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Chapter 16 - Interest Rates and Monetary Policy
53. The securities held as assets by the Federal Reserve Banks consist mainly of:
54. Federal Reserve Notes in circulation are:
55. Which of the following will increase commercial bank reserves?
Chapter 16 - Interest Rates and Monetary Policy
56. When a commercial bank borrows from a Federal Reserve Bank:
57. The Federal Reserve Banks sell government securities to the public. As a result, the
checkable deposits:
58. The Federal Reserve Banks buy government securities from commercial banks. As a
result, the checkable deposits:
Chapter 16 - Interest Rates and Monetary Policy
59. The commercial banking system borrows from the Federal Reserve Banks. As a result, the
checkable deposits:
60. Which of the following is a tool of monetary policy?
61. In the United States monetary policy is the responsibility of the:
Chapter 16 - Interest Rates and Monetary Policy
62. The four main tools of monetary policy are:
63. Which of the following is not a tool of monetary policy?
Chapter 16 - Interest Rates and Monetary Policy
64. Assume the reserve ratio is 25 percent and Federal Reserve Banks buy $4 million of U.S.
securities from the public, which deposits this amount into checking accounts. As a result of
these transactions, the supply of money is:
65. Assume the legal reserve ratio is 25 percent and the Fourth National Bank borrows
$10,000 from the Federal Reserve Bank in its district. As a result:
66. Open-market operations refer to:
Chapter 16 - Interest Rates and Monetary Policy
67. If the Federal Reserve System buys government securities from commercial banks and the
public:
68. The purchase of government securities from the public by the Fed will cause:
69. Assume that a single commercial bank has no excess reserves and that the reserve ratio is
20 percent. If this bank sells a bond for $1,000 to a Federal Reserve Bank, it can expand its
loans by a maximum of:
Chapter 16 - Interest Rates and Monetary Policy
70. Suppose the Federal Reserve Banks sell $2 billion of government bonds to the public
which pays for them by drawing checks. As a result, commercial bank reserves will:
71. Refer to the above balance sheets. If the reserve ratio is 25%, commercial banks have
excess reserves of:
Chapter 16 - Interest Rates and Monetary Policy
72. Refer to the above balance sheets. If the reserve ratio is 25%, the maximum money-
creating potential of the commercial banking system is:
73. Refer to the above balance sheets and assume the reserve ratio is 25%. Suppose the
Federal Reserve Banks buy $2 in securities from the public, which deposits this amount into
checking accounts. As a result of these transactions, the supply of money will:
Chapter 16 - Interest Rates and Monetary Policy
74. Refer to the above balance sheets and assume the reserve ratio is 25%. Suppose the
Federal Reserve Banks sell $2 in securities directly to the commercial banks. As a result of
this transaction the supply of money:
75. The Federal Reserve System regulates the money supply primarily by:
Chapter 16 - Interest Rates and Monetary Policy
16-30
76. Which of the following is correct? When the Federal Reserve buys government securities
from the public, the money supply:
77. Which of the following will happen when the Federal Reserve buys bonds from the public
in the open market and the amount of cash held by the public does not change?
Answer the next question on the assumption that the legal reserve ratio is 20 percent.
Suppose that the Fed sells $500 of government securities to commercial banks (paid for out of
commercial bank reserves) and buys $500 of securities from individuals, who deposit the cash
in checking accounts.
Chapter 16 - Interest Rates and Monetary Policy
78. As a result of the above transactions, reserves in the banking system will:
79. As a result of the above transactions, excess reserves in the banking system will:
80. As a result of the above transactions, the supply of money in the economy will:
Chapter 16 - Interest Rates and Monetary Policy
81. Open-market operations change:
Answer the next question on the basis of the following consolidated balance sheet of the
commercial banking system. Assume that the reserve requirement is 10 percent. All figures
are in billions and each question should be answered independently of changes specified in
any preceding ones.
82. Refer to the above data. The commercial banking system has excess reserves of:
Chapter 16 - Interest Rates and Monetary Policy
83. Refer to the above data. The monetary multiplier for the commercial banking system is:
84. Refer to the above data. Suppose the Fed sold $10 billion of U.S. securities to the banks.
This would:
Chapter 16 - Interest Rates and Monetary Policy
85. Refer to the above data. Suppose the Fed bought $20 billion of U.S. securities from the
banks. This would:
86. Refer to the above data. Suppose the Fed wants to increase the money supply by $400
billion to drive down interest rates and stimulate the economy. Assuming that the money
multiplier is operating to full effect, to accomplish the desired increase the Fed could:
Chapter 16 - Interest Rates and Monetary Policy
87. Refer to the above data. Suppose the Fed wants to reduce the money supply by $400
billion to drive up interest rates and dampen inflation. Assuming that the money multiplier is
operating to full effect, to accomplish the desired reduction the Fed could:
88. If the Fed were to reduce the legal reserve ratio, we would expect:
Chapter 16 - Interest Rates and Monetary Policy
89. An increase in the legal reserve ratio:
90. When the reserve requirement is increased:
91. Assume that the commercial banking system has checkable deposits of $10 billion and
excess reserves of $1 billion at a time when the reserve requirement is 20 percent. If the
reserve requirement is now raised to 30 percent, the banking system then has:
Chapter 16 - Interest Rates and Monetary Policy
92. When the required reserve ratio is increased, the excess reserves of member banks are:
93. When the required reserve ratio is decreased, the excess reserves of member banks are:
94. A decrease in the reserve ratio increases the:
Chapter 16 - Interest Rates and Monetary Policy
95. Which of the monetary policy tools can alter both the level of excess reserves and the
money multiplier?
Answer the next question on the basis of the following consolidated balance sheet of the
commercial banking system. Assume that the reserve requirement is 20 percent. All figures
are in billions and each question should be answered independently of changes specified in all
preceding ones.
96. Refer to the above data. The commercial banking system has excess reserves of:
Chapter 16 - Interest Rates and Monetary Policy
97. Refer to the above data. The monetary multiplier for the commercial banking system is:
98. Refer to the above data. If the Fed increased the reserve requirement from 20 percent to 25
percent, a deficiency of reserves in the commercial banking system of _____ would occur and
the monetary multiplier would fall to ___.
99. Refer to the above data. If the Fed reduced the reserve requirement from 20 percent to 16
percent, excess reserves in the commercial banking system would increase by _____ and the
monetary multiplier would rise to ___.
Chapter 16 - Interest Rates and Monetary Policy
100. Refer to the above data. Suppose the Fed wants to increase the money supply by $1000
billion to drive down interest rates and stimulate the economy. To accomplish this it could
lower the reserve requirement from 20 percent to:
101. Refer to the above data. Suppose the Fed wants to reduce the money supply by $200
billion to drive up interest rates and dampen inflation. To accomplish this it could increase the
reserve requirement from 20 percent to:
102. The discount rate is the interest:
