KEYWORDS:
Bloom’s: Comprehension
77. When the Fed sells government securities to a bank, the
a.
bank’s reserves increase.
b.
bank’s reserves decrease.
c.
bank’s reserves do not change.
d.
securities are an asset for the bank.
e.
b and d
78. When a bank obtains a loan from the Fed, it follows that the
a.
simple deposit multiplier rises.
b.
bank (itself) can create more loans.
c.
bank’s reserves decrease.
d.
bank’s reserves remain unchanged.
e.
none of the above
ANSWER:
DIFFICULTY:
NATIONAL STANDARDS:
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
KEYWORDS:
Bloom’s: Application
79. When Bank A obtains a loan from the Fed, the
a.
discount rate is probably higher than the federal funds rate.
b.
bank’s reserves increase.
c.
simple deposit multiplier decreases.
d.
b and c
e.
none of the above
ANSWER:
DIFFICULTY:
NATIONAL STANDARDS:
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
KEYWORDS:
Bloom’s: Application
80. When the Fed increases the required reserve ratio, a bank’s
a.
excess reserves are unaffected.
b.
excess reserves are increased.
c.
excess reserves are decreased.
d.
required reserves are decreased.
ANSWER:
POINTS:
NATIONAL STANDARDS:
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
e.
b and d
81. When the Fed increases the required reserve ratio, a bank’s
a.
b.
c.
d.
e.
Moderate
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Application
82. If the Fed were to increase the discount rate so that it was much higher than the federal funds rate, eventually
a.
reserves would decrease and the money supply would decrease.
b.
reserves would increase and the money supply would increase.
c.
reserves would decrease and the money supply would increase.
d.
reserves would increase and the money supply would decrease.
e.
there is no impact on reserves or the money supply.
1
Moderate
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Application
83. When commercial banks borrow from other commercial banks, the immediate impact is that reserves in the banking
system
a.
increase.
b.
decrease.
c.
are unaffected.
d.
first increase, then decrease.
e.
first decrease, then increase.
Moderate
United States – BUSPROG: Analytic
Moderate
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Application
84. Which of the following is not a monetary policy tool of the Fed?
a.
changing the required reserve ratio
b.
changing the discount rate
c.
setting the price level and the market rate of interest
d.
conducting open market operations
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Application
85. The required reserve ratio is set by the
a.
U.S. Congress.
b.
President of the United States.
c.
Secretary of the Treasury.
d.
Federal Reserve.
e.
Director of Monetary Affairs.
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Knowledge
86. If the Fed ______________________, the money supply will ultimately __________.
a.
raises the required reserve ratio from 8 percent to 10 percent; decrease
b.
lowers the required reserve ratio from 10 percent to 8 percent; increase
c.
lowers the required reserve ratio from 10 percent to 8 percent; decrease
d.
raises the required reserve ratio from 8 percent to 10 percent; increase
e.
a and b
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Application
87. An open market sale by the Fed will
a.
increase bank reserves.
b.
increase currency held by the public or vault cash.
c.
increase the money supply.
d.
reduce the money supply.
Bloom’s: Application
88. In the federal funds market,
a.
banks make loans to the Fed.
b.
banks make loans to other banks.
c.
the Fed makes short-term loans to banks.
d.
the Fed makes long-term loans to banks.
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Comprehension
89. The discount rate is the interest rate
a.
banks pay on certificates of deposit.
b.
the Fed pays on reserves held by banks.
c.
the Fed charges when it lends reserves to banks.
d.
banks charge their loan customers.
e.
on short-term Treasury securities.
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Knowledge
90. Open market purchases of government securities
a.
are designed to increase trading on the stock exchange.
b.
generally decrease the money supply.
c.
always decrease the money supply.
d.
cause bank reserves to increase.
e.
all of the above
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Comprehension
91. Which of the following actions is most likely to lead to an increase in the money supply?
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Comprehension
a.
Fed purchases of government securities
b.
an increase in the required reserve ratio
c.
an increase in the discount rate
d.
none of the above
92. A bank is less likely to borrow from the Fed when the __________ falls relative to the __________.
a.
discount rate; required reserve ratio
b.
excess reserve; required reserves
c.
discount rate; federal funds rate
d.
federal funds rate; discount rate
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Comprehension
93. Which of the following will not increase the money supply in the United States?
a.
lowering the required reserve ratio
b.
