Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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1.
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Which
of the following defer payments? a. | credit cards and debit cards | b. | neither credit
cards or debit cards | c. | credit cards but not debit cards | d. | debit cards but
not credit cards | | |
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2.
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Which
of the following has a four-year term? a. | the members of the Board of Governors | b. | the Chair of the
Board of Governors | c. | the members of the FOMC | d. | All of the above
are correct. | | |
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3.
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When
the Fed conducts open-market sales, a. | it sells Treasury securities, which increases the money
supply. | b. | it sells Treasury securities, which decreases the money
supply. | c. | it borrows from member banks, which increases the money
supply. | d. | it lends money to member banks, which decreases the money
supply. | | |
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4.
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If
you deposit $100 of currency into a demand deposit at a bank, this action by itself a. | does not change
the money supply. | b. | increases the money supply. | c. | decreases the
money supply. | d. | has an indeterminate effect on the money
supply. | | |
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5.
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Suppose that banks desire to hold no excess reserves. If the reserve ratio is 5
percent and a bank receives a new deposit of $400, it a. | must increase
required reserves by $380. | b. | will initially see reserves increase by
$380. | c. | will be able to use this deposit to make new
loans. | d. | None of the above is correct. | | |
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6.
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Which
of the following lists two things that both increase the money supply? a. | the Fed buys
bonds and lowers the discount rate | b. | the Fed buys bonds and raises the discount
rate | c. | the Fed sells
bonds and lowers the discount rate | d. | the Fed sells bonds and raises the discount
rate | | |
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7.
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Which
of the following lists two things that both decrease the money supply? a. | raise the
discount rate, make open market purchases | b. | raise the discount rate, make open market
sales | c. | lower the discount rate, make open market
purchases | d. | lower the discount rate, make open market
sales | | |
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8.
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If
the reserve ratio is 10 percent, banks do not hold excess reserves, and people do not hold currency,
then when the Fed purchases $20 million of government bonds, bank reserves a. | increase by $20
million and the money supply eventually increases by $200 million. | b. | decrease by $20
million and the money supply eventually increases by $200 million. | c. | increase by $20
million and the money supply eventually decreases by $200 million. | d. | decrease by $20
million and the money supply eventually decreases by $200 million. | | |
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9.
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The
discount rate is a. | the interest
rate the Fed charges banks. | b. | one divided by the difference between one and the reserve
ratio. | c. | the interest rate banks receive on reserve deposits with the
Fed. | d. | the interest
rate that banks charge on overnight loans to other banks. | | |
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10.
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During the stock market crash of October 1987, the Fed a. | nearly created a
financial panic by not acting as a lender of last resort. | b. | nearly created a
financial panic by raising the discount rate. | c. | prevented a
financial panic by raising reserve requirements. | d. | prevented a
financial panic by providing liquidity to the financial system. | | |
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11.
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Imagine that the Federal Funds rate was below the level the Federal Reserve had
targeted. To move the rate back towards it’s target the Federal Reserve could a. | buy bonds. This
buying would reduce reserves. | b. | buy bonds. This buying would increase
reserves. | c. | sell bonds. This selling would reduce
reserves. | d. | sell bonds. This selling would increase
reserves. | | |
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