The ability of a central bank to set monetary policy instruments is

The ability of a central bank to set monetary policy instruments is

A) political independence.
B) goal independence.
C) policy independence.
D) instrument independence.



Answer: D

Instrument independence is the ability of ________ to set monetary policy ________.

Instrument independence is the ability of ________ to set monetary policy ________.

A) the central bank; goals
B) Congress; goals
C) Congress; instruments
D) the central bank; instruments



Answer: D

Subject to the approval of the Board of Governors, the decision of choosing the president of a district Federal Reserve Bank is made by

Subject to the approval of the Board of Governors, the decision of choosing the president of a district Federal Reserve Bank is made by

A) all nine district bank directors.
B) the six district bank directors elected by the member banks.
C) three district bank directors who are professional bankers.
D) district bank directors who are not professional bankers.
E) class A and class B directors.



Answer: D

The Federal Open Market Committee's "balance of risks" is an assessment of whether, in the future, its primary concern will be

The Federal Open Market Committee's "balance of risks" is an assessment of whether, in the future, its primary concern will be

A) higher exchange rates or higher unemployment.
B) higher inflation or a stronger economy.
C) higher inflation or a weaker economy.
D) lower inflation or a stronger economy



Answer: C

The Federal Open Market Committee's "balance of risks" is an assessment of whether, in the future, its primary concern will be

The Federal Open Market Committee's "balance of risks" is an assessment of whether, in the future, its primary concern will be

A) higher exchange rates or higher unemployment.
B) higher inflation or a stronger economy.
C) higher inflation or a weaker economy.
D) lower inflation or a stronger economy



Answer: C

The teal book is the Fed research document containing

The teal book is the Fed research document containing

A) the forecast of national economic variables for the next three years.
B) forecasts of the money aggregates conditional on different monetary policy stances.
C) information on the state of the economy in each Federal Reserve district.
D) both A and B.
E) A, B and C.



Answer: D

The research document given to the Federal Open Market Committee that contains information on the state of the economy in each Federal Reserve district is called the

The research document given to the Federal Open Market Committee that contains information on the state of the economy in each Federal Reserve district is called the

A) beige book.
B) green book.
C) blue book.
D) black book.



Answer: A

Although neither ________ nor the ________ are officially set by the Federal Open Market Committee, decisions concerning these policy tools are effectively made by the committee.

Although neither ________ nor the ________ are officially set by the Federal Open Market Committee, decisions concerning these policy tools are effectively made by the committee.

A) margin requirements; discount rate
B) margin requirements; federal funds rate
C) reserve requirements; discount rate
D) reserve requirements; federal funds rate



Answer: C

Each Fed bank president attends FOMC meetings; although only ________ Fed bank presidents vote on policy, all ________ provide input.

Each Fed bank president attends FOMC meetings; although only ________ Fed bank presidents vote on policy, all ________ provide input.

A) three; ten
B) five; ten
C) three; twelve
D) five; twelve


Answer: D

The majority of members of the Federal Open Market Committee are

The majority of members of the Federal Open Market Committee are

A) Federal Reserve Bank presidents.
B) members of the Federal Advisory Council.
C) presidents of member banks.
D) the seven Federal Reserve governors.



Answer: D

The Federal Open Market Committee consists of the

The Federal Open Market Committee consists of the

A) five senior members of the seven-member Board of Governors.
B) seven members of the Board of Governors and seven presidents of the regional Fed banks.
C) seven members of the Board of Governors and five presidents of the regional Fed banks.
D) twelve regional Fed bank presidents and the chairman of the Board of Governors.



Answer: C

The Federal Reserve entity that makes decisions regarding the conduct of open market operations is the

The Federal Reserve entity that makes decisions regarding the conduct of open market operations is the

A) Board of Governors.
B) chairman of the Board of Governors.
C) Federal Open Market Committee.
D) Open Market Advisory Council


Answer: C

The Federal Open Market Committee usually meets ________ times a year.

The Federal Open Market Committee usually meets ________ times a year.

A) four
B) six
C) eight
D) twelve



Answer: C

Which of the followings is not a current duty of the Board of Governors of the Federal Reserve System?

Which of the followings is not a current duty of the Board of Governors of the Federal Reserve System?

A) Setting margin requirements, the fraction of the purchase price of the securities that has to be paid for with cash.
B) Setting the maximum interest rates payable on certain types of time deposits under Regulation Q.
C) Approving the discount rate "established" by the Federal Reserve banks.
D) Representing the United States in negotiations with foreign governments on economic matters.



Answer: B

Which of the followings is a duty of the Board of Governors of the Federal Reserve System?

Which of the followings is a duty of the Board of Governors of the Federal Reserve System?

A) Setting margin requirements, the fraction of the purchase price of the securities that has to be paid for with cash.
B) Setting the maximum interest rates payable on certain types of time deposits under Regulation Q.
C) Regulating credit with the approval of the president under the Credit Control Act of 1969.
D) All governors advise the president of the United States on economic policy.



Answer: A

Which of the followings is a duty of the Board of Governors of the Federal Reserve System?

Which of the followings is a duty of the Board of Governors of the Federal Reserve System?

A) Setting margin requirements, the fraction of the purchase price of the securities that has to be paid for with cash.
B) Setting the maximum interest rates payable on certain types of time deposits under Regulation Q.
C) Regulating credit with the approval of the president under the Credit Control Act of 1969.
D) All governors advise the president of the United States on economic policy.



Answer: A

While the discount rate is "established" by the regional Federal Reserve Banks, in truth, the rate is determined by

While the discount rate is "established" by the regional Federal Reserve Banks, in truth, the rate is determined by

A) Congress.
B) the president of the United States.
C) the Senate.
D) the Board of Governors.



Answer: D

Each governor on the Board of Governors can serve

Each governor on the Board of Governors can serve

A) only one nonrenewable fourteen-year term.
B) one full nonrenewable fourteen-year term plus part of another term.
C) only one nonrenewable eight-year term.
D) one full nonrenewable eight-year term plus part of another term.



