31) The required reserve ratio is 10 percent and Charlie deposits $3,000 in her checking
account. The bank must
A) increase reserves by $3,000.
B) increase reserves by $300.
C) decrease reserves by $3,000.
D) decrease reserves by $300.
E) not change its reserves until Charlie decides to withdraw her funds.
Skill: Level 2: Using deinitions
Section: Checkpoint 11.3
Status: Old
AACSB: Analytical thinking
32) The required reserve ratio is the minimum percentage of ________ that banks are
required to hold by regulation.
A) reserves as total assets
B) deposits as total assets
C) reserves as deposits
D) deposits as reserves
E) reserves as total liabilities
Skill: Level 1: Deinition
Section: Checkpoint 11.3
Status: Old
AACSB: Relective thinking
33) The required reserve ratio is the
A) amount of excess reserves the bank holds just in case.
B) total amount of reserves the bank holds in its vaults.
C) total amount of reserves the bank holds at the Fed.
D) amount of reserves banks are required by the Fed to be held as a percentage of the
bank’s deposits.
E) amount of reserves banks are required by the Fed to be held as a percentage of the
bank’s loans.
Skill: Level 1: Deinition
Section: Checkpoint 11.3
Status: Old
AACSB: Relective thinking
51
34) Which of the following statements is correct?
A) required reserves = (total deposits) × (excess reserve ratio)
B) required reserves = (total reserves) × (excess reserve ratio)
C) required reserves = (total deposits) × (required reserve ratio)
D) required reserves = (total deposits) ÷ (required reserve ratio)
E) required reserves = (total deposits) × (required reserve ratio) – excess reserves
Skill: Level 2: Using deinitions
Section: Checkpoint 11.3
Status: Old
AACSB: Analytical thinking
35) The interest rate the Federal Reserve charges a bank when it borrows reserves from
the Fed is called the
A) market interest rate.
B) federal funds rate.
C) discount rate.
D) prime rate.
E) borrowing rate.
Skill: Level 1: Deinition
Section: Checkpoint 11.3
Status: Old
AACSB: Relective thinking
36) The discount rate is the
A) banks’ real interest rate.
B) interest rate at which the Fed will loan reserves to commercial banks.
C) interest rate banks charge the Fed when the Fed borrows from the banks.
D) name of the interest rate banks charge their most credit-worthy borrowers.
E) interest rate paid on U.S. government securities.
Skill: Level 1: Deinition
Section: Checkpoint 11.3
Status: Old
AACSB: Relective thinking
52
37) The discount rate is
A) the interest rate paid when a bank borrows reserves from another bank.
B) the interest rate paid when a commercial bank borrows reserves from the Fed.
C) the reduction in the interest rate given to the bank’s best customers.
D) another name for the long-term interest rate.
E) the interest rate the Fed pays banks for the reserves the banks keep at the Fed.
Skill: Level 1: Deinition
Section: Checkpoint 11.3
Status: Old
AACSB: Relective thinking
38) The discount rate is
A) the interest rate that commercial banks have to pay for any reserves that they borrow
from the non-bank public.
B) the interest rate that commercial banks have to pay to the owners of bank deposits.
C) equal to the nominal interest rate minus the inlation rate.
D) the interest rate that commercial banks pay for reserves that they borrow from the Fed.
E) the interest rate that commercial banks receive for the reserves that they have on
reserve at the Fed.
Skill: Level 2: Using deinitions
Section: Checkpoint 11.3
Status: Old
AACSB: Relective thinking
39) If the Fed increases the discount rate,
A) commercial banks pay a higher interest rate if they borrow from the Fed.
B) commercial banks pay a lower interest rate if they borrow from the Fed.
C) commercial banks’ assets increase.
D) commercial banks ind it more proitable to increase their loans to businesses.
E) commercial banks increase their lending to the Fed.
Skill: Level 2: Using deinitions
Section: Checkpoint 11.3
Status: Old
AACSB: Relective thinking
53
40) If the Fed increases the discount rate, commercial banks pay a ________ interest rate if
they borrow money from the Fed and will therefore ________.
A) higher; borrow less money from the Fed and make fewer loans to consumers
B) higher; borrow more money from the Fed and make more loans to consumers
C) lower; borrow more money from the Fed and make more loans to consumers
D) lower; borrow less money from the Fed and make fewer loans to consumers
E) higher; deposit more money into their reserves at the Fed
Skill: Level 3: Using models
Section: Checkpoint 11.3
Status: New
AACSB: Relective thinking
41) Open market operations are the
A) purchase or sale of government securities by the Fed.