Fed purchases of government securities on the open market
c.
lowering the discount rate relative to the federal funds rate
d.
Fed sales of government securities on the open market
e.
none of the above
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Comprehension
94. The Fed has been called “the lender of last resort” because it
a.
is the biggest bank in the country.
b.
is the only lender to the federal government.
c.
serves as the last place to acquire loans for banks suffering cash management, or liquidity, problems.
d.
a and b
e.
all of the above
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Comprehension
95. The lower the required reserve ratio,
a.
the less money that can be loaned at each round of the lending process.
b.
the larger the simple deposit multiplier.
c.
the smaller the simple deposit multiplier.
d.
the fewer excess reserves there are at each round of the simple deposit multiplier process.
e.
a, c, and d
United States – BUSPROG: Analytic
Bloom’s: Comprehension
96. Which of the following is not a responsibility of the Fed?
a.
supervising member banks
b.
serving as the lender of last resort
c.
determining the level of government spending
d.
providing check-clearing services
e.
supplying the economy with Federal Reserve Notes
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Knowledge
97. Which of the following Fed actions will increase the money supply?
a.
open market purchases of Treasury notes
b.
an increase in the required reserve ratio
c.
an increase in the discount rate
d.
all of the above
e.
none of the above
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Comprehension
98. Which of the following Fed actions will decrease the money supply?
a.
an open market purchase of Treasury bills
b.
an increase in the required reserve ratio
c.
a decrease in the discount rate relative to the federal funds rate
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Comprehension
d.
all of the above
e.
none of the above
99. The banking system currently holds $20 billion in required reserves and zero excess reserves. The Fed lowers the
required reserve ratio from 15 percent to 12.5 percent. Assuming that there are no cash leakages, the resulting change in
checkable deposits (or the money supply) is approximately
a.
$2.7 billion.
b.
$1.5 billion.
c.
$2.0 billion.
d.
$12.5 billion.
e.
$26.6 billion.
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Application
100. If a bank has zero excess reserves and one of its creditworthy customers applies for a loan, the bank may be able to
grant the loan if it can
a.
apply some of its loan repayments to obtain the funds for the new loan.
b.
obtain extra funds in the federal funds market.
c.
obtain extra funds by borrowing from the Fed.
d.
any of the above
e.
b or c
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Application
101. In controlling the nation’s money supply, the Fed is obligated to seek the advice of
a.
the Congress.
b.
the President of the United States.
c.
the Treasury.
d.
a and b
e.
none of the above
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Comprehension
102. Federal Reserve Notes held by the Fed are considered part of the
a.
money supply.
b.
bank reserves.
c.
both of the above
d.
none of the above
d
Moderate
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Knowledge
103. Assuming no cash leakages and no excess reserves held by banks, a required reserve ratio of 0 percent would mean
that the simple deposit multiplier is
a.
0.
b.
1.
c.
10.
d.
100.
e.
infinity.
1
Moderate
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Application
104. One of the Fed’s functions is to be the government’s banker. This function means that the
a.
Fed holds bank reserves
b.
Fed extends loans to the government whenever it spends more than it collects in tax revenues.
c.
government’s checking account is at the Fed.
d.
all of the above
1
Moderate
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: The role of government
Bloom’s: Comprehension
105. There are __________ Federal Reserve Districts.
1
Moderate
United States – BUSPROG: Analytic
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Bloom’s: Comprehension
a.
seven
b.
eleven
c.
twelve
d.
fourteen
106. A Federal Reserve Bank is located in which of the following cities?
a.
Detroit
b.
Baltimore
c.
Minneapolis
d.
Seattle
e.
Cincinnati
1
Moderate
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: The role of government
Bloom’s: Knowledge
107. The Federal Reserve System came into existence with the Federal Reserve Act of
a.
1877.
b.
1933.
c.
1965.
d.
1913.
e.
1922.
d
1
Easy
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: The role of government
Bloom’s: Knowledge
108. The major policy-making group within the Fed is the __________ Committee.
a.
Federal Reserve Tax
b.
Federal Reserve Banking
c.
Federal Open Market
d.
Federal Reserve Decision-Making
e.
