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| 1 | |
In the U.S., loans made by Federal Reserve to banks fall in the categories of: |
| | A) | Discount loans. |
| | B) | Reserves. |
| | C) | Discount loans and reserves. |
| | D) | Discount loans and foreign exchange reserves. |
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| 2 | |
To obtain a discount loan from the Fed, a commercial bank must: |
| | A) | Prove that it will fail if it does not obtain the loan. |
| | B) | Prove that the loan will be used to make loans. |
| | C) | Provide collateral. |
| | D) | Agree to more frequent examinations. |
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| 3 | |
If the required reserve rate is ten percent and banks do not hold any excess reserves and there are no changes in currency holdings, a $1 million open market purchase by the Fed will result in what change in loans? |
| | A) | No change. |
| | B) | A decrease of $1 million. |
| | C) | An increase of $10 million. |
| | D) | An increase of $1 million. |
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| 4 | |
If we assume a ten percent required reserve rate, and banks do not hold any excess reserves and there are no changes in currency holdings, an open market sale of $5 million of U.S. Treasury securities by the Fed, will result in deposits: |
| | A) | Decreasing by $50 million. |
| | B) | Increasing by $5 million. |
| | C) | Increasing by $50 million. |
| | D) | Not changing. |
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| 5 | |
A liability of the central bank in functioning as the bankers' bank is: |
| | A) | Accounts of commercial banks. |
| | B) | Securities. |
| | C) | Loans. |
| | D) | Currency. |
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| 6 | |
Which of the following statements is most correct? |
| | A) | Discount loans are initiated by the Federal Reserve. |
| | B) | Discount loans are made when banks need relatively small amounts of cash for the long term. |
| | C) | Discount loans are made when banks need relatively large amounts of cash for the long term. |
| | D) | Discount loans are made when banks need relatively small amounts of cash for the short term. |
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| 7 | |
In dollar amounts: |
| | A) | The monetary base is larger than M2 and M1 is less than M2 |
| | B) | M1 is smaller than the monetary base and M2 is larger than both |
| | C) | The monetary base is larger than M1 and M2 |
| | D) | The monetary base is smaller than M1 and M2 is larger than M1 |
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| 8 | |
The monetary base is the sum of: |
| | A) | Reserves and M2. |
| | B) | M1 and reserves. |
| | C) | Currency in the hands of the public, reserves, and M1. |
| | D) | Currency in the hands of the public and reserves in the banking system. |
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| 9 | |
A customer of Bank A writes a $20,000 check for a new car, which the car dealer deposits in his bank, Bank B. Which of the following statements pertaining to this transaction is most true? |
| | A) | Banks A's reserves will decrease by the required reserve rate times $20,000 and Banks B's reserves will increase by (1-required reserve rate) times $20,000. |
| | B) | Bank A's reserves decrease by $20,000 and Bank B's reserves increase by $20,000. |
| | C) | Neither Bank A's nor B's reserves will change. |
| | D) | Bank B's reserves will decrease and Bank A's reserves will increase by $20,000. |
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| 10 | |
If the required reserve rate is ten percent and banks do not hold any excess reserves and there are no changes in currency holdings, a $1 million open market purchase by the Fed will result in deposit creation of: |
| | A) | $9 million. |
| | B) | $90 million. |
| | C) | $10 million. |
| | D) | $900,000. |
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| 11 | |
If there were an increase in the number of bank failures, we should expect the amount of excess reserves in the banking system to: |
| | A) | Decrease. |
| | B) | Increase. |
| | C) | Not change. |
| | D) | Decrease since failing banks lost theirs. |
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| 12 | |
The simple deposit expansion multiplier is really too simple for understanding the link between changes in a central bank's balance sheet and the quantity of money in the economy because it: |
| | A) | Ignores how central banks could change their balance sheet. |
| | B) | Assumes banks hold no excess reserves. |
| | C) | Ignores the fact people might change their currency holdings. |
| | D) | Ignores changes in vault cash. |
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| 13 | |
If the Fed were to decrease the required reserve rate from ten percent to five percent, the simple deposit expansion multiplier would: |
| | A) | Double. |
| | B) | Decrease by 5 percent. |
| | C) | Increase by a factor of five. |
| | D) | Be half as large as it was before the reduction. |
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| 14 | |
If required reserves are expressed by RR; the required reserve rate by rD and deposits by D, the simple deposit expansion multiplier is expressed as: |
| | A) | RDD |
| | B) | (1/rD) D |
| | C) | RD |
| | D) | 1/rD |
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| 15 | |
The 2009 year-end value of the M1 multiplier was 0.85, only about half the value from before the crisis. This reflects: |
| | A) | Higher required reserves. |
| | B) | A large currency-to-deposit ratio and a lesser excess reserve-to-deposit ratio. |
| | C) | Higher interest rates. |
| | D) | A surge in excess reserves due to the low opportunity cost of holding reserves. |
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