Answer: B

The Chairman of the Board of Governors is chosen from among the seven governors and serves a ________ term.

The Chairman of the Board of Governors is chosen from among the seven governors and serves a ________ term.

A) one-year
B) two-year
C) four-year
D) eight-year



Answer: C

Members of the Board of Governors are

Members of the Board of Governors are

A) chosen by the Federal Reserve Bank presidents.
B) appointed by the newly elected president of the United States, as are cabinet positions.
C) appointed by the president of the United States and confirmed by the Senate.
D) never allowed to serve more than 7-year terms.



Answer: C

There are ________ members of the Board of Governors of the Federal Reserve System.

There are ________ members of the Board of Governors of the Federal Reserve System.

A) 5
B) 7
C) 12
D) 19



Answer: B

The Depository Institutions Deregulation and Monetary Control Act of 1980

The Depository Institutions Deregulation and Monetary Control Act of 1980

A) established higher reserve requirements for nonmember than for member banks.
B) established higher reserve requirements for member than for nonmember banks.
C) abolished reserve requirements.
D) established uniform reserve requirements for all banks.



Answer: D

Banks subject to reserve requirements set by the Federal Reserve System include

Banks subject to reserve requirements set by the Federal Reserve System include

A) only nationally chartered banks.
B) only banks with assets less than $100 million.
C) only banks with assets less than $500 million.
D) all banks whether or not they are members of the Federal Reserve System.



Answer: D

The Fed's support of the Depository Institutions Deregulation and Monetary Control Act of 1980 stemmed in part from its

The Fed's support of the Depository Institutions Deregulation and Monetary Control Act of 1980 stemmed in part from its

A) concern over declining Fed membership.
B) belief that all banking regulations should be eliminated.
C) belief that interest rate ceilings were too high.
D) belief that depositors had to become more knowledgeable of banking operations.



Answer: A

Prior to 1980, member banks left the Federal Reserve System due to

Prior to 1980, member banks left the Federal Reserve System due to

A) the high cost of discount loans.
B) the high cost of required reserves.
C) a desire to avoid interest rate regulations.
D) a desire to avoid credit controls.



Answer: B

Of all commercial banks, about ________ percent belong to the Federal Reserve System.

Of all commercial banks, about ________ percent belong to the Federal Reserve System.

A) 17
B) 22
C) 38
D) 52



Answer: C

All ________ are required to be members of the Fed.

All ________ are required to be members of the Fed.

A) state chartered banks
B) nationally chartered banks
C) banks with assets less than $100 million
D) banks with assets less than $500 million



Answer: B

Which of the following functions is not performed by any of the twelve regional Federal Reserve Banks?

Which of the following functions is not performed by any of the twelve regional Federal Reserve Banks?

A) Check clearing
B) Conducting economic research
C) Setting interest rates payable on time deposits
D) Issuing new currency



Answer: C

An important function of the regional Federal Reserve Banks is

An important function of the regional Federal Reserve Banks is

A) setting reserve requirements.
B) clearing checks.
C) determining monetary policy.
D) setting margin requirements.


Answer: B

The president from which Federal Reserve Bank always has a vote in the Federal Open Market Committee?

The president from which Federal Reserve Bank always has a vote in the Federal Open Market Committee?

A) Philadelphia
B) Boston
C) San Francisco
D) New York



Answer: D

The Federal Reserve Bank of ________ plays a special role in the Federal Reserve System because it houses the open market desk.

The Federal Reserve Bank of ________ plays a special role in the Federal Reserve System because it houses the open market desk.

A) Boston
B) New York
C) Chicago
D) San Francisco



Answer: B

Member commercial banks have purchased stock in their district Fed banks; the dividend paid by that stock is limited by law to ________ percent annually.

Member commercial banks have purchased stock in their district Fed banks; the dividend paid by that stock is limited by law to ________ percent annually.

A) four
B) five
C) six
D) eight



Answer: C

The nine directors of the Federal Reserve Banks are split into three categories: ________ are professional bankers, ________ are leaders from industry, and ________ are to represent the public interest and are not allowed to be officers, employees, or stockholders of banks.

The nine directors of the Federal Reserve Banks are split into three categories: ________ are professional bankers, ________ are leaders from industry, and ________ are to represent the public interest and are not allowed to be officers, employees, or stockholders of banks.

A) 5; 2; 2
B) 2; 5; 2
C) 4; 2; 3
D) 3; 3; 3




Answer: D

Each Federal Reserve bank has nine directors. Of these ________ are appointed by the member banks and ________ are appointed by the Board of Governors.

Each Federal Reserve bank has nine directors. Of these ________ are appointed by the member banks and ________ are appointed by the Board of Governors.

A) three; six
B) four; five
C) five; four
D) six; three



Answer: D

The Federal Reserve Banks are ________ institutions since they are owned by the ________.

The Federal Reserve Banks are ________ institutions since they are owned by the ________.

A) quasi-public; private commercial banks in the district where the Reserve Bank is located
B) public; private commercial banks in the district where the Reserve Bank is located
C) quasi-public; Board of Governors
D) public; Board of Governors



Answer: A

The three largest Federal Reserve banks (New York, Chicago, and San Francisco) combined hold more than ________ percent of the assets of the Federal Reserve System.

The three largest Federal Reserve banks (New York, Chicago, and San Francisco) combined hold more than ________ percent of the assets of the Federal Reserve System.

A) 25
B) 33
C) 50
D) 67



Answer: C

Which of the following is an entity of the Federal Reserve System?

Which of the following is an entity of the Federal Reserve System?

A) The U.S. Treasury Secretary
B) The FOMC
C) The Comptroller of the Currency
D) The FDIC



Answer: B

Which of the following is NOT an entity of the Federal Reserve System?

Which of the following is NOT an entity of the Federal Reserve System?