Regional Bank
1
1
Easy
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: The role of government
Bloom’s: Knowledge
109. Which of the following is not a function of the Federal Reserve System?
a.
to clear checks
b.
to supervise member banks
c.
to serve as the lender of last resort
d.
to handle the sale of U.S. Treasury securities
e.
to serve as the government’s tax collector
United States – OH – Default City – DISC: The role of government
Bloom’s: Knowledge
110. If reserves increase by $5 million, what is the difference in the resulting change in checkable deposits when the
required reserve ratio is 12.5 percent compared to when it is 10 percent?
a.
$12.5 million
b.
$10 million
c.
$2.5 million
d.
$100 million
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Application
111. Which of the following will cause the money supply to decline?
a.
lowering the discount rate
b.
raising the required reserve ratio
c.
an open market purchase
d.
an open market sale
e.
b and d
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Comprehension
112. The __________ rate is the interest rate one bank pays another bank for a loan.
a.
discount
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: The role of government
Bloom’s: Knowledge
b.
mortgage
c.
reserve requirement
d.
federal funds
e.
bank-borrowing
113. An open market __________ by the Fed increases the money supply; a(n) __________ in the required reserve ratio
increases the money supply.
a.
sale; decrease
b.
purchase; increase
c.
sale; increase
d.
purchase; decrease
1
Moderate
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Comprehension
114. A decrease in the required reserve ratio __________ the money supply; an open market purchase __________ the
money supply.
a.
decreases; decreases
b.
decreases; increases
c.
increases; increases
d.
increases; decreases
1
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Comprehension
115. Each of the governors of the Federal Reserve System is appointed for a term of __________ years. The Board of
Governors is comprised of _____________ members and the FOMC is comprised of __________ members.
a.
12; 7; 19
b.
14; 6; 22
c.
6; 5; 14
d.
14; 7; 12
e.
12; 6; 12
d
1
Moderate
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Application
116. Which of the following is not a function of the Fed?
a.
to provide check-clearing services
b.
to hold depository institutions’ reserves
c.
to serve as the government’s banker
d.
to serve as the borrower of last resort
e.
none of the above
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: The role of government
Bloom’s: Knowledge
117. Paper money is printed at the _______________________, but it is issued to commercial banks by the
______________________________.
a.
Bureau of Engraving and Printing; FOMC
b.
U.S. Mint; 12 Federal Reserve District Banks
c.
Federal Reserve building in Washington; D.C., U.S. Treasury
d.
Bureau of Engraving and Printing; 12 Federal Reserve District Banks
e.
none of the above
United States – BUSPROG: Analytic
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Bloom’s: Knowledge
118. The president of the ________________________ holds a permanent seat on the FOMC.
a.
United States
b.
Federal Reserve District Bank of New York
c.
Federal Reserve District Bank of San Francisco
d.
U.S. Senate banking committee
e.
none of the above
United States – BUSPROG: Analytic
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Bloom’s: Knowledge
119. The most important responsibility of the Fed is to
United States – BUSPROG: Analytic
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Bloom’s: Knowledge
a.
clear checks.
b.
supervise member banks.
c.
serve as fiscal agent for the U.S. Treasury.
d.
control the money supply.
120. Here is how an open market purchase works: The Fed __________ government securities to (from) a commercial
bank, which raises the bank’s deposits at the __________ and increases the bank’s __________.
a.
sells; Fed; reserves
b.
buys; Fed; reserves
c.
buys; Treasury; discount loans
d.
sells; Treasury; required reserve ratio
e.
buys; Fed; liabilities
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Comprehension
121. Here is how an open market sale works: A commercial bank __________ government securities to (from) the Fed,
which lowers the bank’s deposits at the __________ and __________ the bank’s __________.
a.
buys; Fed; lowers; reserves
b.
sells; Treasury; raises; reserves
c.
sells; Fed; raises; reserves
d.
buys; Treasury; lowers; liabilities
e.
none of the above
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Comprehension
122. If there are no excess reserves in the banking system and the Fed lowers the required reserve ratio, it follows that
banks will now have __________, which they can use to extend loans and create new __________.
a.
positive excess reserves; checkable deposits
b.
negative excess reserves; currency
c.
positive excess reserves; currency
d.
more vault cash; checkable deposits
e.
none of the above
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: The role of government
Bloom’s: Comprehension
123. Every time the Fed buys or sells on the open market, the __________ changes.
a.
budget deficit
b.
income tax rate
c.
money supply
d.
a and b
e.
a, b, and c
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Comprehension
124. If the Fed lowers the discount rate at the same time it conducts an open market sale, it follows that
a.
the money supply will fall.
b.
the money supply will rise.
c.
the money supply will remain unchanged.
d.
cash leakages will rise.
e.
