114. When the Fed sells government securities, it:
a.
lowers the cost of borrowing from the Fed, encouraging banks to make loans to the
general public.
b.
raises the cost of borrowing from the Fed, discouraging banks from making loans to the
general public.
c.
increases the amount of excess reserves that banks hold, encouraging them to make loans
to the general public.
d.
increases the amount of excess reserves that banks hold, discouraging them from making
loans to the general public.
e.
decreases the amount of excess reserves that banks hold, discouraging them from making
loans to the general public.
115. The buying and selling of government securities by the Fed is known as:
a.
open market operations.
b.
federal bond operations.
c.
treasury bond operations.
d.
open bonds operations.
e.
discount rate operations.
116. When the Fed buys federal government securities on the open market from commercial banks, then,
over time, the:
a.
assets of these banks fall.
b.
assets of the banks stay the same.
c.
assets of the banks rise.
d.
liabilities of the bank rise.
e.
liabilities of the bank fall.
117. Bank reserves will increase over time when:
a.
the Fed sells government securities on the open market.
b.
the Treasury sells government securities on the open market.
c.
depositors take funds out of their checkable deposit accounts.
d.
the Fed buys government securities on the open market.
e.
the Fed lowers the discount rate.
118. If the Fed buys $10 million dollars in government securities, and the required reserve ratio is 20
percent, the banking system is able to expand the money supply by:
a.
$10 million.
b.
$8 million.
c.
$2 million.
d.
$40 million.
e.
$50 million.
119. During a period of inflation, the Fed is likely to:
a.
sell government securities to banks in order to reduce the amount of loanable funds.
b.
buy government securities from banks in order to reduce the amount of loanable funds.
c.
raise taxes in order to reduce the money supply.
d.
cut the required reserve ratio in order to reduce the amount of excess reserves banks have
to loan out.
e.
cut the discount rate in order to increase the affordability of loanable funds.
120. If the Fed sells $10 million in bonds to a bank, and the required reserve ratio is 20 percent, then the
banking system can:
a.
decrease the money supply by up to $10 million.
b.
decrease the money supply by up to $40 million.
c.
decrease the money supply by up to $50 million.
d.
decrease the money supply by up to $2 million.
e.
increase the money supply by up to $50 million.
121. Assume the Fed purchases a government security from a private dealer and pays with a Fed check of
$100,000. If this check is deposited by the dealer in a bank with a 10 percent required reserve ratio, the
bank can extend new loans in the amount of:
a.
$20,000.
c.
$100,000.
b.
$90,000.
d.
$120,000.
122. If there is a recession, the Fed would most likely:
a.
increase bank reserves by raising the discount rate.
b.
increase bank reserves by buying government securities.
c.
decrease bank reserves by raising the discount rate.
d.
decrease bank reserves by selling government securities.
e.
decrease bank reserves by lowering the legal reserve requirement.
123. If there is a recession, the Fed would most likely encourage banks to provide loans by:
a.
buying government securities.
c.
selling government securities.
b.
raising the discount rate.
d.
raising the federal funds rate.
124. If the economy is inflationary, the Fed would most likely:
a.
increase bank reserves by raising the discount rate.
b.
increase bank reserves by buying government securities
c.
decrease bank reserves by lowering the discount rate.
d.
decrease bank reserves by selling government securities.
e.
decrease bank reserves by lowering the legal reserve requirement.
125. If the economy is inflationary, the Fed would most likely:
a.
encourage banks to provide loans by buying government securities.
b.
encourage banks to provide loans by raising the discount rate.
c.
encourage banks to provide loans by selling government securities.
d.
restrict bank lending by selling government securities.
e.
restrict bank lending by lowering the federal funds rate.
126. The discount rate is the interest rate:
a.
commercial banks charge their low-risk customers for a loan.
b.
savings and loan associations pay for using savings deposit funds.
c.
the U.S. Treasury pays individuals who buy Treasury bonds in denominations of $10,000
or more.
d.
the Federal Reserve charges banking institutions for borrowing its funds.
127. If the Federal Reserve wants to increase the availability of money and credit, it can:
a.
lower the discount rate.
b.
raise the reserve requirements.
c.
sell U.S. government bonds to the public.
d.
encourage banks to increase their prime lending rate.
128. When the Fed lowers the discount rate, it makes it:
a.
cheaper for banks to borrow from each other.
b.
cheaper for banks to obtain additional reserves by borrowing from the Fed.
c.
more difficult for banks to accept deposits.
d.
more difficult for banks to extend loans.
