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Quiz 3
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1
In the consolidated balance sheet of the Federal Reserve, the liabilities include:
A)Federal Reserve notes outstanding and reserves of commercial banks
B)government securities and Treasury deposits
C)reserves of commercial banks and loans to commercial banks
D)government securities and Federal Reserve notes outstanding
2
Assume the commercial banking system has checkable deposits of $100 billion and has no excess reserves at the current required reserve ratio of 22%. If the Fed lowers the reserve ratio to 20%:
A)there will continue to be no excess reserves
B)the money-creating potential of the banking system will increase by $2 billion
C)the money-creating potential of the banking system will increase by $10 billion
D)the Fed is pursuing a restrictive monetary policy
3
In pursuing a restrictive monetary policy, the Fed will:
A)reduce bank excess reserves to lower interest rates
B)sell government securities to raise interest rates
C)buy government securities to raise interest rates
D)increase bank excess reserves to lower interest rates
4
Suppose the Fed sells $30 billion in government securities to commercial banks and the reserve requirement is 25%. The effect of these sales is to:
A)increase excess reserves by $30 billion
B)reduce excess reserves by $7.5 billion
C)reduce the potential money supply by $90 billion
D)reduce the potential money supply by $120 billion
5
If the intent of the Fed is to increase GDP, it should:
A)raise the reserve requirement
B)raise the discount rate
C)ask banks to reduce their amount of loans outstanding
D)buy government securities
6
Suppose the demand for money falls. In order to maintain interest rates at their previous level, the Fed might:
A)buy government securities
B)lower the reserve requirement
C)lower the discount rate
D)sell government securities
7
Which of the following chain of events would signal that the Fed is pursuing a restrictive monetary policy?
A)The interest rate rises and investment falls
B)The interest rate rises and aggregate demand increases
C)Investment falls and net exports increase
D)Investment and net exports increase
8
The Federal funds rate:
A)is the rate commercial banks use as a benchmark for evaluating their largest borrowers
B)is the rate the Fed charges on overnight loans to commercial banks
C)is a primary policy target of the Fed in conducting monetary policy
D)is inversely related to the prime rate
9
The demand for money will decrease (shift to the left) as a result of:
A)an increase in the price of bonds
B)a decrease in the interest rate
C)an increase in the price level
D)a decrease in nominal GDP
10
Fed purchases of government securities on the open market:
A)restrain inflation and worsen a trade deficit
B)restrain inflation and improve a trade deficit
C)expand GDP and worsen a trade deficit
D)expand GDP and improve a trade deficit





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