978-1259723223 Test Bank TBChap036 Part 8

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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

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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

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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

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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

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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

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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

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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

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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,

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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

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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?

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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

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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

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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

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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

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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

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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?

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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