129. If there is a recession, the Fed would most likely:
a.
encourage banks to provide loans by lowering the discount rate.
b.
encourage banks to provide loans by raising the discount rate.
c.
restrict bank lending by lowering the discount rate.
d.
restrict bank lending by raising the discount rate.
e.
restrict bank lending by lowering the federal funds rate.
130. The cost to a member bank of borrowing from the Federal Reserve is called the:
a.
reserve requirement.
c.
discount rate.
b.
price of securities in the open market.
d.
yield on government bonds.
131. The discount rate is the interest rate charged by:
a.
major banks to their best customers.
c.
the Fed on loans of reserves to banks.
b.
banks for overnight loans to other banks.
d.
banks for loans of less than 24 hours.
132. Which of the following policy actions by the Fed would cause the money supply to increase?
a.
An open market sale of government securities.
b.
An increase in required reserve ratios.
c.
A decrease in the discount rate.
d.
All of these.
133. Which of the following policy actions by the Fed would cause the money supply to decrease?
a.
An open-market purchase of government securities.
b.
A decrease in required reserve ratios.
c.
An increase in the discount rate.
d.
A decrease in the discount rate.
134. What interest rate does a bank pay when it borrows reserves from the Fed?
a.
The discount rate.
c.
The federal funds rate.
b.
The prime rate.
d.
The required reserve rate.
135. The Fed can raise the discount rate when it wants to:
a.
decrease the money supply.
c.
decrease the budget deficit.
b.
increase the money supply.
d.
increase the budget deficit.
136. Which of the following statements is true?
a.
The simple money multiplier equals the reciprocal of the required reserve ratio.
b.
Required reserves is the minimum balance that the Fed requires a bank to hold in vault
cash or on deposit with the Fed.
c.
The discount rate is the interest rate charged banks for loans from the Fed.
d.
Excess reserves equal total reserves minus required reserves.
e.
All of these.
137. Which of the following policy actions by the Fed would cause the money supply to decrease?
a.
An open-market purchase.
c.
A decrease in the discount rate.
b.
A decrease in required reserve ratios.
d.
None of these.
138. The interest rate which the Fed charges banks that borrow reserves from it is the:
a.
federal funds rate.
b.
discount rate.
c.
reserved rate.
d.
investment rate.
e.
check rate
139. When the Fed raises the discount rate, it:
a.
lowers the cost of borrowing from the Fed, encouraging banks to make loans to the
general public.
b.
raises the cost of borrowing from the Fed, discouraging banks from making loans to the
general public.
c.
increases the amount of excess reserves that banks hold, encouraging them to make loans
to the general public.
d.
increases the amount of excess reserves that banks hold, discouraging them from making
loans to the general public.
e.
decreases the amount of excess reserves that banks hold, discouraging them from making
loans to the general public.
140. The rate of interest charged by the Federal Reserve to member banks for reserves borrowed from the
Fed is known as the:
a.
federal funds rate.
c.
repurchase rate.
b.
discount rate.
d.
Q-ceiling rate.
141. When the Fed lowers the discount rate, it:
a.
lowers the cost of borrowing from the Fed, encouraging banks to make loans to the
general public.
b.
raises the cost of borrowing from the Fed, discouraging banks from making loans to the
general public.
c.
increases the amount of excess reserves that banks hold, encouraging them to make loans
to the general public.
d.
increases the amount of excess reserves that banks hold, discouraging them from making
loans to the general public.
e.
decreases the amount of excess reserves that banks hold, discouraging them from making
loans to the general public.
142. When the discount rates fall, the cost:
a.
of loans to bankers’ best customers goes down.
b.
of loans between banks falls.
c.
of international loans falls.
d.
to banks of borrowing from the Fed falls.
e.
to savings and loans of borrowing money from the public falls.
143. When the discount rate rises, the cost:
a.
of loans to bankers, best customers goes up.
b.
of loans between banks rises.
c.
of international loans rises.
d.
to savings and loans of borrowing money from the public falls.
e.
to banks of borrowing from the Fed falls.
144. The federal funds market is the market where:
a.
the federal government raises funds to cover its budget deficit.
b.
the Federal Reserve System makes loans to commercial banks.
c.
commercial banks with excess reserves make loans to commercial banks seeking reserves.
d.
commercial banks make loans to the Federal Reserve.
