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97. Refer to Scenario 29-2. Assuming the only other thing Tazian banks have on their balance sheets is loans, what is the
value of existing loans made by Tazian banks?
a.
6,900 million tazes
b.
7,125 million tazes
c.
7,350 million tazes
d.
None of the above is correct.
98. Refer to Scenario 29-2. Suppose the Bank of Tazi loaned the banks of Tazi 10 million tazes. Suppose also that both
the reserve requirement and the percentage of deposits held as excess reserves stay the same. By how much would the
money supply change?
a.
250 million tazes
b.
200 million tazes
c.
125 million tazes
d.
None of the above is correct.
99. Refer to Scenario 29-2. Suppose the Bank of Tazi purchased 50 million tazes of Tazian Treasury Bonds from the
banks. Suppose also that both the reserve requirement and the percentage of deposits held as excess reserves stay the
same. By how much does the money supply change?
a.
625 million tazes
b.
1,000 million tazes
c.
1,250 million tazes
d.
None of the above is correct.
100. Refer to Scenario 29-2. Suppose that the Bank of Tazi changes the reserve requirement to 3 percent. Assuming that
the banks still want to hold the same percentage of excess reserves what is the value of the money supply after banks
adjust to the change in the reserve requirement?
a.
9,375 million tazes
b.
10,000 million tazes
c.
12,500 million tazes
d.
None of the above is correct to the nearest million tazes.
101. Which of the following is not a tool of monetary policy?
a.
open market operations
b.
reserve requirements
c.
changing the discount rate
d.
increasing the government budget deficit
102. To increase the money supply, the Fed could
a.
sell government bonds.
b.
increase the discount rate.
c.
decrease the reserve requirement.
d.
None of the above is correct.
103. To increase the money supply, the Fed could
a.
sell government bonds.
b.
decrease the discount rate.
c.
increase the reserve requirement.
d.
None of the above is correct.
104. To increase the money supply, the Fed could
a.
sell government bonds.
b.
auction more loans to banks.
c.
increase the reserve requirement.
d.
None of the above is correct.
105. To decrease the money supply, the Fed could
a.
sell government bonds.
b.
increase the discount rate.
c.
increase the reserve requirement.
d.
All of the above are correct.
106. Bank runs
a.
will affect neither the money supply nor the money multiplier.
b.
increase the money supply.
c.
can be neither prevented nor mitigated by the Federal Reserve.
d.
are a problem because banks only hold a fraction of deposits as reserves.
107. During a bank run, depositors decide to hold more currency relative to deposits and banks decide to hold more excess
reserves relative to deposits.
a.
Both the decision to hold relatively more currency and the decision to hold relatively more excess reserves
would make the money supply increase.
b.
Both the decision to hold relatively more currency and the decision to hold relatively more excess reserves
would make the money supply decrease.
c.
The decision to hold relatively more currency would make the money supply increase. The decision to hold
relatively more excess reserves would make the money supply decrease.
d.
The decision to hold relatively more currency would make the money supply increase. The decision to hold
relatively more excess reserves would make the money supply decrease.
108. The Fed can directly protect a bank during a bank run by
a.
increasing reserve requirements.
b.
selling government bonds to the bank.
c.
lending reserves to the bank.
d.
doing any of the above.
109. Which of the following will not help to prevent bank runs?
a.
government insurance of deposits
b.
fractional reserve banking
c.
100% reserve banking
d.
All of the above prevent bank runs.
110. During the Great Depression in the early 1930s,
a.
bank runs closed many banks.
b.
the money supply rose sharply.
c.
the Fed decreased reserve requirements.
d.
both a and b are correct.
111. Today, bank runs are
a.
uncommon because of the high reserve requirement.
b.
uncommon because of FDIC deposit insurance.
c.
common because of the low reserve requirement.
d.
common because the FDIC is nearly bankrupt.
112. Today, bank runs are not a major problem for the U.S. banking system because
a.
bank runs are now illegal.
b.
banks now hold 100 percent of their deposits in reserve.
c.
banks are now all government-operated.
d.
the federal government now guarantees the safety of deposits at most banks.
113. The Federal Deposit Insurance Corporation
a.
protects depositors in the event of bank failures.
b.
has become insolvent in recent years due to a large number of bank failures.
c.
is part of the Federal Reserve System.
d.
in practice has seldom been of much use.
114. The federal funds rate is the
a.
percentage of face value that the Federal Reserve is willing to pay for Treasury Securities.
b.
percentage of deposits that banks must hold as reserves.
c.
interest rate at which the Federal Reserve makes short-term loans to banks.
d.
interest rate at which banks lend reserves to each other overnight.
115. The federal funds rate is the interest rate
a.
the Federal Reserve charges for loans it makes to the federal government.
b.
the Federal Reserve charges banks for short-term loans.
c.
banks charge each other for short-term loans of reserves.
d.
on newly issued one-year Treasury bonds.
