Question 1

When the Fed buys $100 worth of bonds from First National Bank, reserves in the banking system

increase by $100.

decrease by more than $100.

increase by more than $100.

decrease by $100.


Question 2

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.

sale; decrease

purchase; increase

purchase; decrease

sale; increase


Question 3

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.

sell; call in

purchase; extend

purchase; call in

sell; extend


Question 4

Which of the following is included in both M1 and M2?

Small-denomination time deposits

Savings deposits

Money market deposit accounts

Currency


Question 5

On August 14th, 2007 the actual Fed Funds rate was 71 basis points below the target rate.

True
False


Question 6

Which of the following is not included in the measure of M1?

Demand deposits.

Currency.

Savings deposits.

NOW accounts.


Question 7


The Fed Funds rate was less volatile between 8/9/2007 and 10/1/2007 than between 6/1/2007 and 8/1/2007 because the Fed was buying more securities at the end of August than at the beginning of June.


True
False

Question 8

When a member of the nonbank public withdraws currency from her bank account,

both the monetary base and bank reserves rise.

the monetary base falls, but bank reserves remain unchanged.

both the monetary base and bank reserves fall.

bank reserves fall, but the monetary base remains unchanged.


Question 9

In reaction the stress in the money markets in August of 2007 the FOMC lowered the target for the Fed Funds rate from 5.25% to 4.75% on August 10th.


True
False


Question 10

When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and the bank chooses not to make any loans but to hold excess reserves instead, then, in the bank's final balance sheet,

the assets at the bank increase by $1 million.

the liabilities of the bank decrease by $1 million.

liabilities increase by $200,000.

reserves increase by $200,000.


Question 11


The Federal Reserve's asset purchase program has been successful in bringing down mortgage rates. Mortgage rates (according to the data provided by the Board of Governors of the Federal Reserve) have fallen from 6.48% in August of 2008 to 3.35% in November of 2012.


True
False


Question 12


It was on December 16th 2008 that the FOMC lowered the Target Fed Funds rate from 2% to a range of 0%-.25%.


True
False


Question 13

Which of the following are reported as liabilities on a bank's balance sheet?

Loans

Reserves

Discount loans

U.S. Treasury securities


Question 14

On March 4, 2014 the Federal Reserve Bank of New York purchased $1.225 billion of Treasury Securities that had maturities between 2 and 5 years.

True
False


Question 15

On August 9th, 2007 the actual Fed Funds rate was 16 basis points above the target rate.

True
False

Question 16

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

decrease; more

increase; less

decrease; less

increase; more


Question 17

Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and one million dollars in required reserves. Given this information, we can say First National Bank has ________ million dollars in excess reserves.

three

nine

ten

eleven


Question 18

Dealers offered the Federal Reserve Bank of New York $78.250 billion of securities as collateral for repurchase agreements on August 22nd, 2007. The term of the operation was one day.

True
False


Question 19

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.

currency; currency

deposits; deposits

currency; deposits

deposits; currency


Question 20

If a bank has excess reserves greater than the amount of a deposit outflow, the outflow will result in equal reductions in

capital and loans.

capital and reserves.

deposits and reserves.

deposits and loans.


Question 21

If an individual moves money from a small-denomination time deposit to a demand deposit account,

M1 stays the same and M2 increases.

M1 increases and M2 decreases.

M1 increases and M2 stays the same.

M1 stays the same and M2 stays the same.


Question 22

The components of the U.S. M1 money supply are demand and checkable deposits plus

currency plus travelers checks plus money market deposits.

currency plus travelers checks.

currency plus savings deposits.

currency.


Question 23

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

$10.

$100.

$100 times the reciprocal of the required reserve ratio.

$100 times the required reserve ratio.


Question 24

When Jane Brown writes a $100 check to her nephew (who lives in another state), Ms. Brown's bank ________ assets of $100 and ________ liabilities of $100.

gains; gains

gains; loses

loses; gains

loses; loses


Question 25

Both ________ and ________ are Federal Reserve assets.

currency in circulation; reserves

government securities; reserves

currency in circulation; government securities

government securities; discount loans


Question 26

A bank with insufficient reserves can increase its reserves by

lending federal funds.

buying short-term Treasury securities.

calling in loans.

buying municipal bonds.