A) Federal Reserve Banks
B) The Comptroller of the Currency
C) The Board of Governors
D) The Federal Open Market Committee



Answer: B

What makes the Federal Reserve so unique compared to other central banks around the world is its

What makes the Federal Reserve so unique compared to other central banks around the world is its

A) centralized structure.
B) decentralized structure.
C) regulatory functions.
D) monetary policy functions.



Answer: B

The financial panic of 1907 resulted in such widespread bank failures and substantial losses to depositors that the American public finally became convinced that

The financial panic of 1907 resulted in such widespread bank failures and substantial losses to depositors that the American public finally became convinced that

A) the First Bank of the United States had failed to serve as a lender of last resort.
B) the Second Bank of the United States had failed to serve as a lender of last resort.
C) the Federal Reserve System had failed to serve as a lender of last resort.
D) a central bank was needed to prevent future panics.



Answer: D

The public's fear of centralized power and distrust of moneyed interests led to the demise of the first two experiments in central banking, otherwise known as

The public's fear of centralized power and distrust of moneyed interests led to the demise of the first two experiments in central banking, otherwise known as

A) the First Bank of the United States and the Second Bank of the United States.
B) the First Bank of the United States and the Central Bank of the United States.
C) the First Central Bank of the United States and the Second Central Bank of the United States.
D) the First Bank of North America and the Second Bank of North America.



Answer: A

The Second Bank of the United States

The Second Bank of the United States

A) was disbanded in 1811 when its charter was not renewed.
B) had its charter renewal vetoed in 1832.
C) is considered to be the primary cause of the bank panic of 1907.
D) None of the above.


Answer: B

The First Bank of the United States

The First Bank of the United States

A) was disbanded in 1811 when its charter was not renewed.
B) had its charter renewal vetoed in 1832.
C) was fundamental in helping the Federal Government finance the War of 1812.
D) None of the above.



Answer: A

The M2 money supply is represented by

The M2 money supply is represented by

A) M2 = (1+c+t+mm)/(rr+e+c) × MB.
B) M2 = (1+c+t+mm)/(rr+e+c) × 1/MB
C) MB = (1+c+t+mm)/(rr+e+c) × M2.
D) MB = (1+c+t+mm)/(rr+e+c) × 1/M2



Answer: A

In the model of the money supply process for M2, the relationship between checkable deposits and the M2 money supply is represented by

In the model of the money supply process for M2, the relationship between checkable deposits and the M2 money supply is represented by

A) D = 1/(1+c+t+mm) × M2
B) D = (1 + c + t + mm) × M2
C) M2 = 1/(1 + c + t + mm)× D
D) M2 = (rr+c+t+mm)/D



Answer: A

The increase in the currency ratio during World War II was due to

The increase in the currency ratio during World War II was due to

A) bank panics.
B) a drop in the rate of interest paid on checking deposits.
C) the spread of ATMs.
D) high taxes and illegal activities.



Answer: D

The factor accounting for the steepest rise in the currency ratio since 1892 is

The factor accounting for the steepest rise in the currency ratio since 1892 is

A) taxes.
B) bank panics.
C) illegal activity.
D) an increase in wealth.



Answer: B

The steepest increase in the currency ratio since 1892 occurred during

The steepest increase in the currency ratio since 1892 occurred during

A) World War II.
B) the Great Depression.
C) the interwar years.
D) the past twenty years



Answer: B

The increase in the availability of ATM's has caused the cost of acquiring currency to ________ which will cause the currency ratio to ________, everything else held constant.

The increase in the availability of ATM's has caused the cost of acquiring currency to ________ which will cause the currency ratio to ________, everything else held constant.

A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease



Answer: C

Everything else held constant, an increase in the interest rate paid on checkable deposits will cause ________ in the amount of checkable deposits held relative to currency holdings and ________ in the currency ratio.

Everything else held constant, an increase in the interest rate paid on checkable deposits will cause ________ in the amount of checkable deposits held relative to currency holdings and ________ in the currency ratio.

A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease



Answer: B

Everything else held constant, an increase in wealth will cause the holdings of checkable deposits to the holdings of currency to ________ and the currency ratio will ________.

Everything else held constant, an increase in wealth will cause the holdings of checkable deposits to the holdings of currency to ________ and the currency ratio will ________.

A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease



Answer: B

Part of the increase in currency holdings in the 1960s and 1970s can be attributed to

Part of the increase in currency holdings in the 1960s and 1970s can be attributed to

A) increases in income tax rates.
B) the switch from progressive to proportional income taxes.
C) the adoption of regressive taxes.
D) bracket creep due to inflation and progressive income taxes



Answer: D

Factors causing an increase in currency holdings include

Factors causing an increase in currency holdings include

A) an increase in the interest rates paid on checkable deposits.
B) an increase in the cost of acquiring currency.
C) a decrease in bank panics.
D) an increase in illegal activity.




Answer: D

Everything else held constant, an increase in the excess reserve ratio will mean ________ in the M1 money multiplier and ________ in the M2 money multiplier.

Everything else held constant, an increase in the excess reserve ratio will mean ________ in the M1 money multiplier and ________ in the M2 money multiplier.

A) an increase; an increase
B) no change; an increase
C) a decrease; a decrease
D) no change; a decrease



Answer: C

Everything else held constant, an increase in the excess reserve ratio will mean ________ in the M2 money multiplier and ________ in the M2 money supply.

Everything else held constant, an increase in the excess reserve ratio will mean ________ in the M2 money multiplier and ________ in the M2 money supply.

A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease




Answer: D

Everything else held constant, an increase in the money market fund ratio will result in ________ in the M1 money multiplier and ________ in the M2 money multiplier.

Everything else held constant, an increase in the money market fund ratio will result in ________ in the M1 money multiplier and ________ in the M2 money multiplier.

