Reference no: EM133196543

Assignment:

Multiple Choice Questions

1) Which of the following is NOT an entity of the Federal Reserve System?

A) The Comptroller of the Currency

B) The Federal Open Market Committee

C) Federal Reserve Banks

D) The Board of Governors

2) What makes the Federal Reserve so unique compared to other central banks around the world is its

A) decentralized structure.

B) monetary policy functions.

C) centralized structure.

D) regulatory functions.

3) Which of the following is an entity of the Federal Reserve System?

A) The FDIC

B) The U.S. Treasury Secretary

C) The Comptroller of the Currency

D) The FOMC

4) The three largest Federal Reserve banks (New York, Chicago, and San Francisco) combined hold more than ________ percent of the assets of the Federal Reserve System.

A) 25

B) 33

C) 50

D) 67

5) The three players in the money supply process include

A) banks, depositors, and the U.S. Treasury.

B) banks, depositors, and the central bank.

C) banks, borrowers, and the central bank.

D) banks, depositors, and borrowers.

6) The monetary liabilities of the Federal Reserve include

A) securities and reserves.

B) currency in circulation and loans to financial institutions.

C) securities and loans to financial institutions.

D) currency in circulation and reserves.

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

A) the monetary base.

B) currency in circulation.

C) the money supply.

D) bank reserves.

8) In the simple deposit expansion model, if the Fed purchases $100 worth of bonds from a bank that previously had no excess reserves, the bank can now increase its loans by

A) $10.

B) $100.

C) $100 times the reciprocal of the required reserve ratio.

D) $100 times the required reserve ratio.

9) If reserves in the banking system increase by $100, then checkable deposits will increase by $500 in the simple model of deposit creation when the required reserve ratio is

A) 0.05.

B) 0.10.

C) 0.20

D) 0.01.

10) The formula for the simple deposit multiplier can be expressed as

A) ?R=?T/rr

B) ?D=?R/rr

C) ?rr=?T/R

D) ?R=?D/rr

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

A) $16,000.

B) $20,000.

C) $26,000.

D) $36,000.

12) 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 nine million dollars in excess reserves. Given this information, we can say First National Bank faces a required reserve ratio of ________ percent.

A) ten

B) twenty

C) eighty

D) ninety

13) Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, one million dollars in required reserves, and faces a required reserve ratio of ten percent. Given this information, we can say First National Bank has ________ million dollars in excess reserves.

A) one

B) two

C) nine

D) ten

14) Everything else held constant, a decrease in holdings of excess reserves will m

A) a decrease in checkable deposits.

B) an increase in discount loans.

C) a decrease in the money supply.

D) an increase in the money supply.

15) Total reserves are the sum of ________ and ________.

A) vault cash; excess reserves

B) required reserves; currency in circulation

C) excess reserves; borrowed reserves

D) excess reserves; required reserves

16) 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

A) $80.8 billion.

B) $480.8 billion.

C) $80 billion.

D) $480 billion.

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 nine million dollars in excess reserves. Given this information, we can say First National Bank has ________ million dollars in required reserves.

A) one

B) two

C) eight

D) ten

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

A) bank reserves fall, but the monetary base remains unchanged

B) both the monetary base and bank reserves rise.

C) both the monetary base and bank reserves fall.

D) the monetary base falls, but bank reserves remain unchanged.

19) If the required reserve ratio is 15 percent, the simple deposit multiplier is

A) 3.33.

B) 15.0.

C) 1.5.

D) 6.67.

20) Everything else held constant, a decrease in the currency-checkable deposit ratio

A) an increase in money supply.
B) a decrease in the money supply.
C) an increase in currency in circulation but no change in the money supply.
D) an increase in currency in circulation and an increase in the money supply.

21) A bank has excess reserves of $1,000 and demand deposit liabilities of $80,000 when the reserve requirement is 25 percent. If the reserve requirement is lowered to 20 percent, the bank's excess

A) $1,000.

B) $5,000.

C) $8,000.

D) $9,000.

22) If the required reserve ratio is 10 percent, the simple deposit multiplier is

A) 100.0.

B) 5.0.

C) 2.5.

D) 10.0

23) Suppose on any given day there is an excess supply of reserves in the federal funds market. If the Federal Reserve wishes to keep the federal funds rate at its current level, then the appropriate action for the Federal Reserve to take is a ________ open market ________, everything else held constant.

A) defensive; sale

B) defensive; purchase

C) dynamic; purchase

D) dynamic; sale

24) The primary indicator of the Fed's stance on monetary policy is

A) the growth rate of the monetary base.

B) the discount rate.

C) the federal funds rate.

D) the growth rate of M2.

25) Open market purchases raise the ________ thereby raising the ________.

A) monetary base; money multiplier

B) monetary base; money supply

C) money multiplier; money supply

D) money multiplier; monetary base

26) The Federal Open Market Committee makes the Fed's decisions on the purchase or sale of government securities, but these purchases or sales are executed by the Federal Reserve Bank of

A) New York.

B) Chicago.

C) San Francisco.

D) Boston.

27) An increase in ________ reduces the money supply since it causes the ________ to fall.

A) margin requirements; money multiplier

B) margin requirements; monetary base

C) reserve requirements; monetary base

D) reserve requirements; money multiplier

Short Questions

1. [Inflation in the long run] Consider the money demand curve(solid line) and the social money demand curve (dash line) in Figure 1 where z=real balances (the real value of buyers' money holding).

(a) Suppose the Federal Reserve increases the nominal interest rate from i' to i''. What is the change in buyers' surplus, sellers' surplus and government income?

(b) According to the Friedman rule, what is the optimal nominal interest rate? What is the economics intuition behind the Friedman rule?

(c) Suppose the government runs the Friedman rule by setting i=0. What is the equilibrium level of real balances z? Explain why the Friedman rule is socially optimal.

(d) [Data Exercise] Now we want to quantify the money demand curve. CollectUS data on i=nominal interest rate, M=money supply (M1), y=GDP in the last 50 years. Then plot the money demand curve (namely i against M/y).

(e) Find a curve that fits the money demand data in (d) (you can either use a straight line or a polynominal function). Use this as your estimate of the money demand curve.

(f)Using your estimate in (e), what is the change in the ratio M/y as the Federal Reserve raises the interest rate i from 1% to 2%? What is the loss in buyer's surplus?

Attachment:- Money demand curve.rar