Question 27

Bank loans from the Federal Reserve are called ________ and represent a ________ of funds.

discount loans; source

discount loans; use

fed funds; use

fed funds; source


Question 28

When a bank sells a government bond to the Federal Reserve, reserves in the banking system ________ and the monetary base ________, everything else held constant.

decrease; increases

decrease; decreases

increase; increases

increase; decreases


Question 29


Open market purchases conducted by the Federal Reserve Bank of New York lead to an increase in bank reserves. For every $1 increase in bank reserves the money supply will increase by $2.


True
False


Question 30

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

an increase in the money supply.

an increase in discount loans.

a decrease in the money supply.

a decrease in checkable deposits.


Question 31

When the Fed Funds rate increases the cost of credit to non-financial firms does not change since the Fed Funds rate is an inter-bank rate of interest.


True
False


Question 32

Purchases and sales of government securities by the Federal Reserve are called

open market operations.

federal fund transfers.

swap transactions.

discount loans.

Question 33

Reserves are equal to the sum of

vault cash reserves and total reserves.

required reserves and vault cash reserves.

excess reserves and vault cash reserves.

required reserves and excess reserves.


Question 34

If the central bank pursues a monetary policy that is more expansionary than what firms and people expect, then the central bank must be trying to

boost output in the short run.

boost prices in the short run.

constrain prices.

constrain output in the short run.


Question 35

The System Open Market Account (SOMA), managed by the Federal Reserve Bank of New York, contains dollar-denominated assets acquired via open market operations. As of 3/4/2014 the SOMA account held $3 trillion of agency mortgage-backed securities.


True
False


Question 36

Even economists have no single, precise definition of money because

the "moneyness" or liquidity of an asset is a matter of degree.

money supply statistics are a state secret.

the Federal Reserve does not employ or report different measures of the money supply.

economists find disagreement interesting and refuse to agree for ideological reasons.


Question 37

Of the three motives for holding money suggested by Keynes, which did he believe to be the most sensitive to interest rates?

The transactions motive.

The altruistic motive.

The speculative motive.

The precautionary motive.


Question 38

When banks borrow money from the Federal Reserve, these funds are called

Treasury funds.

federal loans.

federal funds.

discount loans.


Question 39

When a $10 check written on the First National Bank of Chicago is deposited in an account at Citibank, then

the assets of Citibank decrease by $10.

the reserves of the First National Bank increase by $10.

the liabilities of Citibank decrease by $10.

the liabilities of the First National Bank decrease by $10.


Question 40

What is the impact on interest rates when the Federal Reserve decreases the money supply by selling bonds to the public?




Question 41

Bank reserves include

deposits at other banks and deposits at the Fed.

vault cash and deposits at the Fed.

vault cash and short-term Treasury securities.

deposits at the Fed and short-term treasury securities.


Question 42

When the Fed extends a $100 discount loan to the First National Bank, reserves in the banking system

increase by $100.

increase by more than $100.

decrease by $100.

decrease by more than $100.


Question 43

On2/18/2014 the Federal Reserve Bank of New York purchased $ 4.284 of Treasury Securities.

True
False

Question 44

In 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

sold $1,000 in government bonds.

sold $100 in government bonds.

purchased $1000 in government bonds.

purchased $100 in government bonds.


Question 45

Open market purchases conducted by the Federal Reserve Bank of New York lead to an increase in bank reserves. For every $1 increase in bank reserves the money supply will increase by $1/2.


True
False


Question 46

Price stability is desirable because

price stability increases the profitability of the Fed.

inflation creates uncertainty, making it difficult to plan for the future.

everyone is better off when prices are stable.

it guarantees full employment.


Question 47

If a banker expects interest rates to fall in the future, her best strategy for the present is

to increase the duration of the bank's assets.

to sell long-term certificates of deposit.

to increase the duration of the bank's liabilities.

to buy short-term bonds.


Question 48

The interest rate spread between 3 month financial commercial paper and 3 month constant maturity treasury securities declined from 160 basis points on June 15th, 2007 to 58 basis points on August 24, 2007. This is because the Fed was active in adding reserves to the banking system.


True
False


Question 49

The sum of the Fed's monetary liabilities and the U.S. Treasury's monetary liabilities is called

bank reserves.

the monetary base.

the money supply.

currency in circulation.