Q&A Hero

Q: The money supply is ________ related to expected deposit outflows, and is ________ related to the market interest rate. A) negatively; negatively B) negatively; positively C) positively; negatively D) positively; positively

Q: The excess reserves ratio is ________ related to expected deposit outflows, and is ________ related to the market interest rate. A) negatively; negatively B) negatively; positively C) positively; negatively D) positively; positively

Q: Assuming initially that rr = 15%, c = 40%, and e = 5%, an increase in e to 10% causes the M1 money multiplier to ________, everything else held constant. A) increase from 2.15 to 2.33 B) decrease from 2.33 to 2.15 C) increase from 1.54 to 1.67 D) decrease from 1.67 to 1.54

Q: Assuming initially that rr = 15%, c = 40%, and e = 5%, a decrease in e to 0% causes the M1 money multiplier to ________, everything else held constant. A) increase from 2.33 to 2.55 B) decrease from 2.55 to 2.33 C) increase from 1.67 to 1.82 D) decrease from 1.82 to 1.67

Q: Everything else held constant, an increase in the excess reserves ratio causes the M1 money multiplier to ________ and the money supply to ________. A) decrease; increase B) increase; increase C) decrease; decrease D) increase; decrease

Q: Everything else held constant, a decrease in the excess reserves ratio causes the M1 money multiplier to ________ and the money supply to ________. A) decrease; increase B) increase; increase C) decrease; decrease D) increase; decrease

Q: Assuming initially that rr = 10%, c = 40%, and e = 0, an decrease in c to 30% causes the M1 money multiplier to ________, everything else held constant. A) increase from 2.8 to 3.25 B) decrease from 3.25 to 2.8 C) increase from 2.8 to 3.5 D) decrease from 3.5 to 2.8

Q: Assuming initially that rr = 10%, c = 40%, and e = 0, an increase in c to 50% causes the M1 money multiplier to ________, everything else held constant. A) increase from 2.5 to 2.8 B) decrease from 2.8 to 2.5 C) increase from 2.33 to 2.8 D) decrease from 2.8 to 2.33

Q: Everything else held constant, a decrease in the currency ratio causes the M1 money multiplier to ________ and the money supply to ________. A) decrease; increase B) increase; increase C) decrease; decrease D) increase; decrease

Q: Everything else held constant, an increase in the currency ratio causes the M1 money multiplier to ________ and the money supply to ________. A) decrease; increase B) increase; decrease C) decrease; decrease D) increase; increase

Q: Everything else held constant, a decrease in the currency-checkable deposit ratio will mean A) an increase in currency in circulation and an increase in the money supply. B) an increase in money supply. C) a decrease in the money supply. D) an increase in currency in circulation but no change in the money supply.

Q: Everything else held constant, an increase in the currency-checkable deposit ratio will mean A) an increase in currency in circulation and an increase in the money supply. B) an increase in money supply but no change in reserves. C) a decrease in the money supply. D) an increase in currency in circulation but no change in the money supply.

Q: Assuming initially that rr = 10%, c = 40%, and e = 0, a decrease in rr to 5% causes the M1 money multiplier to ________, everything else held constant. A) increase from 2.8 to 3.11 B) decrease from 3.11 to 2.8 C) increase from 2 to 2.22 D) decrease from 2.22 to 2

Q: Assuming initially that rr = 10%, c = 40%, and e = 0, an increase in rr to 15% causes the M1 money multiplier to ________, everything else held constant. A) increase from 2.55 to 2.8 B) decrease from 2.8 to 2.55 C) increase from 1.82 to 2 D) decrease from 2 to 1.82

Q: Everything else held constant, a decrease in the required reserve ratio on checkable deposits causes the M1 money multiplier to ________ and the money supply to ________. A) decrease; increase B) increase; increase C) decrease; decrease D) increase; decrease

Q: Everything else held constant, an increase in the required reserve ratio on checkable deposits causes the M1 money multiplier to ________ and the money supply to ________. A) decrease; increase B) increase; increase C) decrease; decrease D) increase; decrease

Q: Everything else held constant, a decrease in the required reserve ratio on checkable deposits will mean A) a decrease in the money supply. B) an increase in the money supply. C) a decrease in checkable deposits. D) an increase in discount loans.

Q: Everything else held constant, an increase in the required reserve ratio on checkable deposits will cause A) the money supply to rise. B) the money supply to remain constant. C) the money supply to fall. D) checkable deposits to rise.

Q: If the required reserve ratio is one-third, currency in circulation is $300 billion, checkable deposits are $900 billion, and there is no excess reserve, then the monetary base is A) $300 billion. B) $600 billion. C) $333 billion. D) $667 billion.

Q: If the required reserve ratio is one-third, currency in circulation is $300 billion, and checkable deposits are $900 billion, then the currency ratio is A) 0.25. B) 0.33. C) 0.67. D) 0.375.

Q: If the required reserve ratio is one-third, currency in circulation is $300 billion, checkable deposits are $900 billion, and there is no excess reserve, then the M1 money multiplier is A) 2.5. B) 2.8. C) 2.0. D) 0.67.

Q: If the required reserve ratio is one-third, currency in circulation is $300 billion, and checkable deposits are $900 billion, then the money supply is ________ billion. A) $2700 B) $3000 C) $1200 D) $1800

Q: If the required reserve ratio is 15 percent, currency in circulation is $400 billion, checkable deposits are $1000 billion, and excess reserves total $1 billion, then the M1 money multiplier is A) 2.54. B) 2.67. C) 2.35. D) 0.551.

