Question 1

 

 

 

When the Fed buys $100 worth of bonds from First National Bank, reserves in the banking system

 

                       

 

increase by $100.

 

                       

 

decrease by more than $100.

 

                       

 

increase by more than $100.

 

                       

 

decrease by $100.

 

 

 

 

 

Question 2

 

 

 

Suppose the Bank of China permanently decreases its purchases of U.S. government bonds and, instead, holds more dollars on deposit at the Federal Reserve. Everything else held constant, a open market ________ would be the appropriate monetary policy action for the Fed to take to offset the expected ________ in the monetary base in the United States.

 

                       

 

sale; decrease

 

                       

 

purchase; increase

 

                       

 

purchase; decrease

 

                       

 

sale; increase

 

 

 

 

 

Question 3

 

 

 

There are two ways in which the Fed can provide additional reserves to the banking system: it can ________ government bonds or it can ________ discount loans to commercial banks.

 

                       

 

sell; call in

 

                       

 

purchase; extend

 

                       

 

purchase; call in

 

                       

 

sell; extend

 

 

 

 

 

Question 4

 

 

 

Which of the following is included in both M1 and M2?

 

                       

 

Small-denomination time deposits

 

                       

 

Savings deposits

 

                       

 

Money market deposit accounts

 

                       

 

Currency

 

 

 

 

 

Question 5

 

 

 

On August 14th, 2007 the actual Fed Funds rate was 71 basis points below the target rate.

 

 

 

 True

 

 False

 

 

 

 

 

Question 6

 

 

 

Which of the following is not included in the measure of M1?

 

                       

 

Demand deposits.

 

                       

 

Currency.

 

                       

 

Savings deposits.

 

                       

 

NOW accounts.

 

 

 

 

 

Question 7

 

 

 

 

 

The Fed Funds rate was less volatile between 8/9/2007 and 10/1/2007 than between 6/1/2007 and 8/1/2007 because the Fed was buying more securities at the end of August than at the beginning of June.

 

 

 

 

 

 True

 

 False

 

 

 

Question 8

 

 

 

When a member of the nonbank public withdraws currency from her bank account,

 

                       

 

both the monetary base and bank reserves rise.

 

                       

 

the monetary base falls, but bank reserves remain unchanged.

 

                       

 

both the monetary base and bank reserves fall.

 

                       

 

bank reserves fall, but the monetary base remains unchanged.

 

 

 

 

 

Question 9

 

 

 

 

 

In reaction the stress in the money markets in August of 2007 the FOMC lowered the target for the Fed Funds rate from 5.25% to 4.75% on August 10th.

 

 

 

 

 

 True

 

 False

 

 

 

 

 

Question 10

 

 

 

When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and the bank chooses not to make any loans but to hold excess reserves instead, then, in the bank’s final balance sheet,

 

                       

 

the assets at the bank increase by $1 million.

 

                       

 

the liabilities of the bank decrease by $1 million.

 

                       

 

liabilities increase by $200,000.

 

                       

 

reserves increase by $200,000.

 

 

 

 

 

Question 11

 

 

 

 

 

The Federal Reserve’s asset purchase program has been successful in bringing down mortgage rates. Mortgage rates (according to the data provided by the Board of Governors of the Federal Reserve) have fallen from 6.48% in August of 2008 to 3.35% in November of 2012.

 

 

 

 

 

 True

 

 False

 

 

 

 

 

Question 12

 

 

 

 

 

It was on December 16th 2008 that the FOMC lowered the Target Fed Funds rate from 2% to a range of 0%-.25%.

 

 

 

 

 

 True

 

 False

 

 

 

 

 

Question 13

 

 

 

Which of the following are reported as liabilities on a bank’s balance sheet?

 

                       

 

Loans

 

                       

 

Reserves

 

                       

 

Discount loans

 

                       

 

U.S. Treasury securities

 

 

 

 

 

Question 14

 

 

 

On March 4, 2014 the Federal Reserve Bank of New York purchased $1.225 billion of Treasury Securities that had maturities between 2 and 5 years.

 

 

 

 True

 

 False

 

 

 

 

 

Question 15

 

 

 

On August 9th, 2007 the actual Fed Funds rate was  16 basis points above the target rate.

 

 

 

 True

 

 False

 

 

 

Question 16

 

 

 

When the Fed supplies the banking system with an extra dollar of reserves, deposits ________ by ________ than one dollara process called multiple deposit creation.

 

                       

 

decrease; more

 

                       

 

increase; less

 

                       

 

decrease; less

 

                       

 

increase; more

 

 

 

 

 

Question 17

 

 

 

Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and one million dollars in required reserves. Given this information, we can say First National Bank has ________ million dollars in excess reserves.