There is not enough information to answer this question.
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Application
125. Which of the following will increase the money supply?
a.
increasing the required reserve ratio
b.
an open market sale
c.
raising the discount rate relative to the federal funds rate
d.
none of the above
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Comprehension
126. If Bank A borrows from Bank B, reserves in the banking system __________. If Bank A borrows from the Fed,
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Application
reserves in the banking system __________.
a.
rise; fall
b.
fall; remain unchanged
c.
remain unchanged; remain unchanged
d.
remain unchanged; rise
e.
rise; remain unchanged
127. If the Fed lowers the discount rate (relative to the federal funds rate), banks will (likely) borrow __________ from
the Fed, which will __________ reserves in the banking system, and eventually __________ the money supply.
a.
less; decrease; lower
b.
more; increase; raise
c.
the same amount; not change; lower
d.
more; decrease; raise
e.
none of the above
United States – BUSPROG: Analytic
Bloom’s: Application
128. If the Fed lowers the required reserve ratio, __________ in the banking system will remain unchanged but
__________ will rise. This will (likely) lead to an increase in new loans and checkable deposits and a(n) __________ in
the money supply.
a.
excess reserves; vault cash; increase
b.
reserves; vault cash; decrease
c.
reserves; excess reserves; increase
d.
reserves; required reserves; increase
e.
none of the above
United States – BUSPROG: Analytic
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Bloom’s: Application
129. If the federal funds rate falls below the discount rate, banks will decrease their borrowings from __________ and
__________ their borrowings from __________. It follows that when one bank borrows from __________, reserves in the
banking system __________.
a.
other banks; increase; the Fed; another bank; remain unchanged
b.
the Fed; decrease; other banks; another bank; remain unchanged
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Application
c.
other banks; increase; the U.S. Treasury; the Treasury; increase
d.
the Fed; increase; other banks; another bank; remain unchanged
e.
none of the above
130. If the Fed wants to increase the money supply, it can __________ the required reserve ratio, conduct an open market
__________, or __________the discount rate.
a.
lower; sale; raise
b.
lower; purchase; raise
c.
lower; purchase; lower
d.
raise; sale; lower
e.
raise; purchase; raise
1
Moderate
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Application
131. If the Fed wants to decrease the money supply, it can __________ the required reserve ratio, conduct an open market
__________, or __________ the discount rate.
a.
raise; purchase; lower
b.
lower; purchase; lower
c.
raise; sale; raise
d.
lower; sale; lower
e.
none of the above
1
Moderate
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Application
132. If the Fed raises the discount rate at the same time it conducts an open market sale, it follows that the money supply
will
a.
fall.
b.
rise.
c.
remain unchanged.
d.
There is not enough information to answer the question.
d
1
Moderate
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Application
133. If the Fed purchases government securities from Bank A, __________ in the banking system __________ and the
money supply __________.
a.
reserves; fall; falls
b.
reserves; rise; falls
c.
reserves; rise; rises
d.
excess reserves; fall; rises
e.
excess reserves; rise; falls
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Application
134. A Federal Reserve Bank is located in which of the following cities?
a.
St. Louis, Missouri
b.
Richmond, Virginia
c.
Atlanta, Georgia
d.
San Francisco, California
e.
all of the above
United States – BUSPROG: Analytic
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Bloom’s: Knowledge
135. The president of the Federal Reserve Bank of ________________ holds a permanent seat on the
_________________________.
a.
New York; Board of Governors of the Federal Reserve System
b.
Washington D.C.; FOMC
c.
San Francisco; FOMC
d.
New York; FOMC
e.
Washington D.C.; Board of Governors of the Federal Reserve System
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: The role of government
Bloom’s: Knowledge
United States – BUSPROG: Analytic
United States – OH – Default City – DISC: Monetary and fiscal policy
Bloom’s: Application