A) an increase; an increase
B) no change; an increase
C) a decrease; a decrease
D) no change; a decrease



Answer: B

Everything else held constant, an increase in the money market fund ratio will mean ________ in the M2 money multiplier and ________ in the M2 money supply.

Everything else held constant, an increase in the money market fund ratio will mean ________ in the M2 money multiplier and ________ in the M2 money supply.

A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease



Answer: A

Everything else held constant, an increase in the time deposit ratio will result in ________ in the M1 money multiplier and ________ in the M2 money multiplier.

Everything else held constant, an increase in the time deposit ratio will result in ________ in the M1 money multiplier and ________ in the M2 money multiplier.

A) an increase; an increase
B) no change; an increase
C) a decrease; a decrease
D) no change; a decrease



Answer: B

Everything else held constant, an increase in the time deposit ratio will mean ________ in the M2 money multiplier and ________ in the M2 money supply.

Everything else held constant, an increase in the time deposit ratio will mean ________ in the M2 money multiplier and ________ in the M2 money supply.

A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease




Answer: A

Everything else held constant, an increase in the required reserve ratio will result in ________ in M1 and ________ in M2.

Everything else held constant, an increase in the required reserve ratio will result in ________ in M1 and ________ in M2.

A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease



Answer: D

Everything else held constant, an increase in the required reserve ratio will mean ________ in the M2 money multiplier and ________ in the M2 money supply.

Everything else held constant, an increase in the required reserve ratio will mean ________ in the M2 money multiplier and ________ in the M2 money supply.

A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease



Answer: D

Everything else held constant, a decrease in the currency ratio will mean ________ in the M1 money multiplier and ________ in the M2 money multiplier.

Everything else held constant, a decrease in the currency ratio will mean ________ in the M1 money multiplier and ________ in the M2 money multiplier.

A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease



Answer: A

Everything else held constant, an increase in the currency ratio will mean ________ in the M2 money multiplier and ________ in the M2 money supply.

Everything else held constant, an increase in the currency ratio will mean ________ in the M2 money multiplier and ________ in the M2 money supply.

A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease



Answer: D

The M2 money multiplier is

The M2 money multiplier is

A) negatively related to high-powered money.
B) positively related to the time deposit ratio.
C) positively related to the required reserve ratio.
D) positively related to the excess reserves ratio.



Answer: B

The equation that represents M2 in the model of the money supply process is

The equation that represents M2 in the model of the money supply process is

A) M2 = C + D.
B) M2 = C + D + T - MMF.
C) M2 = C + D - T + MMF.
D) M2 = C + D + T + MMF.



Answer: D

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.

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.

A) purchase; decrease
B) purchase; increase
C) sale; decrease
D) sale; increase



Answer: A

Suppose, while cleaning out its closets, a worker at the Federal Reserve bank branch in Memphis discovers a painting of Elvis (medium: acrylic on velvet) that used to grace the walls of the conference room. Suppose further that, at a public auction, the bank sells the painting for $19.95. This sale will cause ________ in the monetary base, everything else held constant.

Suppose, while cleaning out its closets, a worker at the Federal Reserve bank branch in Memphis discovers a painting of Elvis (medium: acrylic on velvet) that used to grace the walls of the conference room. Suppose further that, at a public auction, the bank sells the painting for $19.95. This sale will cause ________ in the monetary base, everything else held constant.

A) an increase of $19.95
B) an increase of more than $19.95
C) a decrease of $19.95
D) a decrease of more than $19.95



Answer: C

An increase in which of the following leads to a decline in the monetary base?

An increase in which of the following leads to a decline in the monetary base?

A) Float
B) Discount loans
C) Foreign deposits at the Fed
D) SDRs



Answer: C

U.S. Treasury deposits at the Fed are ________ for the Fed but ________ for the Treasury. Thus an increase in U.S. Treasury deposits ________ the monetary base.

U.S. Treasury deposits at the Fed are ________ for the Fed but ________ for the Treasury. Thus an increase in U.S. Treasury deposits ________ the monetary base.

A) a liability; an asset; increases
B) a liability; an asset; decreases
C) an asset; a liability; increases
D) an asset; a liability; decreases



Answer: B

An increase in U.S. Treasury deposits at the Fed reduces both ________ and the ________.

An increase in U.S. Treasury deposits at the Fed reduces both ________ and the ________.

A) reserves; monetary base
B) Fed liabilities; money multiplier
C) Fed assets; monetary base
D) Fed assets; money multiplier



Answer: A

An increase in Treasury deposits at the Fed causes

An increase in Treasury deposits at the Fed causes

A) the monetary base to increase.
B) the monetary base to decrease.
C) Fed assets to increase but has no effect on the monetary base.
D) Fed assets to decrease but has no effect on the monetary base.



Answer: B

A Fed purchase of gold, SDRs, a deposit denominated in a foreign currency or any other asset is just an open market ________ of these assets, ________ the monetary base.

A Fed purchase of gold, SDRs, a deposit denominated in a foreign currency or any other asset is just an open market ________ of these assets, ________ the monetary base.

A) purchase; raising
B) sale; raising
C) purchase; lowering
D) sale; lowering



Answer: A

When the Fed purchases artwork to decorate the conference room at the Federal Reserve Bank of Kansas City,

When the Fed purchases artwork to decorate the conference room at the Federal Reserve Bank of Kansas City,

A) reserves rise, but the monetary base falls.
B) reserves fall.
C) currency in circulation falls.
D) the monetary base rises.



Answer: D

Which of the following are not liabilities on the Fed's balance sheet?

Which of the following are not liabilities on the Fed's balance sheet?

A) Discount loans
B) Bank deposits
C) Deferred availability cash items
D) U.S. Treasury deposits



Answer: A

Which of the following are not assets on the Fed's balance sheet?

Which of the following are not assets on the Fed's balance sheet?

A) Securities
B) Discount loans
C) Cash items in the process of collection
D) Deferred availability cash items



Answer: D

When the Treasury acquires gold or SDRs, it issues certificates to the ________, which are a claim on the gold or SDRs, and in turn is credited with deposit balances at the ________.