 

                       

 

three

 

                       

 

nine

 

                       

 

ten

 

                       

 

eleven

 

 

 

 

 

Question 18

 

 

 

Dealers offered the Federal Reserve Bank of New York $78.250 billion of securities as collateral for repurchase agreements on August 22nd, 2007. The term of the operation was one day.

 

 

 

 True

 

 False

 

 

 

 

 

Question 19

 

 

 

The effect of an open market purchase on reserves differs depending on how the seller of the bonds keeps the proceeds. If the proceeds are kept in ________, the open market purchase has no effect on reserves; if the proceeds are kept as ________, reserves increase by the amount of the open market purchase.

 

                       

 

currency; currency

 

                       

 

deposits; deposits

 

                       

 

currency; deposits

 

                       

 

deposits; currency

 

 

 

 

 

Question 20

 

 

 

If a bank has excess reserves greater than the amount of a deposit outflow, the outflow will result in equal reductions in

 

                       

 

capital and loans.

 

                       

 

capital and reserves.

 

                       

 

deposits and reserves.

 

                       

 

deposits and loans.

 

 

 

 

 

Question 21

 

 

 

If an individual moves money from a small-denomination time deposit to a demand deposit account,

 

                       

 

M1 stays the same and M2 increases.

 

                       

 

M1 increases and M2 decreases.

 

                       

 

M1 increases and M2 stays the same.

 

                       

 

M1 stays the same and M2 stays the same.

 

 

 

 

 

Question 22

 

 

 

The components of the U.S. M1 money supply are demand and checkable deposits plus

 

                       

 

currency plus travelers checks plus money market deposits.

 

                       

 

currency plus travelers checks.

 

                       

 

currency plus savings deposits.

 

                       

 

currency.

 

 

 

 

 

Question 23

 

 

 

In the simple deposit expansion model, if the Fed purchases $100 worth of bonds from a bank that previously had no excess reserves, deposits in the banking system can potentially increase by

 

                       

 

$10.

 

                       

 

$100.

 

                       

 

$100 times the reciprocal of the required reserve ratio.

 

                       

 

$100 times the required reserve ratio.

 

 

 

 

 

Question 24

 

 

 

When Jane Brown writes a $100 check to her nephew (who lives in another state), Ms. Brown’s bank ________ assets of $100 and ________ liabilities of $100.

 

                       

 

gains; gains

 

                       

 

gains; loses

 

                       

 

loses; gains

 

                       

 

loses; loses

 

 

 

 

 

Question 25

 

 

 

Both ________ and ________ are Federal Reserve assets.

 

                       

 

currency in circulation; reserves

 

                       

 

government securities; reserves

 

                       

 

currency in circulation; government securities

 

                       

 

government securities; discount loans

 

 

 

 

 

Question 26

 

 

 

A bank with insufficient reserves can increase its reserves by

 

                       

 

lending federal funds.

 

                       

 

buying short-term Treasury securities.

 

                       

 

calling in loans.

 

                       

 

buying municipal bonds.

 

 

 

 

 

Question 27

 

 

 

Bank loans from the Federal Reserve are called ________ and represent a ________ of funds.

 

                       

 

discount loans; source

 

                       

 

discount loans; use

 

                       

 

fed funds; use

 

                       

 

fed funds; source

 

 

 

 

 

Question 28

 

 

 

When a bank sells a government bond to the Federal Reserve, reserves in the banking system ________ and the monetary base ________, everything else held constant.

 

                       

 

decrease; increases

 

                       

 

decrease; decreases

 

                       

 

increase; increases

 

                       

 

increase; decreases

 

 

 

 

 

Question 29

 

 

 

 

 

Open market purchases conducted by the Federal Reserve Bank of New York lead to an increase in bank reserves. For every $1 increase in bank reserves the money supply will increase by $2.

 

 

 

 

 

 True

 

 False

 

 

 

 

 

Question 30

 

 

 

Everything else held constant, a decrease in holdings of excess reserves will mean

 

                       

 

an increase in the money supply.

 

                       

 

an increase in discount loans.

 

                       

 

a decrease in the money supply.

 

                       

 

a decrease in checkable deposits.

 

 

 

 

 

Question 31

 

 

 

When the Fed Funds rate increases the cost of credit to non-financial firms does not change since the Fed Funds rate is an inter-bank rate of interest.

 

 

 

 

 

 True

 

 False

 

 

 

 

 

Question 32

 

 

 

Purchases and sales of government securities by the Federal Reserve are called

 

                       

 

open market operations.

 

                       

 

federal fund transfers.

 

                       

 

swap transactions.

 

                       

 

discount loans.

 

 

 

Question 33

 

 

 

Reserves are equal to the sum of

 

                       

 

vault cash reserves and total reserves.

 

                       

 

required reserves and vault cash reserves.

 

                       

 

excess reserves and vault cash reserves.

 

                       

 

required reserves and excess reserves.

