in required reserves. Given this information, we can say First National Bank faces a required reserve ratio of ________ percent. A) ten B) twenty C) eighty D) ninety

Q: Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and one million dollars in required reserves. Given this information, we can say First National Bank has ________ million dollars in excess reserves. A) three B) nine C) ten D) eleven

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: 14.1 Three Players in the Money Supply Process

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 ATM's 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 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 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: In the model of the money supply process for M2, the relationship between checkable deposits and the M2 money supply is represented by

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; decrease B) purchase; increase C) sale; decrease D) 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: When the Fed purchases artwork to decorate the conference room at the Federal Reserve Bank of Kansas City, A) reserves rise, but the monetary base falls. B) reserves fall. C) currency in circulation falls. D) the monetary base rises.

Q: Which of the following are not liabilities on the Fed's balance sheet? A) Discount loans B) Bank deposits C) Deferred availability cash items D) U.S. Treasury deposits

Q: Which of the following are not assets on the Fed's balance sheet? A) Securities B) Discount loans C) Cash items in the process of collection D) Deferred availability cash items

Q: Which of the following are not assets on the Fed's balance sheet? A) Discount loans B) U.S. Treasury deposits C) Cash items in the process of collection D) U.S. Treasury bills

Q: When the Treasury acquires gold or SDRs, it issues certificates to the ________, which are a claim on the gold or SDRs, and in turn is credited with deposit balances at the ________. A) Federal Reserve System; Fed B) Federal Reserve System; IMF C) International Monetary Fund; Fed D) International Monetary Fund; IMF

Q: Special Drawing Rights (SDRs) are issued to governments by the ________ to settle international debts and have replaced ________ in international transactions. A) Federal Reserve System; gold B) Federal Reserve System; dollars C) International Monetary Fund; gold D) International Monetary Fund; dollars

Q: The volume of loans that the Fed makes to banks is affected by the Fed's setting of the interest rate on these loans, called the A) federal funds rate. B) prime rate. C) discount rate. D) interbank rate.

Q: The Fed's holdings of securities consist primarily of ________, but also in the past have included ________. A) Treasury securities; bankers' acceptances B) municipal securities; bankers' acceptances C) bankers' acceptances; Treasury securities D) Treasury securities; municipal securities

Q: The two most important categories of assets on the Fed's balance sheet are ________ and ________ because they earn interest. A) discount loans; coins B) securities; discount loans C) gold; coins D) cash items in the process of collection; SDR certificate accounts

Q: Which is the most important category of Fed assets? A) Securities B) Discount loans C) Gold and SDR certificates D) Cash items in the process of collection

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: During the 2007-2009 financial crisis the excess reserve ratio A) increased sharply. B) decreased sharply. C) increased slightly. D) decreased slightly.

Q: During the 2007-2009 financial crisis the currency ratio A) increased sharply. B) decreased sharply. C) increased slightly. D) decreased slightly.

Q: In the early 1930s, the currency 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: Recognizing the distinction between borrowed reserves and the nonborrowed monetary base, the money supply model is specified as A) M = m (MBn - BR). B) M = m (MBn + BR). C) M = m + (MBn - BR). D) M = m - (MBn + BR).

Q: The money multiplier is A) negatively related to high-powered money. B) positively related to the excess reserves ratio. C) negatively related to the required reserve ratio. D) positively related to holdings of excess reserves.