B) lending of reserves to the banking system by the Fed.
C) borrowing of reserves by the Fed from the banking system.
D) minimum percentage of loans that banks must retain as reserves in the open market.
E) purchase or sale of gold by the Fed.
Skill: Level 1: Deinition
Section: Checkpoint 11.3
Status: Old
AACSB: Relective thinking
42) Open market operations are when the Fed buys or sells
A) government securities from the government.
B) corporate securities from banks or some other business.
C) government securities from banks or some other business.
D) corporate securities from the government.
E) gold.
Skill: Level 1: Deinition
Section: Checkpoint 11.3
Status: Old
AACSB: Relective thinking
54
43) When the Fed engages in open market operations, it is buying or selling
A) capital equipment.
B) U.S. government securities newly issued by the U.S. Treasury.
C) U.S. government securities.
D) loans made to banks to meet the legal reserve requirement ratio.
E) gold.
Skill: Level 1: Deinition
Section: Checkpoint 11.3
Status: Old
AACSB: Relective thinking
44) In response to the inancial crisis in 2008, the Fed created which of the following policy
tools?
A) quantitative easing
B) the required reserve ratio
C) the discount rate
D) the federal funds rate
E) open market operations
Skill: Level 2: Using deinitions
Section: Checkpoint 11.3
Status: Old
AACSB: Relective thinking
45) Which of the following policy tools did the Fed create in 2008 to address the inancial
crisis?
i) quantitative easing
ii) credit easing
iii) open market operations
A) i and ii
B) i only
C) ii only
D) i and iii
E) ii and iii
Skill: Level 2: Using deinitions
Section: Checkpoint 11.3
Status: Old
AACSB: Relective thinking
55
46) Quantitative easing by the Fed refers to
A) the creation of bank reserves by engaging in large-scale open market operation at very
low interest rates.
B) selling private securities issued by the Fed.
C) decreasing the money supply during a recession to prevent inlation.
D) lowering the federal funds rate while increasing the discount rate.
E) lowering the required reserve ratio to zero percent.
Skill: Level 1: Deinition
Section: Checkpoint 11.3
Status: Old
AACSB: Relective thinking
47) If the Fed engages in quantitative easing, it has likely
A) decreased the federal funds rate to almost zero by buying large sums of securities.
B) increased the discount rate to prevent inlation.
C) decreased the discount rate by selling its own securities.
D) increased the federal funds rate by selling private securities.
E) started paying interest on required reserves.
Skill: Level 2: Using deinitions
Section: Checkpoint 11.3
Status: Old
AACSB: Relective thinking
48) In 2008, the Fed created a new policy tool called
A) quantitative easing, which allowed the Fed to buy private securities as well as
government securities.
B) quantitative easing, which required the Fed to pay interest on required reserves.
C) open market operations, which required the Fed to buy securities from only the federal
government.
D) federal funds zero-rate, which required the Fed to lower the rate to near zero percent.
E) interest rate reductions, which allowed the Fed to lower interest rates paid to banks.
Skill: Level 2: Using deinitions
Section: Checkpoint 11.3
Status: Old
AACSB: Relective thinking
56
49) ________ by the Fed means that the Fed ________.
A) Credit easing; bought private securities from inancial institutions
B) Credit easing; made loans directly to home buyers
C) Credit easing; tried to lower long-term interest rates
D) Quantitative easing; required private banks to increase their lending to home buyers
E) Quantitative easing; decreased in the required reserve ratio
Skill: Level 2: Using deinitions
Section: Checkpoint 11.3
Status: Old
AACSB: Relective thinking
50) The policy tool of “credit easing” refers to the ________.
A) Fed’s purchase of private securities to stimulate banks’ lending
B) Fed’s requirement that the federal government must lend to directly to home buyers
C) federal government’s requirement that the Fed must lend directly to home buyers
D) Fed’s lowering of the federal funds rate to zero
E) Treasury’s issuance of federal debt to inance home buying
Skill: Level 2: Using deinitions
Section: Checkpoint 11.3
Status: Old
AACSB: Relective thinking
51) The monetary base is the sum of
A) Federal Reserve notes and banks’ reserves at the Fed.
