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| 1 | |
The monetary base is defined as |
| | A) | currency outstanding plus demand deposits |
| | B) | currency outstanding plus bank reserves |
| | C) | required reserves plus excess reserves |
| | D) | high-powered money minus bank reserves |
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| 2 | |
The money multiplier is the ratio of |
| | A) | bank deposits divided by bank reserves |
| | B) | the monetary base divided by bank reserves |
| | C) | money supply divided by high-powered money |
| | D) | bank deposits divided by high-powered money |
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| 3 | |
The size of the money multiplier increases |
| | A) | with an increase in the currency-deposit ratio |
| | B) | with a decrease in the reserve ratio |
| | C) | as the Fed undertakes open market sales |
| | D) | as the Fed decreases the discount rate |
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| 4 | |
Disintermediation occurs |
| | A) | when banks lose deposits and can no longer extend their loans |
| | B) | every time the Fed undertakes open market sales |
| | C) | when the Fed increases the discount rate |
| | D) | when the government sells securities to the Fed |
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| 5 | |
Assume the currency-deposit ratio is 20%, banks are required to hold 8% of their deposits in reserves, and they hold an additional 2% in excess reserves. If the stock of high-powered money is H = $300 billion, the stock of money is |
| | A) | $900 billion |
| | B) | $990 billion |
| | C) | $1,200 billion |
| | D) | $3,000 billion |
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| 6 | |
Assume the currency outstanding is $650 billion, bank deposits are $400 billion, and the reserve ratio is 12.5%. What is the size of the money multiplier? |
| | A) | 1.2 |
| | B) | 1.5 |
| | C) | 2.6 |
| | D) | 3.2 |
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| 7 | |
Which is the most useful instrument for the Fed in conducting monetary policy? |
| | A) | open market operations |
| | B) | discount rate changes (or primary credit rate) |
| | C) | reserve requirement changes |
| | D) | foreign exchange market interventions |
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| 8 | |
Which of the following statements is FALSE? |
| | A) | the Fed cannot simultaneously target interest rates and the money supply |
| | B) | money supply changes when the government finances a budget deficit by selling bonds to the |
| | C) | public |
| | D) | the money multiplier can be influenced by actions of the Fed, banks, and the public |
| | E) | an open market sale decreases bank reserves |
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| 9 | |
The central bank should try and target interest rates |
| | A) | if it is sure that disturbances to the economy come only from the money sector |
| | B) | any time the government undertakes expansionary fiscal policy |
| | C) | by undertaking open market sales any time interest rates increase |
| | D) | if its primary goal is to keep inflation under control |
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| 10 | |
Assume that after it announces interest rate targets, the Fed discovers that most disturbances in the economy are coming from the money sector. What should the Fed do? |
| | A) | abandon the interest rate targets and announce new monetary targets |
| | B) | stick to interest rate targets, since they are better than monetary targets in this situation |
| | C) | conduct open market sales whenever interest rates rise |
| | D) | lower the federal funds rate whenever money demand decreases |
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