Handout 6-

[Q1] Over the long run, the primary determinant of movements in the money supply is the

A) Required reserve ratio

B) Currency ratio

C) Excess reserves ratio

D) Non-borrowed base

[Q2] The relationship between borrowed reserves, the non-borrowed monetary base, and the monetary base is

A) BR = MB - MBn

B) MB = MBn - BR

C) BR = MBn - MB

D) MB = BR - MBn

[Q3] In the simple deposit expansion model, a decline 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 $1,000 in government bonds

D) purchased $100 in government bonds

[Q4] If the required reserve ratio is 15%, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8billion, then the M1 money multiplier is

A) 0.651

B) 2.5

C) 1.67

D) 2.3

[Q5] The sum of the Fed's monetary liabilities and the US Treasury's monetary liabilities is called

A) bank reserves

B) currency in circulation

C) the monetary base

D) the money supply

[Q6] High-powered money minus currency in circulation equals

A) the borrowed base

B) reserves

C) the non-borrowed base

D) discount loans

[Q7] The formula that links checkable deposits to the money supply is

A) D = (1 + c) × M

B) M =1/1+c × D

C) M = 1+c/D

D) D = 1/1+c × M

[Q8] The actual execution of open market operations is done at

A) the Federal Reserve Bank of New York.

B) the Federal Reserve Bank of Philadelphia.

C) the Board of Governors in Washington, D.C.

D) the Federal Reserve Bank of Boston.

[Q9] There are two ways in which the Fed can provide additional reserve to the banking system: it can _______ government bonds or it can _______ discount loans to commercial banks.

A) Purchase; call in

B) Sell; extend

C) Sell; call in

D) Purchase; extend

[Q10] 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 = (r × D) - ER - C

B) MB = (r × D) + ER + C

C) MB = (r + D) + ER - C

D) MB = r/D + ER + C

[Q11] There are ______ members of the Board of Governors of the Federal Reserve System.

A) 5

B) 7

C) 12

D) 19

[Q12] Even if the Fed could completely control the money supply, monetary policy would have critics because

A) the Fed is asked to achieve many goals, some of which are incompatible with others.

B) the Fed's primary goal is exchange rate stability, causing it to ignore domestic economic conditions.

C) it is required to keep Treasury prices high.

D) the Fed's goals do not include high employment, making labor unions a critic of the Fed.

[Q13] Having interest rate stability

A) guarantees full employment

B) allows for less uncertainty about future planing

C) leads to demands to curtail the Fed's power

D) leads to problems in financial markets