B) coins, Federal Reserve notes, and individuals’ deposits at the Fed.
C) Federal Reserve notes, Treasury deposits at the Fed, banks’ reserves at the Fed, and
coins.
D) coins, Federal Reserve notes, and banks’ reserves at the Fed.
E) coins, Federal Reserve notes, and gold at the Fed.
Skill: Level 1: Deinition
Section: Checkpoint 11.3
Status: Old
AACSB: Relective thinking
57
52) The monetary base is equal to
A) banks’ assets plus liabilities.
B) Federal Reserve notes plus coins plus banks’ reserves at the Fed.
C) checkable deposits plus coins plus traveler’s checks.
D) checkable deposits plus coins plus banks’ assets.
E) M2 minus M1.
Skill: Level 1: Deinition
Section: Checkpoint 11.3
Status: Old
AACSB: Relective thinking
53) The monetary base is equal to
A) M1.
B) M2.
C) currency and coins in circulation plus checkable deposits.
D) the sum of coins, Federal Reserve notes, and banks’ reserves at the Fed.
E) the sum of coins, Federal Reserve notes, and gold at the Fed.
Skill: Level 1: Deinition
Section: Checkpoint 11.3
Status: Old
AACSB: Relective thinking
54) The monetary base is equal to the sum of coins,
A) currency and banks’ reserves at the Federal Reserve.
B) currency and checkable deposits at banks.
C) currency, banks’ reserves at the Federal Reserve and checkable deposits at banks.
D) and checkable deposits at banks.
E) U.S. government securities owned by the Federal Reserve and Federal Reserve notes.
Skill: Level 1: Deinition
Section: Checkpoint 11.3
Status: Old
AACSB: Relective thinking
58
55) The monetary base does NOT include which of the following items?
i. Federal Reserve notes
ii. banks’ reserves at the Federal Reserve
iii. U.S. government securities owned by the Federal Reserve
A) i only
B) ii only
C) iii only
D) both i and ii
E) both ii and iii
Skill: Level 1: Deinition
Section: Checkpoint 11.3
Status: Old
AACSB: Relective thinking
56) Regulating the amount of money in the United States is one of the most important
responsibilities of the
A) State Department.
B) state governments.
C) Treasury Department.
D) Federal Reserve.
E) U.S. Mint.
Skill: Level 1: Deinition
Section: Checkpoint 11.3
Status: Old
AACSB: Relective thinking
57) The Board of Governors of the Federal Reserve System has
A) 12 members appointed by the president of the United States.
B) 12 members elected by the public.
C) seven members appointed by the president of the United States.
D) seven members elected by the public.
E) seven members appointed to life terms.
Skill: Level 1: Deinition
Section: Checkpoint 11.3
Status: Old
AACSB: Relective thinking
59
58) The Board of Governors of the Federal Reserve System has seven members appointed
by the ________ that serve a term of ________ in order to ________.
A) U.S. congress; 4 years; fulill a mandate within the U.S. constitution
B) U.S. senate; 14 years; provide continuity in the governing of the U.S. economy
C) U.S. president and conirmed by the U.S. senate; 14 years; provide continuity in the
governing of the U.S. economy
D) U.S. president and conirmed by the U.S. congress; 14 years; provide continuity in the
governing of the U.S. economy
E) U.S. president and conirmed by the U.S. senate; 4 years; fulill a mandate within the
U.S. constitution
Skill: Level 2: Using deinitions
Section: Checkpoint 11.3
Status: New
AACSB: Relective thinking
59) The Fed’s policy is determined by the
A) Federal Open Market Committee.
B) Executive Council to the Governor.
C) Regional Federal Reserve Banks.
D) Board of Governors.
E) Federal Monetary Policy Committee.
Skill: Level 1: Deinition
Section: Checkpoint 11.3
Status: Old
AACSB: Relective thinking
60) The Fed’s policy tools include
A) required reserve ratios, the discount rate, open market operations, and extraordinary
crisis measures.
B) holding deposits for the U.S. government, reserve requirements, and the discount rate.
C) setting regulations for lending standards and extraordinary crisis measures.
D) supervision of the banking system and buying and selling commercial banks.
E) required reserve ratios, income tax rates, and open market operations.
Skill: Level 1: Deinition
Section: Checkpoint 11.3
Status: Old
AACSB: Relective thinking
60