When the Treasury acquires gold or SDRs, it issues certificates to the ________, which are a claim on the gold or SDRs, and in turn is credited with deposit balances at the ________.

A) Federal Reserve System; Fed
B) Federal Reserve System; IMF
C) International Monetary Fund; Fed
D) International Monetary Fund; IMF



Answer: A

Special Drawing Rights (SDRs) are issued to governments by the ________ to settle international debts and have replaced ________ in international transactions.

Special Drawing Rights (SDRs) are issued to governments by the ________ to settle international debts and have replaced ________ in international transactions.

A) Federal Reserve System; gold
B) Federal Reserve System; dollars
C) International Monetary Fund; gold
D) International Monetary Fund; dollars



Answer: C

The volume of loans that the Fed makes to banks is affected by the Fed's setting of the interest rate on these loans, called the

The volume of loans that the Fed makes to banks is affected by the Fed's setting of the interest rate on these loans, called the

A) federal funds rate.
B) prime rate.
C) discount rate.
D) interbank rate.



Answer: C

Fed's holdings of securities consist primarily of ________, but also in the past have included ________.

Fed's holdings of securities consist primarily of ________, but also in the past have included ________.

A) Treasury securities; bankers' acceptances
B) municipal securities; bankers' acceptances
C) bankers' acceptances; Treasury securities
D) Treasury securities; municipal securities




Answer: A

The two most important categories of assets on the Fed's balance sheet are ________ and ________ because they earn interest.

The two most important categories of assets on the Fed's balance sheet are ________ and ________ because they earn interest.

A) discount loans; coins
B) securities; discount loans
C) gold; coins
D) cash items in the process of collection; SDR certificate accounts



Answer: B

Which is the most important category of Fed assets?

Which is the most important category of Fed assets?

A) Securities
B) Discount loans
C) Gold and SDR certificates
D) Cash items in the process of collection



Answer: A

During the 2007-2009 financial crisis the excess reserve ratio

During the 2007-2009 financial crisis the excess reserve ratio

A) increased sharply.
B) decreased sharply.
C) increased slightly.
D) decreased slightly.



Answer: A

During the 2007-2009 financial crisis the currency ratio

During the 2007-2009 financial crisis the currency ratio

A) increased sharply.
B) decreased sharply.
C) increased slightly.
D) decreased slightly



Answer: D

In the early 1930s, the currency ratio rose, as did the level of excess reserves. Money supply analysis predicts that, everything else held constant, the money supply should have

In the early 1930s, the currency ratio rose, as did the level of excess reserves. Money supply analysis predicts that, everything else held constant, the money supply should have

A) risen.
B) fallen.
C) remain unchanged.
D) either risen, fallen, or remain unchanged.



Answer: B

During the bank panics of the Great Depression the excess reserve ratio

During the bank panics of the Great Depression the excess reserve ratio

A) increased sharply.
B) decreased sharply.
C) increased slightly.
D) decreased slightly.



Answer: A

During the bank panics of the Great Depression the currency ratio

During the bank panics of the Great Depression the currency ratio

A) increased sharply.
B) decreased sharply.
C) increased slightly.
D) decreased slightly.



Answer: A

Recognizing the distinction between borrowed reserves and the nonborrowed monetary base, the money supply model is specified as

Recognizing the distinction between borrowed reserves and the nonborrowed monetary base, the money supply model is specified as

A) M = m × (MBn - BR).
B) M = m × (MBn + BR).
C) M = m + (MBn - BR).
D) M = m - (MBn + BR).



Answer: B

The money multiplier is

The money multiplier is

A) negatively related to high-powered money.
B) positively related to the excess reserves ratio.
C) negatively related to the required reserve ratio.
D) positively related to holdings of excess reserves.



Answer: C

The money supply is ________ related to expected deposit outflows, and is ________ related to the market interest rate.

The money supply is ________ related to expected deposit outflows, and is ________ related to the market interest rate.

A) negatively; negatively
B) negatively; positively
C) positively; negatively
D) positively; positively



Answer: B

The excess reserves ratio is ________ related to expected deposit outflows, and is ________ related to the market interest rate.

The excess reserves ratio is ________ related to expected deposit outflows, and is ________ related to the market interest rate.

A) negatively; negatively
B) negatively; positively
C) positively; negatively
D) positively; positively



Answer: C

Everything else held constant, an increase in the excess reserves ratio causes the M1 money multiplier to ________ and the money supply to ________.

Everything else held constant, an increase in the excess reserves ratio causes the M1 money multiplier to ________ and the money supply to ________.

A) decrease; increase
B) increase; increase
C) decrease; decrease
D) increase; decrease



Answer: C

Everything else held constant, a decrease in the excess reserves ratio causes the M1 money multiplier to ________ and the money supply to ________.

Everything else held constant, a decrease in the excess reserves ratio causes the M1 money multiplier to ________ and the money supply to ________.

A) decrease; increase
B) increase; increase
C) decrease; decrease
D) increase; decrease



Answer: B

Everything else held constant, a decrease in the currency ratio causes the M1 money multiplier to ________ and the money supply to ________.

Everything else held constant, a decrease in the currency ratio causes the M1 money multiplier to ________ and the money supply to ________.

A) decrease; increase
B) increase; increase
C) decrease; decrease
D) increase; decrease



Answer: B

Everything else held constant, an increase in the currency ratio causes the M1 money multiplier to ________ and the money supply to ________.

Everything else held constant, an increase in the currency ratio causes the M1 money multiplier to ________ and the money supply to ________.

A) decrease; increase
B) increase; decrease
C) decrease; decrease
D) increase; increase



Answer: C

Everything else held constant, a decrease in the currency-checkable deposit ratio will mean

Everything else held constant, a decrease in the currency-checkable deposit ratio will mean

A) an increase in currency in circulation and an increase in the money supply.
B) an increase in money supply.
C) a decrease in the money supply.
D) an increase in currency in circulation but no change in the money supply.