 

 

 

 

 

Question 34

 

 

 

If the central bank pursues a monetary policy that is more expansionary than what firms and people expect, then the central bank must be trying to

 

                       

 

boost output in the short run.

 

                       

 

boost prices in the short run.

 

                       

 

constrain prices.

 

                       

 

constrain output in the short run.

 

 

 

 

 

Question 35

 

 

 

The System Open Market Account (SOMA), managed by the Federal Reserve Bank of New York, contains dollar-denominated assets acquired via open market operations. As of 3/4/2014 the SOMA account held $3 trillion of agency mortgage-backed securities.

 

 

 

 

 

 True

 

 False

 

 

 

 

 

Question 36

 

 

 

Even economists have no single, precise definition of money because

 

                       

 

the “moneyness” or liquidity of an asset is a matter of degree.

 

                       

 

money supply statistics are a state secret.

 

                       

 

the Federal Reserve does not employ or report different measures of the money supply.

 

                       

 

economists find disagreement interesting and refuse to agree for ideological reasons.

 

 

 

 

 

Question 37

 

 

 

Of the three motives for holding money suggested by Keynes, which did he believe to be the most sensitive to interest rates?

 

                       

 

The transactions motive.

 

                       

 

The altruistic motive.

 

                       

 

The speculative motive.

 

                       

 

The precautionary motive.

 

 

 

 

 

Question 38

 

 

 

When banks borrow money from the Federal Reserve, these funds are called

 

                       

 

Treasury funds.

 

                       

 

federal loans.

 

                       

 

federal funds.

 

                       

 

discount loans.

 

 

 

 

 

Question 39

 

 

 

When a $10 check written on the First National Bank of Chicago is deposited in an account at Citibank, then

 

                       

 

the assets of Citibank decrease by $10.

 

                       

 

the reserves of the First National Bank increase by $10.

 

                       

 

the liabilities of Citibank decrease by $10.

 

                       

 

the liabilities of the First National Bank decrease by $10.

 

 

 

 

 

Question 40

 

 

 

What is the impact on interest rates when the Federal Reserve decreases the money supply by selling bonds to the public?

 

 

 

 

 

 

 

 

 

Question 41

 

 

 

Bank reserves include

 

                       

 

deposits at other banks and deposits at the Fed.

 

                       

 

vault cash and deposits at the Fed.

 

                       

 

vault cash and short-term Treasury securities.

 

                       

 

deposits at the Fed and short-term treasury securities.

 

 

 

 

 

Question 42

 

 

 

When the Fed extends a $100 discount loan to the First National Bank, reserves in the banking system

 

                       

 

increase by $100.

 

                       

 

increase by more than $100.

 

                       

 

decrease by $100.

 

                       

 

decrease by more than $100.

 

 

 

 

 

Question 43

 

 

 

On2/18/2014 the Federal Reserve Bank of New York purchased $ 4.284 of Treasury Securities.

 

 

 

 True

 

 False

 

 

 

Question 44

 

 

 

In the simple deposit expansion model, an expansion in checkable deposits of $1,000 when the required reserve ratio is equal to 10 percent implies that the Fed

 

                       

 

sold $1,000 in government bonds.

 

                       

 

sold $100 in government bonds.

 

                       

 

purchased $1000 in government bonds.

 

                       

 

purchased $100 in government bonds.

 

 

 

 

 

Question 45

 

 

 

Open market purchases conducted by the Federal Reserve Bank of New York lead to an increase in bank reserves. For every $1 increase in bank reserves the money supply will increase by $1/2.

 

 

 

 

 

 True

 

 False

 

 

 

 

 

Question 46

 

 

 

Price stability is desirable because

 

                       

 

price stability increases the profitability of the Fed.

 

                       

 

inflation creates uncertainty, making it difficult to plan for the future.

 

                       

 

everyone is better off when prices are stable.

 

                       

 

it guarantees full employment.

 

 

 

 

 

Question 47

 

 

 

If a banker expects interest rates to fall in the future, her best strategy for the present is

 

                       

 

to increase the duration of the bank’s assets.

 

                       

 

to sell long-term certificates of deposit.

 

                       

 

to increase the duration of the bank’s liabilities.

 

                       

 

to buy short-term bonds.

 

 

 

 

 

Question 48

 

 

 

The interest rate spread between 3 month financial commercial paper and 3 month constant maturity treasury securities declined from 160 basis points on June 15th, 2007 to 58 basis points on August 24, 2007. This is because the Fed was active in adding reserves to the banking system.

 

 

 

 

 

 True

 

 False

 

 

 

 

 

Question 49

 

 

 

The sum of the Fed’s monetary liabilities and the U.S. Treasury’s monetary liabilities is called

 

                       

 

bank reserves.

 

                       

 

the monetary base.

 

                       

 

the money supply.

 

                       

 

currency in circulation.