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36-141
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
market for money.
Test Bank: II
Topic: Interest Rates
298.
A bond with no expiration has an original price of $10,000 and a fixed annual interest
payment of $1,000. If the price of this bond increases by
$2,500, the interest rate in effect will
299.
A few years ago, you bought a bond with no expiration and a fixed annual interest
payment of $1,000 at a price of $10,000. If the interest rate in
the economy is now 12.5
percent a year and you want to sell the bond, the maximum price that you can get for it is
300.
A bond with no expiration date has a face value of $10,000 and pays a fixed 10 percent
interest. If the market price of the bond rises to $11,000,
the annual yield approximately
equals
36-142
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written consent of McGraw-Hill Education.
A.
11 percent.
B.
10 percent.
C.
9 percent.
D. 8 percent.
301.
The price of a bond with no expiration date is originally $1,000 and has a fixed annual
interest payment of $150. If the price of the bond then falls
by $100, what will be the
interest rate yield to a new buyer of the bond?
302.
When the interest rate in the economy was 10 percent, the price of a bond with no
expiration date that paid a fixed annual interest of $500 was
$5,000. If the interest rate in the economy falls to 6 percent, the price of this bond will be
about
36-143
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Blooms: Understand
D i f f i c u l t y : 02 Medium
Learning Objective: 36-01 Discuss how the equilibrium interest rate is determined in the
market for money.
Test Bank: II
Topic: Interest Rates
303.
Loans of the Federal Reserve Banks to commercial banks are
304.
Commercial bank reserves, most of which are held by the Federal Reserve Banks, are
305.
U.S. Treasury deposits at the Federal Reserve Banks are
36-144
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written consent of McGraw-Hill Education.
D. an asset of the Federal Reserve Banks and a liability for the U.S. Treasury.
306.
Typically the largest asset item in the Federal Reserve Banks' consolidated balance
sheet (as illustrated in the book, for April 2016) is
307.
The largest liability item in the Federal Reserve Banks' consolidated balance sheet (as
illustrated in the book, for April 2016) is
36-145
308.
Item in Balance Sheet
Amount
1) Treasury Deposits
$7
2) Reserves of Commercial Banks
31
3) Federal Reserve Notes
275
4) Loans to Commercial Banks
1
5) All Other Assets
64
6) Securities
255
7) All Other Liabilities and Net Worth
7
The table shows items and figures taken from a consolidated balance sheet of the 12 Federal
Reserve Banks. All figures are in billions of dollars.
In this balance sheet, the liabilities
and net worth would be items 7 and
309.
Item in Balance Sheet
Amount
1) Treasury Deposits
$7
2) Reserves of Commercial Banks
31
3) Federal Reserve Notes
275
4) Loans to Commercial Banks
1
5) All Other Assets
64
6) Securities
255
7) All Other Liabilities and Net Worth
7
The table shows items and figures taken from a consolidated balance sheet of the 12 Federal
Reserve Banks. All figures are in billions of dollars.
In this balance sheet, the assets would
be items 5 and
310.
Item in Balance Sheet
Amount
1) Treasury Deposits
$7
2) Reserves of Commercial Banks
31
3) Federal Reserve Notes
275
4) Loans to Commercial Banks
1
5) All Other Assets
64
6) Securities
255
7) All Other Liabilities and Net Worth
7
The table shows items and figures taken from a consolidated balance sheet of the 12 Federal
Reserve Banks. All figures are in billions of dollars.
In this balance sheet, there would be
assets of
36-147
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
AACSB: Knowledge Application
Blooms: Understand
D i f f i c u l t y : 02 Medium
Learning Objective: 36-02 Describe the balance sheet of the Federal Reserve and the meaning
of its major items.
Test Bank: II
Topic: The Consolidated Balance Sheet of the Federal Reserve Banks
311.
The main tools that the Fed can use to alter the reserves of commercial banks are the
required-reserve ratio and the following, except
312.
The lending ability of commercial banks increases when the
313.
The conduct of monetary policy in the United States is the main responsibility of the
36-148
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written consent of McGraw-Hill Education.
D.
Bureau of Economic Analysis.
314.
The fundamental objective of monetary policy is to assist the economy in achieving
315.
Which one of the following is a tool of monetary policy often used by the Fed for
altering the reserves of commercial banks?
316.
The purchase and sale of government securities by the Fed is called
36-149
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written consent of McGraw-Hill Education.
B.
open-market operations.
C.
money market transactions.
D.
term auction facility.
317.
In recent years (after the financial crisis of 2008), the Fed has added a new element to
its open-market operations, which is
318.
The interest rate that the Fed charges banks for loans to them through the traditional
channel is called
319.
The Federal Reserve alters the amount of the nation's money supply by
320.
If the Fed buys government securities from commercial banks in the open market,
321.
If the Fed sells government securities to the general public in the open market,
36-151
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written consent of McGraw-Hill Education.