Answer: B

Everything else held constant, an increase in the currency-checkable deposit ratio will mean

Everything else held constant, an increase in the currency-checkable deposit ratio will mean

A) an increase in currency in circulation and an increase in the money supply.
B) an increase in money supply but no change in reserves.
C) a decrease in the money supply.
D) an increase in currency in circulation but no change in the money supply.




Answer: C

Everything else held constant, a decrease in the required reserve ratio on checkable deposits causes the M1 money multiplier to ________ and the money supply to ________.

Everything else held constant, a decrease in the required reserve ratio on checkable deposits causes the M1 money multiplier to ________ and the money supply to ________.

A) decrease; increase
B) increase; increase
C) decrease; decrease
D) increase; decrease



Answer: B

Everything else held constant, an increase in the required reserve ratio on checkable deposits causes the M1 money multiplier to ________ and the money supply to ________.

Everything else held constant, an increase in the required reserve ratio on checkable deposits causes the M1 money multiplier to ________ and the money supply to ________.

A) decrease; increase
B) increase; increase
C) decrease; decrease
D) increase; decrease



Answer: C

Everything else held constant, a decrease in the required reserve ratio on checkable deposits will mean

Everything else held constant, a decrease in the required reserve ratio on checkable deposits will mean

A) a decrease in the money supply.
B) an increase in the money supply.
C) a decrease in checkable deposits.
D) an increase in discount loans.



Answer: B

The formula for the M1 money multiplier is

The formula for the M1 money multiplier is

A) m = (1 + c)/(rr + e + c).
B) M = 1/(rr + e + c).
C) M = (1 + c)/(rr + e + c).
D) m = [1/(rr + e + c)] × MB.



Answer: A

The formula that links checkable deposits to the money supply is

The formula that links checkable deposits to the money supply is

A) M = (1+c)/D
B) M = 1/(1+c) × D.
C) D = 1/(1+c) × M.
D) D = (1 + c) × M.



Answer: C

The formula that links checkable deposits to the monetary base is

The formula that links checkable deposits to the monetary base is

A) m = 1/(rr+e+c)
B) M = 1/(rr+e+c)
C) M = 1+c/(rr+e+c)
D) D = 1/(rr+e+c)
E) D = 1/(rr+e+c) × MB.



Answer: E

If the Fed injects reserves into the banking system and they are held as excess reserves, then the monetary base ________ and the money supply ________.

If the Fed injects reserves into the banking system and they are held as excess reserves, then the monetary base ________ and the money supply ________.

A) remains unchanged; remains unchanged
B) remains unchanged; increases
C) increases; increases
D) increases; remains unchanged



Answer: D

If the Fed injects reserves into the banking system and they are held as excess reserves, then the money supply

If the Fed injects reserves into the banking system and they are held as excess reserves, then the money supply

A) increases by only the initial increase in reserves.
B) increases by only one-half the initial increase in reserves.
C) increases by a multiple of the initial increase in reserves.
D) does not change.



Answer: D

An increase in the monetary base that goes into currency is ________, while an increase that goes into deposits is ________.

An increase in the monetary base that goes into currency is ________, while an increase that goes into deposits is ________.

A) multiplied; multiplied
B) not multiplied; multiplied
C) multiplied; not multiplied
D) not multiplied; not multiplied



Answer: B

An increase in the monetary base that goes into ________ is not multiplied, while an increase that goes into ________ is multiplied.

An increase in the monetary base that goes into ________ is not multiplied, while an increase that goes into ________ is multiplied.

A) deposits; currency
B) excess reserves; currency
C) currency; excess reserves
D) currency; deposits



Answer: D

The equation that shows the amount of the monetary base needed to support existing levels of checkable deposits, excess reserves, and currency is

The equation that shows the amount of the monetary base needed to support existing levels of checkable deposits, excess reserves, and currency is

A) MB = (rr × D) + ER + C.
B) MB = (rr + D) + ER + C.
C) MB = + ER + C.
D) MB = (rr × D) - ER - C.



Answer: A

Since the Federal Reserve sets the required reserve ratio to less than one, one dollar of reserves can support ________ of checkable deposits.

Since the Federal Reserve sets the required reserve ratio to less than one, one dollar of reserves can support ________ of checkable deposits.

A) exactly one dollar
B) less than one dollar
C) more than one dollar
D) exactly twice the amount



Answer: C

The total amount of required reserves in the banking system is equal to the ________ the required reserve ratio and checkable deposits.

The total amount of required reserves in the banking system is equal to the ________ the required reserve ratio and checkable deposits.

A) sum of
B) difference between
C) product of
D) ratio between



Answer: C

The total amount of reserves in the banking system is equal to the ________ required reserves and excess reserves.

The total amount of reserves in the banking system is equal to the ________ required reserves and excess reserves.

A) sum of
B) difference between
C) product of
D) ratio between




Answer: A

An assumption in the model of the money supply process is that the desired levels of currency and excess reserves

An assumption in the model of the money supply process is that the desired levels of currency and excess reserves

A) are given as constants.
B) grow proportionally with checkable deposits.
C) grow proportionally with high-powered money.
D) grow proportionally over time.



Answer: B

The formula linking the money supply to the monetary base is

The formula linking the money supply to the monetary base is

A) M = m/MB.
B) M = m × MB.
C) m = M × MB.
D) MB = M × m.
E) M = m + MB.



Answer: B

The ratio that relates the change in the money supply to a given change in the monetary base is called the

The ratio that relates the change in the money supply to a given change in the monetary base is called the

A) money multiplier.
B) required reserve ratio.
C) deposit ratio.
D) discount rate.



Answer: A

The Fed can exert more precise control over ________ than it can over ________.

The Fed can exert more precise control over ________ than it can over ________.