Q: If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $1000 billion, and excess reserves total $1 billion, then the monetary base is A) $400 billion. B) $401 billion. C) $500 billion. D) $501 billion.

Q: If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $1000 billion, and excess reserves total $1 billion, then the excess reserves-checkable deposit ratio is A) 0.01. B) 0.10. C) 0.001. D) 0.05.

Q: If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $1000 billion, and excess reserves total $1 billion, then the currency ratio is A) 0.25. B) 0.50. C) 0.40. D) 0.05.

Q: If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $1000 billion, and excess reserves total $1 billion, then the M1 money multiplier is A) 2.5. B) 2.8. C) 2.0. D) 0.7.

Q: If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $1000 billion, and excess reserves total $1 billion, then the money supply is ________ billion. A) $10,000 B) $4000 C) $1400 D) $10,400

Q: If the required reserve ratio is 5 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the M1 money multiplier is A) 2.5. B) 2.72. C) 2.3. D) 0.551.

Q: If the required reserve ratio is 15 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the M1 money multiplier is A) 2.5. B) 1.67. C) 2.3. D) 0.651.

Q: If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the monetary base is A) $480 billion. B) $480.8 billion. C) $80 billion. D) $80.8 billion.

Q: If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the excess reserves-checkable deposit ratio is A) 0.001. B) 0.10. C) 0.01. D) 0.05.

Q: If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the currency ratio is A) 0.25. B) 0.50. C) 0.40. D) 0.05.

Q: If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the M1 money multiplier is A) 2.5. B) 1.67. C) 2.0. D) 0.601.

Q: If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the money supply is ________ billion. A) $8000 B) $1200 C) $1200.8 D) $8400

Q: The formula for the M1 money multiplier is A) m = (1 + c)/(rr + e + c). B) M = 1/(rr + e + c). C) M = (1 + c)/(rr + e + c). D) m = [1/(rr + e + c)] MB.

Q: If the Fed injects reserves into the banking system and they are held as excess reserves, then the monetary base ________ and the money supply ________. A) remains unchanged; remains unchanged B) remains unchanged; increases C) increases; increases D) increases; remains unchanged

Q: If the Fed injects reserves into the banking system and they are held as excess reserves, then the money supply A) increases by only the initial increase in reserves. B) increases by only one-half the initial increase in reserves. C) increases by a multiple of the initial increase in reserves. D) does not change.

Q: An increase in the monetary base that goes into currency is ________, while an increase that goes into deposits is ________. A) multiplied; multiplied B) not multiplied; multiplied C) multiplied; not multiplied D) not multiplied; not multiplied

Q: An increase in the monetary base that goes into ________ is not multiplied, while an increase that goes into ________ is multiplied. A) deposits; currency B) excess reserves; currency C) currency; excess reserves D) currency; deposits

Q: The equation that shows the amount of the monetary base needed to support existing levels of checkable deposits, excess reserves, and currency is A) MB = (rr D) + ER + C. B) MB = (rr + D) + ER + C. C) MB = + ER + C. D) MB = (rr D) - ER - C.

Q: Since the Federal Reserve sets the required reserve ratio to less than one, one dollar of reserves can support ________ of checkable deposits. A) exactly one dollar B) less than one dollar C) more than one dollar D) exactly twice the amount

Q: The total amount of required reserves in the banking system is equal to the ________ the required reserve ratio and checkable deposits. A) sum of B) difference between C) product of D) ratio between

Q: The total amount of reserves in the banking system is equal to the ________ required reserves and excess reserves. A) sum of B) difference between C) product of D) ratio between

Q: An assumption in the model of the money supply process is that the desired levels of currency and excess reserves A) are given as constants. B) grow proportionally with checkable deposits. C) grow proportionally with high-powered money. D) grow proportionally over time.

Q: The formula linking the money supply to the monetary base is A) M = m/MB. B) M = m MB. C) m = M MB. D) MB = M m. E) M = m + MB.

Q: The ratio that relates the change in the money supply to a given change in the monetary base is called the A) money multiplier. B) required reserve ratio. C) deposit ratio. D) discount rate.

Q: The Fed can exert more precise control over ________ than it can over ________. A) high-powered money; reserves B) high-powered money; the monetary base C) the monetary base; high-powered money D) reserves; high-powered money

Q: Models describing the determination of the money supply and the Fed's role in this process normally focus on ________ rather than ________, since Fed actions have a more predictable effect on the former. A) reserves; the monetary base B) reserves; high-powered money C) the monetary base; high-powered money D) the monetary base; reserves

Q: In the model of the money supply process, the bank's role in influencing the money supply process is represented by A) the excess reserve. B) both the excess reserve and the market interest rate. C) the currency ratio. D) only borrowed reserves.

Q: In the model of the money supply process, the depositor's role in influencing the money supply is represented by A) the currency holdings. B) the currency holdings and excess reserve. C) the currency holdings and borrowed reserve. D) the market interest rate.

Q: In the model of the money supply process, the Federal Reserve's role in influencing the money supply is represented by A) both the required reserve ratio and the market interest rate. B) the required reserve ratio, nonborrowed reserves, and borrowed reserves. C) only borrowed reserves. D) only nonborrowed reserves.

Q: Everything else held constant, a decrease in holdings of excess reserves will mean A) a decrease in the money supply. B) an increase in the money supply. C) a decrease in checkable deposits. D) an increase in discount loans.

Q: Which of the following statements about central bank structure and independence are 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: 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