116. The federal funds rate is the interest rate that
a.
banks charge one another for loans.
b.
banks charge the Fed for loans.
c.
the Fed charges banks for loans.
d.
the Fed charges Congress for loans.
117. In recent years the Federal Open Market Committee has focused on a target for
a.
M1 growth.
b.
the federal funds rate.
c.
the number of Treasury Securities issued by the federal government.
d.
total reserves of banks.
118. When the Fed sells government bonds,
a.
the money supply increases and the federal funds rate increases.
b.
the money supply increases and the federal funds rate decreases.
c.
the money supply decreases and the federal funds rate increases.
d.
the money supply decreases and the federal funds rate decreases.
119. When the Fed buys government bonds,
a.
the money supply increases and the federal funds rate increases.
b.
the money supply increases and the federal funds rate decreases.
c.
the money supply decreases and the federal funds rate increases.
d.
the money supply decreases and the federal funds rate decreases.
120. If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back
towards its target by
a.
buying bonds. This buying would reduce reserves.
b.
buying bonds. This buying would increase reserves.
c.
selling bonds. This selling would reduce reserves.
d.
selling bonds. This selling would increase reserves.
121. If the federal funds rate were above the level the Federal Reserve had targeted, the Fed could move the rate back
towards its target by
a.
buying bonds. This buying would reduce reserves.
b.
buying bonds. This buying would increase reserves.
c.
selling bonds. This selling would reduce reserves.
d.
selling bonds. This selling would increase reserves.
122. If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back
towards its target by
a.
buying bonds. This buying would increase the money supply.
b.
buying bonds. This buying would reduce the money supply.
c.
selling bonds. This selling would increase the money supply.
d.
selling bonds. This selling would reduce the money supply.
123. An increase in the money supply might indicate that the Fed had
a.
purchased bonds to increase banks reserves.
b.
purchased bonds to decrease banks reserves.
c.
sold bonds to increase banks reserves.
d.
sold bonds to decrease banks reserves.
124. If the federal funds rate were above the level the Federal Reserve had targeted, the Fed could move the rate back
towards its target by
a.
buying bonds. This buying would increase the money supply.
b.
buying bonds. This buying would reduce the money supply.
c.
selling bonds. This selling would increase the money supply.
d.
selling bonds. This selling would reduce the money supply.
125. A decrease in the money supply might indicate that the Fed had
a.
purchased bonds to increase banks reserves.
b.
purchased bonds to decrease banks reserves.
c.
sold bonds to increase banks reserves.
d.
sold bonds to decrease banks reserves.
126. An increase in the money supply might indicate that the Fed had
a.
purchased bonds in an attempt to increase the federal funds rate.
b.
purchased bonds in an attempt to reduce the federal funds rate.
c.
sold bonds in an attempt to increase the federal funds rate.
d.
sold bonds in an attempt to reduce the federal funds rate.
127. A decrease in the money supply might indicate that the Fed had
a.
purchased bonds in an attempt to increase the federal funds rate.
b.
purchased bonds in an attempt to reduce the federal funds rate.
c.
sold bonds in an attempt to increase the federal funds rate.
d.
sold bonds in an attempt to reduce the federal funds rate.
128. If the Fed raised the reserve requirement, the demand for reserves would
a.
increase, so the federal funds rate would fall.
b.
increase, so the federal funds rate would rise.
c.
decrease, so the federal funds rate would fall.
d.
decrease, so the federal funds rate would rise.
129. The Fed can reduce the federal funds rate by
a.
decreasing the money supply. To decrease the money supply it could sell bonds.
b.
decreasing the money supply. To decrease the money supply it could buy bonds.
c.
increasing the money supply. To increase the money supply it could sell bonds.
d.
increasing the money supply. To increase the money supply it could buy bonds.
130. When the Fed buys government bonds,
a.
the money supply increases and the federal funds rate increases.
b.
the money supply increases and the federal funds rate decreases.
c.
the money supply decreases and the federal funds rate increases.
d.
the money supply decreases and the federal funds rate decreases.
131. The Fed wants to increase the quantity of funds available through the Term Auction Facility. The Fed sets the
a.
price of the loan, and money supply increases.
b.
quantity of borrowing, and money supply increases.
c.
price of the loan, and money supply decreases.
d.
quantity of borrowing, and money supply decreases.
132. Which of the following policies can the Fed follow to increase the money supply?
a.
Reduce the interest rate on reserves
b.
Increase reserve requirements for banks
c.
Reduce the quantity of funds available through the Term Auction Facility
d.
Sell government bonds
133. Which of the following policies is NOT in the Fed's monetary toolbox?
a.
Buying government bonds
b.
Increasing the quantity of reserves
c.
Lending reserves to banks
d.
Issuing a bank run