A) high-powered money; reserves
B) high-powered money; the monetary base
C) the monetary base; high-powered money
D) reserves; high-powered money



Answer: A

Models describing the determination of the money supply and the Fed's role in this process normally focus on ________ rather than ________, since Fed actions have a more predictable effect on the former.

Models describing the determination of the money supply and the Fed's role in this process normally focus on ________ rather than ________, since Fed actions have a more predictable effect on the former.

A) reserves; the monetary base
B) reserves; high-powered money
C) the monetary base; high-powered money
D) the monetary base; reserves



Answer: D

In the model of the money supply process, the bank's role in influencing the money supply process is represented by

In the model of the money supply process, the bank's role in influencing the money supply process is represented by

A) the excess reserve.
B) both the excess reserve and the market interest rate.
C) the currency ratio.
D) only borrowed reserves.



Answer: A

In the model of the money supply process, the depositor's role in influencing the money supply is represented by

In the model of the money supply process, the depositor's role in influencing the money supply is represented by

A) the currency holdings.
B) the currency holdings and excess reserve.
C) the currency holdings and borrowed reserve.
D) the market interest rate.



Answer: A

In the model of the money supply process, the Federal Reserve's role in influencing the money supply is represented by

In the model of the money supply process, the Federal Reserve's role in influencing the money supply is represented by

A) both the required reserve ratio and the market interest rate.
B) the required reserve ratio, nonborrowed reserves, and borrowed reserves.
C) only borrowed reserves.
D) only nonborrowed reserves.



Answer: B

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

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

A) a decrease in the money supply.
B) an increase in the money supply.
C) a decrease in checkable deposits.
D) an increase in discount loans.



Answer: B

Everything else held constant, an increase in currency holdings will cause

Everything else held constant, an increase in currency holdings will cause

A) the money supply to rise.
B) the money supply to remain constant.
C) the money supply to fall.
D) checkable deposits to rise.



Answer: C

A ________ in market interest rates relative to the discount rate will cause discount borrowing to ________.

A ________ in market interest rates relative to the discount rate will cause discount borrowing to ________.

A) fall; increase
B) rise; decrease
C) rise; increase
D) fall; remain unchanged



Answer: C

The amount of borrowed reserves is ________ related to the discount rate, and is ________ related to the market interest rate.

The amount of borrowed reserves is ________ related to the discount rate, and is ________ related to the market interest rate.

A) negatively; negatively
B) negatively; positively
C) positively; negatively
D) positively; positively



Answer: B

The money supply is ________ related to the nonborrowed monetary base, and ________ related to the level of borrowed reserves.

The money supply is ________ related to the nonborrowed monetary base, and ________ related to the level of borrowed reserves.

A) positively; negatively
B) negatively; not
C) positively; positively
D) negatively; negatively



Answer: C

An increase in the nonborrowed monetary base, everything else held constant, will cause

An increase in the nonborrowed monetary base, everything else held constant, will cause

A) the money supply to fall.
B) the money supply to rise.
C) no change in the money supply.
D) demand deposits to fall.



Answer: B

Decisions by ________ about their holdings of currency and by ________ about their holdings of excess reserves affect the money supply.

Decisions by ________ about their holdings of currency and by ________ about their holdings of excess reserves affect the money supply.

A) borrowers; depositors
B) banks; depositors
C) depositors; borrowers
D) depositors; banks



Answer: D

Decisions by depositors to increase their holdings of ________, or of banks to hold excess reserves will result in a ________ expansion of deposits than the simple model predicts.

Decisions by depositors to increase their holdings of ________, or of banks to hold excess reserves will result in a ________ expansion of deposits than the simple model predicts.

A) deposits; smaller
B) deposits; larger
C) currency; smaller
D) currency; larger



Answer: C

Decisions by depositors to increase their holdings of ________, or of banks to hold ________ will result in a smaller expansion of deposits than the simple model predicts.

Decisions by depositors to increase their holdings of ________, or of banks to hold ________ will result in a smaller expansion of deposits than the simple model predicts.

A) deposits; required reserves
B) deposits; excess reserves
C) currency; required reserves
D) currency; excess reserves



Answer: D

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

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

A) sold $1,000 in government bonds.
B) sold $100 in government bonds.
C) purchased $1000 in government bonds.
D) purchased $100 in government bonds




Answer: D

In the simple deposit expansion model, an expansion in checkable deposits of $1,000 when the required reserve ratio is equal to 20 percent implies that the Fed

In the simple deposit expansion model, an expansion in checkable deposits of $1,000 when the required reserve ratio is equal to 20 percent implies that the Fed

A) sold $200 in government bonds.
B) sold $500 in government bonds.
C) purchased $200 in government bonds.
D) purchased $500 in government bonds.



Answer: C

If the required reserve ratio is 10 percent, the simple deposit multiplier is

If the required reserve ratio is 10 percent, the simple deposit multiplier is

A) 5.0.
B) 2.5.
C) 100.0.
D) 10.0



Answer: D

If reserves in the banking system increase by $100, then checkable deposits will increase by $500 in the simple model of deposit creation when the required reserve ratio is

If reserves in the banking system increase by $100, then checkable deposits will increase by $500 in the simple model of deposit creation when the required reserve ratio is

A) 0.01.
B) 0.10.
C) 0.05.
D) 0.20



Answer: D

If reserves in the banking system increase by $100, then checkable deposits will increase by $1000 in the simple model of deposit creation when the required reserve ratio is

If reserves in the banking system increase by $100, then checkable deposits will increase by $1000 in the simple model of deposit creation when the required reserve ratio is

A) 0.01.
B) 0.10.
C) 0.05.
D) 0.20.



Answer: B

The simple deposit multiplier can be expressed as the ratio of the

The simple deposit multiplier can be expressed as the ratio of the

A) change in reserves in the banking system divided by the change in deposits.
B) change in deposits divided by the change in reserves in the banking system.
C) required reserve ratio divided by the change in reserves in the banking system.
D) change in deposits divided by the required reserve ratio.