A c c e s s i b i l i t y : Keyboard Navigation
Blooms: Remember
Diffi culty : 01 Easy
Learning Objective: 36-03 List and explain the goals and tools of monetary policy.
Test Bank: II
Topic: Tools of Monetary Policy
322.
A money loan is said to be collateralized when
323.
When the Fed does repos and reverse repos (or repurchase agreements) with financial
institutions, the collateral used in these transactions is
324.
In a repo transaction (or repurchase agreement), the one "buying" the collateral asset
(with the promise of selling it back soon) is the
36-152
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written consent of McGraw-Hill Education.
D.
speculator.
325.
When the Fed undertakes a "repo" transaction with a financial institution, the Fed in
essence
326.
When the Fed undertakes reverse repo transactions with financial institutions, it is
trying to
327.
Which of the following Fed actions increases the excess reserves of commercial banks?
36-153
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written consent of McGraw-Hill Education.
A.
selling bonds to the public
B.
selling bonds to commercial banks
C.
increasing the discount rate
D.
lower the reserve ratio
328.
Which of the following statements is correct?
329.
The Federal Reserve could reduce the money supply by
36-154
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Topic: Tools of Monetary Policy
330.
The major purpose of the Federal Reserve buying government securities in open-
market operations is to
331.
Assume that there is a 25 percent reserve ratio and that the Federal Reserve buys $200
million worth of government securities. If the securities
are purchased from the public, then
this action has the potential to increase bank lending by a maximum of
332.
Assume that there is a 25 percent reserve ratio and that the Federal Reserve buys $4
billion worth of government securities. If the securities are
purchased from the nonbank
public, this action has the potential to increase money supply by a maximum of
36-155
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written consent of McGraw-Hill Education.
commercial banks.
B.
$14 billion, but by $16 billion if the securities are purchased directly from commercial
banks.
C.
$16 billion, and also by $16 billion if the securities are purchased directly from
commercial banks.
D. $14 billion, and by $20 billion if the securities are purchased directly from commercial
banks.
333.
Assume that the required reserve ratio is 20 percent. If the Federal Reserve buys $80
million in government securities from the general public,
then the money supply will
immediately
334.
Assume that the required reserve ratio is 20 percent. If the Federal Reserve buys $80
million in government securities from commercial banks,
then the money supply will
immediately
36-156
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written consent of McGraw-Hill Education.
commercial banking system will increase by $400 million.
B.
increase by $0 with this transaction, but the maximum money-lending potential of the
commercial banking system will increase by $320 million.
C.
increase by $80 million with this transaction, and the maximum money-lending potential
of the commercial banking system will increase by another
$400 million.
D.
increase by $80 million with this transaction, and the maximum money-lending potential
of the commercial banking system will increase by another
$320 million.
335.
Assume that the required reserve ratio is 25 percent. If the Federal Reserve sells $120
million in government securities to the general public, the
money supply will immediately
336.
Assuming that the Federal Reserve Banks sell $40 million in government securities to
commercial banks and the reserve ratio is 20 percent, then
the effect will be to reduce
36-157
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written consent of McGraw-Hill Education.
D. the money supply by potentially $400 million.
337.
Assume that the required reserve ratio for the commercial banks is 25 percent. If the
Federal Reserve Banks buy $3 billion in government
securities from the nonbank securities
dealers, then, as a result of this transaction, the lending ability of the commercial banking
system will
increase by
338.
If the Fed buys $1 million in government securities from Bank A, then the immediate
effect of this transaction is an increase in
339.
Lowering the reserve ratio
340.
If the Board of Governors of the Federal Reserve System increases the legal reserve
ratio, this change will
341.
Assume the commercial banking system has checkable deposits of $20 billion and
excess reserves of $2 billion when the reserve ratio is 25
percent. If the reserve ratio is
then lowered to 20 percent, we can conclude that the
36-159
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written consent of McGraw-Hill Education.
Blooms: Remember
Diffi culty : 01 Easy
Learning Objective: 36-03 List and explain the goals and tools of monetary policy.
Test Bank: II
Topic: Tools of Monetary Policy
342.
Lowering the discount rate has the effect of
343.
A television report states: "The Federal Reserve will lower the discount rate for the
fourth time this year." This report indicates that the Federal
Reserve is most likely trying to
344.
What policy tool of the Federal Reserve relies on bank borrowing to be effective?
36-160
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written consent of McGraw-Hill Education.
AACSB: Knowledge Application
A c c e s s i b i l i t y : Keyboard Navigation
Blooms: Remember
Diffi culty : 01 Easy
Learning Objective: 36-03 List and explain the goals and tools of monetary policy.
Test Bank: II
Topic: Tools of Monetary Policy
345.
In 2008, the Fed acquired a fourth tool of monetary policy, which is the
346.
Raising the interest paid on reserves has the effect of making it
347.
The Fed can induce banks to increase their reserve holdings by
