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Exam 14: The Federal Reserve System

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Question 1

Multiple Choice

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Monetary policy involves the use of money and credit controls to

A) Shift the aggregate demand curve.
B) Shift the aggregate supply curve.
C) Move the economy along the aggregate demand curve.
D) Move the economy along the aggregate supply curve.

E) B) and C)
F) All of the above

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Question 2

Multiple Choice

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The Fed can increase the federal funds rate by

A) Selling government bonds,which causes market interest rates to rise.
B) Buying government bonds.
C) Simply announcing a higher rate because the Fed has direct control of this interest rate.
D) Changing the money multiplier.

E) B) and C)
F) All of the above

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Question 3

Multiple Choice

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If the required reserve ratio is 5 percent and the Federal Reserve sells $10,000 worth of bonds,the money supply can potentially

Which of the following provides evidence that the Federal Reserve System is politically insulated?

The most profitable way for a bank to maintain the minimum required reserves is to hold large amounts of excess reserves. Large amounts of excess reserves do not help a bank; they represent resources that could be used for loans-thus too many excess reserves only decrease the profitability of the bank.

All of the following would be true for the banking system if there was no government regulation except

Through open market operations,the Fed is able to influence

Tony buys a bond in the amount of $500 with a promised interest rate of 15 percent.If the market interest rate decreases to 5 percent,Tony can sell his bond for up to

The current chairman of the Federal Reserve is

$\begin{array}{|l|l|}\hline {\text { Item }} & \text { Amount } \\\hline \text { Cash held by public } & \$ 40 \text { billion } \\\hline \text { Transactions deposits } & \$ 80 \text { billion } \\\hline \text { Required reserves } & \$ 20 \text { billion } \\\hline \text { Excess reserves } & \$ 0 \text { billion } \\\hline \text { U.S. bonds held by public } & \$ 125 \text { billion } \\\hline\end{array}$ Table 14.3 Monetary Aggregates of the U.S. Financial System Assume an original balance sheet: On the basis of the information in Table 14.3,the required reserve ratio is

$\begin{array}{|l|r|}\hline{\text { Item }} &{\text { Amount }} \\\hline \text { Cash held by public } & \$ 100 \text { billion } \\\hline \text { Transactions deposits } & \$ 300 \text { billion } \\\hline \text { Required reserves } & \$ 30 \text { billion } \\\hline \text { Excess reserves } & \$ 0 \text { billion } \\\hline \text { U.S. bonds held by public } & \$ 475 \text { billion } \\\hline\end{array}$ Table 14.2 Monetary Aggregates of the U.S. Financial System Assume an original balance sheet: If the Fed changes the required reserve ratio in Table 14.2 to 15 percent,the lending capacity of the system will eventually

If excess reserves are too large,a bank is likely to

If the Fed sells $7.5 billion of U.S.bonds in the open market and the reserve requirement is 15 percent,M1 will eventually

Which of the following is not true for members of the Federal Reserve Board of Governors?

Assume the reserve requirement is 10 percent,demand deposits are $200 million,and total reserves are $18 million.If the reserve requirement is increased to 14 percent,the banking system will have

The ability of the banking system to make loans depends on excess reserves and the reserve requirement. Banks can lend up to the required minimum level of reserves set by the Fed.

Assume the reserve requirement is 25 percent,demand deposits are $500 million,and total reserves are $32 million.If the reserve requirement is decreased to 20 percent,the banking system will experience

If the Fed buys $20 billion of U.S.bonds in the open market and the reserve requirement is 5 percent,M1 will eventually

The Federal Open Market Committee includes

When a bank borrows money from the Federal Reserve,