Answer: B

The simple model of multiple deposit creation in which banks do not hold excess reserves, the increase in checkable deposits equals the product of the change in reserves and the

The simple model of multiple deposit creation in which banks do not hold excess reserves, the increase in checkable deposits equals the product of the change in reserves and the

A) reciprocal of the excess reserve ratio.
B) simple deposit expansion multiplier.
C) reciprocal of the simple deposit multiplier.
D) discount rate.



Answer: B

The formula for the simple deposit multiplier can be expressed as

The formula for the simple deposit multiplier can be expressed as

A) ?R = × ?T
B) ?D = × ?R
C) ?rr = × ?T
D) ?R = × ?D




Answer: B

In the simple deposit expansion model, if the Fed extends a $100 discount loan to a bank that previously had no excess reserves, deposits in the banking system can potentially increase by

In the simple deposit expansion model, if the Fed extends a $100 discount loan to a bank that previously had no excess reserves, deposits in the banking system can potentially increase by

A) $10.
B) $100.
C) $100 times the reciprocal of the required reserve ratio.
D) $100 times the required reserve ratio.




Answer: C

In the simple deposit expansion model, if the Fed extends a $100 discount loan to a bank that previously had no excess reserves, the bank can now increase its loans by

In the simple deposit expansion model, if the Fed extends a $100 discount loan to a bank that previously had no excess reserves, the bank can now increase its loans by

A) $10.
B) $100.
C) $100 times the reciprocal of the required reserve ratio.
D) $100 times the required reserve ratio.



Answer: B

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

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

A) $10.
B) $100.
C) $100 times the reciprocal of the required reserve ratio.
D) $100 times the required reserve ratio.



Answer: C

In the simple deposit expansion model, if the Fed purchases $100 worth of bonds from a bank that previously had no excess reserves, the bank can now increase its loans by

In the simple deposit expansion model, if the Fed purchases $100 worth of bonds from a bank that previously had no excess reserves, the bank can now increase its loans by

A) $10.
B) $100.
C) $100 times the reciprocal of the required reserve ratio.
D) $100 times the required reserve ratio.



Answer: B

If the required reserve ratio is equal to 10 percent, a single bank can increase its loans up to a maximum amount equal to

If the required reserve ratio is equal to 10 percent, a single bank can increase its loans up to a maximum amount equal to

A) its excess reserves.
B) 10 times its excess reserves.
C) 10 percent of its excess reserves.
D) its total reserves



Answer: A

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

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

A) increase; less
B) increase; more
C) decrease; less
D) decrease; more



Answer: B

When the Fed supplies the banking system with an extra dollar of reserves, deposits increase by more than one dollar—a process called

When the Fed supplies the banking system with an extra dollar of reserves, deposits increase by more than one dollar—a process called

A) extra deposit creation.
B) multiple deposit creation.
C) expansionary deposit creation.
D) stimulative deposit creation



Answer: C

The relationship between borrowed reserves, the nonborrowed monetary base, and the monetary base is

The relationship between borrowed reserves, the nonborrowed monetary base, and the monetary base is

A) MB = MBn - BR.
B) BR = MBn - MB.
C) BR = MB - MBn.
D) MB = BR - MBn.



Answer: C

Subtracting borrowed reserves from the monetary base obtains

Subtracting borrowed reserves from the monetary base obtains

A) reserves.
B) high-powered money.
C) the nonborrowed monetary base.
D) the borrowed monetary base



Answer: C

The Fed does not tightly control the monetary base because it does not completely control

The Fed does not tightly control the monetary base because it does not completely control

A) open market purchases.
B) open market sales.
C) borrowed reserves.
D) the discount rate.



Answer: C

Suppose your payroll check is directly deposited to your checking account. Everything else held constant, total reserves in the banking system ________ and the monetary base ________.

Suppose your payroll check is directly deposited to your checking account. Everything else held constant, total reserves in the banking system ________ and the monetary base ________.

A) remain unchanged; remains unchanged
B) remain unchanged; increases
C) decrease; increases
D) decrease; decreases



Answer: A

Suppose a person cashes his payroll check and holds all the funds in the form of currency. Everything else held constant, total reserves in the banking system ________ and the monetary base ________.

Suppose a person cashes his payroll check and holds all the funds in the form of currency. Everything else held constant, total reserves in the banking system ________ and the monetary base ________.

A) remain unchanged; increases
B) decrease; increases
C) decrease; remains unchanged
D) decrease; decreases



Answer: C

An increase in ________ leads to an equal ________ in the monetary base in the short run.

An increase in ________ leads to an equal ________ in the monetary base in the short run.

A) float; decrease
B) float; increase
C) discount loans; decrease
D) Treasury deposits at the Fed; increase




Answer: B

The monetary base declines when

The monetary base declines when

A) the Fed extends discount loans.
B) Treasury deposits at the Fed decrease.
C) float increases.
D) the Fed sells securities.



Answer: D

A decrease in ________ leads to an equal ________ in the monetary base in the short run.

A decrease in ________ leads to an equal ________ in the monetary base in the short run.

A) float; increase
B) float; decrease
C) Treasury deposits at the Fed; decrease
D) discount loans; increase



Answer: B

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.

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.

A) sell; extend
B) sell; call in
C) purchase; extend
D) purchase; call in



Answer: C

If the Fed decides to reduce bank reserves, it can

If the Fed decides to reduce bank reserves, it can

A) purchase government bonds.
B) extend discount loans to banks.
C) sell government bonds.
D) print more currency.


Answer: C

When the Federal Reserve calls in a discount loan from a bank, the monetary base ________ and reserves ________.

When the Federal Reserve calls in a discount loan from a bank, the monetary base ________ and reserves ________.

A) remains unchanged; decrease
B) remains unchanged; increase
C) decreases; decrease
D) decreases; remains unchanged



Answer: C