Name: 
 

Unit 12 - PRACTICE Quiz - MACRO Central Banks, The Fed, and Regulation


Multiple Choice
Identify the choice that best completes the statement or answers the question.
 

 1. 
Banks in need of cash (reserves) can borrow from the Fed or in the federal funds market.
a.
True
b.
False
 

 2. 
Which of the following could result in bank (total of all banks) increasing the loans they make and therefore increase the money supply?
a.
One bank buys government securities from another bank.
b.
The required reserve ratio increases.
c.
The Fed increases the reserves of commercial banks and the banks hold these as excess reserves.
d.
The discount rate increases.
e.
A bank sells government securities to the Fed.
 

 3. 
The banking system creates money in the sense that it
a.
prints money
b.
creates excess reserves from loans
c.
creates loans from excess reserves, which provides people with more money to spend.
d.
creates required reserves from loans
e.
creates loans from required reserves, which provides people with more money to spend.
 

 4. 
The Federal Reserve System is the
a.
federal government agency that collects taxes and spends these receipts on tanks, bridges, employees' salaries, etc.
b.
company that delivers packages to your front door.
c.
central bank of the United States.
d.
federal government agency that collects and disseminates all the economic data that economists are interested in.
 

 5. 
Whenever the Fed buys or sells securities or bonds,
a.
reserves of the banking system must change.
b.
the money supply cannot change
c.
the number of coins changes.
d.
interest rates will change from what they would otherwise be
e.
a and d
 

 6. 
An open market sale of a security by the Fed to a commercial bank
a.
reduces reserves and therefore likely will reduce lending and decrease the supply of money.
b.
increases reserves and therefore likely will increase lending and increases the supply of money.
c.
decreases the demand for money.
d.
increases the demand for money.
 

 7. 
An open market purchase by the Fed from a commercial bank
a.
reduces reserves and therefore likely will reduce lending and decrease the supply of money.
b.
increases reserves and therefore likely will increase lending and increases the supply of money.
c.
decreases the demand for money.
d.
increases the demand for money.
 

 8. 
If banks are currently holding zero excess reserves and the Fed lowers the required-reserve ratio, which of the following will happen?
a.
Banks will have a reserve deficiency and be more likley to make loans.
b.
Banks will have positive excess reserves and be more likely to make loans.
c.
Banks will extend fewer loans.
d.
Banks will call in some of their loans to meet the reserve deficiency.
 

 9. 
The interest rate that a commercial bank pays when it borrows from the Fed is the __________ rate.
a.
discount
b.
exchange
c.
federal
d.
bank
 

 10. 
When the Fed sells government securities to a bank,
a.
the Fed's assets and liabilities decrease by the amount of the sale.
b.
the Fed's assets and liabilities increase by the amount of the sale.
c.
the magnitude of the Fed's assets is unaffected by the sale, and only the composition is affected.
d.
the magnitude of the Fed's liabilities is unaffected by the sale, and only the composition is affected.
 

 11. 
When the Fed increases the required-reserve ratio, a bank's
a.
excess reserves are unaffected.
b.
excess reserves are increased.
c.
excess reserves are decreased.
d.
required reserves are decreased.
e.
b and d
 

 12. 
In the federal funds market,
a.
banks make loans to the Fed.
b.
banks make loans to other banks.
c.
the Fed makes short-term loans to banks.
d.
the Fed makes long-term loans to banks.
 

 13. 
The discount rate is the interest rate
a.
banks pay on certificates of deposit.
b.
the Fed pays on reserves held by banks.
c.
the Fed charges when it lends reserves to banks.
d.
banks charge their loan customers.
e.
on short-term Treasury securities.
 

 14. 
If the Fed wants to increase the money supply through an open market operation, it will
a.
purchase government securities.
b.
sell government securities.
c.
first purchase, then sell, government securities.
d.
lend more reserves to commercial banks.
 

 15. 
The larger the simple deposit multiplier (money multiplier),
a.
the larger the required-reserve ratio.
b.
the smaller the required-reserve ratio.
c.
the smaller the change in the money supply for a given change in deposits.
d.
the less likely the Fed will be to use its monetary policy tools.
 

 16. 
Suppose the Fed sells a $50,000 U.S. Treasury bond to Martha, a member of the public. If Martha writes a check to the Fed in order to buy this security, the money in her checking account will be transferred to
a.
the Fed, and now the Fed will have $50,000 more in reserves than it had before.
b.
her bank, and now her bank will have $50,000 more in reserves than it had before.
c.
the Fed, and now it is as if the money doesn't exist.
d.
the Treasury, and now the Treasury will have $50,000 more in reserves than it had before.
 

 17. 
The market prices of previously issued long-term government bonds have fallen.
As a result, interest rates (yields) on these bonds
a.
fell.
b.
rose.
c.
stayed the same.
d.
could have risen, fallen, or stayed the same.There is not enough information to tell.
 

 18. 
Assume there are no excess reserves in the banking system initially, the required reserve ratio is 10% (or 1/10), and the Federal Reserve buys $100,000 worth of government securities.As a result of this action by the Fed, the M1 measure of the money supply can ultimately
a.
decrease by up to $100,000.
b.
increase by up to $100,000.
c.
decrease by up to $1,000,000.
d.
increase by up to $1,000,000.
 



 
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