145. The interest rate in the federal funds market:
a.
is determined by the imposition of price controls imposed by the Fed.
b.
rises when the quantity of funds demanded by banks seeking additional reserves exceeds
the quantity supplied by banks with excess reserves.
c.
will fall if the Fed sells bonds and, thereby, reduces the reserves available to banks.
d.
is an interest rate that is largely unaffected by the policies of the Fed.
146. The federal funds rate is the interest rate charged by:
a.
banks for loans to other banks.
b.
the Fed for overnight loans.
c.
the Fed for borrowed reserves.
d.
the federal government on loans to member banks.
147. The interest rate on loans made by banks in the market in which they lend and borrow reserves from
each other for very short periods of time is known as the:
a.
discount rate.
b.
legal reserve rate.
c.
federal funds rate.
d.
open market rate.
e.
margin rate.
148. The federal funds market is the market in which:
a.
banks borrow from the Fed.
b.
bank customers borrow from their banks
c.
banks borrow from each other.
d.
the federal government borrows from the Fed.
e.
the federal government borrows from members of the general public.
149. The federal funds rate is:
a.
the minimum amount of reserves the Fed requires a bank to hold.
b.
the interest rate that the Fed charges banks who borrow from it.
c.
the interest rate on loans made by banks to other banks
d.
the maximum percentage of the cost of a stock that can be borrowed from a bank, with the
stock offered as collateral.
e.
an appeal by the Fed to banks, asking for voluntary compliance with the Fed’s wishes.
150. The market where banks borrow from other banks for short periods of time is the:
a.
discount market.
b.
federal funds market.
c.
inter-bank loan market.
d.
national bank market.
e.
liquidity market.
151. The federal funds market is the market where:
a.
the federal government borrows money from banks to finance the national debt.
b.
the federal government lends money to commercial banks.
c.
banks borrow money from other banks for short periods of time.
d.
banks borrow money from the Fed for short periods of time.
e.
banks borrow money from the Treasury for long periods of time.
152. The interest rate that banks charge other banks for short-term loans is the:
a.
discount rate.
b.
prime rate.
c.
treasury rate.
d.
federal funds rate.
e.
interbank rate.
153. The federal funds rate is the interest rate that:
a.
the government charges banks to borrow money
b.
the Fed charges banks to borrow money
c.
the federal government pays to borrow money
d.
federally chartered banks charge their customers for commercial loans.
e.
banks charge other banks for short-term loans.
154. The Fed’s power to set the required reserves of commercial banks:
a.
provides a certain source of interest income for commercial banks.
b.
allows the Fed to control the lending ability of commercial banks and, thereby, control the
money supply.
c.
prevents banks from hoarding too much vault cash.
d.
prevents commercial banks from earning excess profits.
155. Which of the following would cause the money supply in the United States to expand?
a.
A decrease in reserve requirements.
b.
An increase in the discount rate.
c.
The sale of U.S. government bonds by a Federal Reserve bank.
d.
An increase in the world supply of gold.
156. Which of the following would cause the money supply in the United States to decrease?
a.
An increase in reserve requirements
b.
A decrease in the discount rate
c.
A purchase of U.S. government bonds by the Federal Reserve
d.
An increase in the world supply of gold
157. When reserve requirements are increased, the:
a.
excess reserves of commercial banks will decrease.
b.
excess reserves of commercial banks will increase.
c.
U.S. Treasury will have to borrow additional funds.
d.
money supply will rise.
158. The money supply will grow faster through deposit creation when the required reserve ratio is:
a.
high and banks hold excess reserves.
b.
high and banks cannot find good customers to lend to.
c.
low and banks are able to lend out all of their excess reserves.
d.
low and banks are unable to loan out all of their excess reserves.
e.
high and banks are not able to loan out all of their excess reserves.
159. Which of the following actions by the Fed would increase the money supply?
a.
Reducing the required reserve ratio.
b.
Selling government bonds in the open market.
c.
Increasing the discount rate.
d.
None of these.
160. A decrease in the required reserve ratio will:
a.
reduce commercial bank loans and reduce the money supply.
b.
increase commercial bank loans and reduce the money supply.
c.
increase commercial bank loans and increase the money supply.
d.
decrease commercial bank loans and increase the money supply.
161. When the Fed lowers the required reserve ratio, it:
a.
lowers the cost of borrowing from the Fed, encouraging banks to make loans to the
general public
b.
raises the cost of borrowing from the Fed, discouraging banks from making loans to the
general public.
c.
increases the amount of excess reserves that banks hold, encouraging them to make loans
to the general public.
d.
increases the amount of excess reserves that banks hold, discouraging them from making
loans to the general public.
e.
decreases the amount of excess reserves that banks hold, discouraging them from making
loans to the general public.
