Question 1

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.

Accepted Answer

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

Question 2

The effect of an open market purchase on reserves differs depending on how the seller of the bonds keeps the proceeds.If the proceeds are kept in ________,the open market purchase has no effect on reserves; if the proceeds are kept as ________,reserves increase by the amount of the open market purchase.

Accepted Answer

A)  deposits; deposits
B)  deposits; currency
C)  currency; deposits
D)  currency; currencyE) A) and D)
F) None of the above

Question 3

If the required reserve ratio is 10 percent,currency in circulation is $400 billion,checkable deposits are $800 billion,and excess reserves total $0.8 billion,then the excess reserves-checkable deposit ratio is

Accepted Answer

A)  0.001.
B)  0.10.
C)  0.01.
D)  0.05.E) B) and C)
F) All of the above

Question 4

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

Accepted Answer

A)  M = m × (MBn - BR) .
B)  M = m × (MBn + BR) .
C)  M = m + (MBn - BR) .
D)  M = m - (MBn + BR) .E) B) and D)
F) None of the above

Question 5

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

Accepted Answer

A)  an increase; an increase
B)  an increase; a decrease
C)  a decrease; an increase
D)  a decrease; a decreaseE) None of the above
F) C) and D)

Question 6

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

Accepted Answer

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.E) None of the above
F) All of the above

Question 7

If a bank has excess reserves of $5,000 and demand deposit liabilities of $80,000,and if the reserve requirement is 20 percent,then the bank has actual reserves of

Accepted Answer

A)  $11,000.
B)  $20,000.
C)  $21,000.
D)  $26,000.E) A) and C)
F) A) and D)

Question 8

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

Accepted Answer

A)  only the currency ratio.
B)  both the currency ratio and excess reserve ratio.
C)  the currency ratio,excess reserve ratio,and the market interest rate.
D)  only the market interest rate.E) None of the above
F) B) and D)

Question 9

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

Accepted Answer

A)  an increase; an increase
B)  an increase; a decrease
C)  a decrease; an increase
D)  a decrease; a decreaseE) A) and B)
F) All of the above

Question 10

If the required reserve ratio is 10 percent,currency in circulation is $400 billion,checkable deposits are $1000 billion,and excess reserves total $1 billion,then the currency ratio is

Accepted Answer

A)  0.25.
B)  0.50.
C)  0.40.
D)  0.05.E) B) and C)
F) A) and D)

Question 11

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

Accepted Answer

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

Question 12

If the required reserve ratio is 10 percent,currency in circulation is $400 billion,checkable deposits are $800 billion,and excess reserves total $0.8 billion,then the monetary base is

Accepted Answer

A)  $480 billion.
B)  $480.8 billion.
C)  $80 billion.
D)  $80.8 billion.E) A) and B)
F) A) and C)

Question 13

For which of the following is the change in reserves necessarily different from the change in the monetary base?

Accepted Answer

A)  Open market purchases from a bank
B)  Open market purchases from an individual who deposits the check in a bank
C)  Open market purchases from an individual who cashes the check
D)  Open market sale to a bankE) C) and D)
F) B) and D)

Question 14

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

Accepted Answer

A)  exactly one dollar
B)  less than one dollar
C)  more than one dollar
D)  exactly twice the amountE) A) and D)
F) A) and C)

Question 15

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

Accepted Answer

A)  D =  × M2
B)  D = (1 + c + t + mm) × M2
C)  M2 =  × D
D)  M2 =  .E) A) and B)
F) A) and D)

Question 16

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

Accepted Answer

A)  its excess reserves.
B)  10 times its excess reserves.
C)  10 percent of its excess reserves.
D)  its total reserves.E) None of the above
F) A) and C)

Question 17

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

Accepted Answer

A)  reserves rise,but the monetary base falls.
B)  reserves fall.
C)  currency in circulation falls.
D)  the monetary base rises.E) All of the above
F) B) and C)

Question 18

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

Accepted Answer

A)  Securities
B)  Discount loans
C)  Cash items in the process of collection
D)  Deferred availability cash itemsE) All of the above
F) C) and D)

Question 19

In the simple deposit expansion model,if the banking system has excess reserves of $75,and the required reserve ratio is 20%,the potential expansion of checkable deposits is

Accepted Answer

A)  $75.
B)  $750.
C)  $37.50.
D)  $375.E) A) and C)
F) B) and C)

Question 20

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.

Accepted Answer

A)  sell; extend
B)  sell; call in
C)  purchase; extend
D)  purchase; call inE) None of the above
F) A) and D)

Exam 14: The Money Supply Process

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the required reserve ratio is 10 percent,currency in circulation is $400 billion,checkable deposits are $1000 billion,and excess reserves total $1 billion,then the currency ratio is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If a bank has excess reserves of $5,000 and demand deposit liabilities of $80,000,and if the reserve requirement is 20 percent,then the bank has actual reserves of

Correct AnswerverifiedShow Answer

For which of the following is the change in reserves necessarily different from the change in the monetary base?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the simple deposit expansion model,if the banking system has excess reserves of $75,and the required reserve ratio is 20%,the potential expansion of checkable deposits is

Correct AnswerverifiedShow Answer

If the required reserve ratio is 10 percent,currency in circulation is $400 billion,checkable deposits are $800 billion,and excess reserves total $0.8 billion,then the monetary base is

Correct AnswerverifiedShow Answer

If the required reserve ratio is 10 percent,currency in circulation is $400 billion,checkable deposits are $800 billion,and excess reserves total $0.8 billion,then the excess reserves-checkable deposit ratio is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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

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

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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.

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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.

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