162. Which of the following actions by the Fed would increase the money supply?
a.
Reducing the required reserve ratio.
c.
Increasing the discount rate.
b.
Selling bonds in the open market.
d.
None of these.
163. An increase in the required reserve ratio by the Federal Reserve would:
a.
cause M1 to contract.
c.
have no effect on M1 or M2.
b.
cause M1 to expand.
d.
affect only M2, not M1.
164. When the Fed raises the required reserve ratio, it:
a.
lowers the cost of borrowing from the Fed, encouraging banks to make loans to the
general public.
b.
raises the cost of borrowing from the Fed, discouraging banks from making loans to the
general public.
c.
increases the amount of excess reserves that banks hold, encouraging them to make loans
to he general public.
d.
increases the amount of excess reserves that banks hold, discouraging them from making
loans to the general public.
e.
decreases the amount of excess reserves that banks hold, discouraging them from making
loans to the general public.
165. When the Fed raises the required reserve ratio, then the:
a.
ability of banks to make loans is restricted.
b.
ability of banks to make loans is enhanced.
c.
ability of banks to make loans is unaffected.
d.
interest rate that banks pay to the Fed to borrow money is increased.
e.
interest rate that banks pay to other banks to borrow money is increased.
166. When the Fed decreases the required reserve ratio, then the:
a.
ability of banks to make loans is restricted.
b.
ability of banks to make loans is enhanced.
c.
ability of banks to make loans is unaffected.
d.
interest rate that banks pay to the Fed to borrow money is reduced.
e.
interest rate that banks pay other banks to borrow money is decreased.
167. A lowering of the required reserve ratio might not expand the money supply if:
a.
tax rates are also lowered at the same time.
b.
tax rates are increased at the same time.
c.
borrowers are unwilling to borrow the new funds the banks have available for loans.
d.
borrowers are willing to borrow the new funds the banks have available for loans..
e.
borrowers expand their borrowing because of the lower interest rates that banks offer.
168. Assume that the Paris First National Bank is a thriving bank with deposits of $20 million. If the
required reserve ratio is 20 percent and the bank is fully loaned out, the bank will have outstanding
loans totaling:
a.
$2 million.
b.
$4 million.
c.
$10 million.
d.
$16 million.
e.
$20 million.
169. Assume that the Paris First National Bank currently has deposits of $20 million. If the current required
reserve ratio is raised from 20 percent to 40 percent, then:
a.
Paris First National Bank does not have to comply with the Federal Reserve mandate.
b.
required reserves will decrease from $16 million to $12 million.
c.
excess reserves will automatically increase by $20 million.
d.
Paris First National Bank must close out 4 million in loans.
e.
Paris First National Bank must increase its required reserves from $4 million to $8
million.
170. Assume that the Paris First National Bank’s loan position contracted from $16 million to $12 million.
If the required reserve ratio was increased from 20 percent to 40 percent, how much would the money
supply shrink?
a.
$5 million.
b.
$10 million.
c.
$15 million.
d.
$20 million.
e.
$24 million.
171. If the Fed wanted to use all three of its major monetary control tools to decrease the money supply, it
would:
a.
buy bonds, reduce the discount rate, and reduce reserve requirements.
b.
sell bonds, reduce the discount rate, and reduce reserve requirements.
c.
sell bonds, increase the discount rate, and increase reserve requirements.
d.
buy bonds, increase the discount rate, and increase reserve requirements.
172. When the Federal Reserve System wants to increase the money supply, which of the following actions
would the Fed choose?
a.
It purchases U.S. government securities.
c.
It increases the required reserve ratio.
b.
It increases the discount rate.
d.
It sells bonds on the open market.
173. Which of the following actions by the Fed would increase the money supply?
a.
Increasing the required reserve ratio.
b.
Selling government bonds in the open market.
c.
Increasing the discount rate.
d.
Reducing the required reserve ratio.
174. The Fed’s countercyclical policy tools to eliminate a recession include lowering:
a.
the required reserve ratio, cutting the discount rate, and selling government bonds on the
open market.
b.
the required reserve ratio, raising the discount rate, and selling government bonds on the
open market.
c.
the required reserve ratio, raising the discount rate, and buying government bonds on the
open market.
d.
the discount rate, cutting the discount rate, and raising the margin requirement.
e.
the reserve requirement, lowering the discount rate, and buying government bonds on the
open market.