1. What does the Federal Reserve (the Fed) directly control?*

The monetary base

The money supply

2. Currency-in-circulation (CIC) makes up what percentage of the monetary base?*

10

48

51

90

3. Bank reserves makes up what percentage of the monetary base?*

10

48

51

90

4. What makes up bank reserves?*

CIC plus checkable deposits

Checkable deposits plus near-moneys

vault cash and the bank's own account balance at the Fed

vault cash and customer bank account balances

5. Who has greater control over the money supply?*

Banks

The Fed

The Treasury

The Internal Revenue Service

6. What are the TWO main components of the money supply?*

Vault cash and CIC

CIC and deposit accounts (checkable and the near-moneys)

Deposit accounts and traveler's checks

Bank reserves and CIC

7. Which of the following is NOT included in M1?*

Near-moneys

CIC

Checkable deposit accounts (checking accounts)

Traveler's Checks

8. What do the monetary base and money supply have in common??*

Near-moneys

CIC

Checkable deposit accounts (checking accounts)

Traveler's Checks

9. How does the Fed control bank reserves?*

By controlling the amount of vault cash a bank decides to hold.

By controlling the amount of money banks have to keep in reserve.

By controlling the value of deposit insurance premiums.

By limiting account values of customers.

10. What is the current required reserve ratio (rr) ---expressed in percentage form?*

10%

24%

49%

90%

11. When you deposit money at your bank, what percent of the deposit is the bank required to keep in required reserves?*

10%

24%

49%

90%

12. The remaining 90% of a deposit credits the banks ________ reserves.*

special

lending

excess

base

13. True or False: Banks can decide to keep more money in required reserves during times of economic instability.*

True

False

14. Which of the following is the most liquid?*

Your checking account balance.

Your Certificate of Deposit.

Your house.

Your beachfront house in the Bahamas.

15. How do banks grow the money supply??*

Through member services, like checking accounts, and safe-deposit box options.

Through investment services, like stock and bond purchases, etc.

Through lending to individuals and businesses.

Through deposit insurance activity.

16. What does 1/rr represent?*

The spending multiplier.

The money multiplier.

The tax multiplier

The required reserve ratio

17. If the required reserve ratio (or rr) is 5%, what is the size of the money multiplier?*

2

5

10

20

18. If the required reserve ratio (or rr) is 10%, what is the size of the money multiplier?*

2

5

10

20

19. If the required reserve ratio (or rr) is 20%, what is the size of the money multiplier?*

2

5

10

20

20. If the required reserve ratio (or rr) is 50%, what is the size of the money multiplier?*

2

5

10

20

21. Solve: Assume the required reserve ratio is 1:10, or 10%. If you deposit $100 at your bank, what is the change in excess reserves?*

$10

$90

$1000

$900

22. Solve: Assume the required reserve ratio is 1:10, or 10%. If you deposit $500 at your bank, what is the change in excess reserves?*

$50

$450

$5000

$4500

23. Solve: Assume the required reserve ratio is 1:10, or 10%. If you deposit $100 at your bank today, what is the change in the money supply as a result of your deposit?*

$100

$1000

$900

$9000

24. Solve: Assume the required reserve ratio is 1:10, or 10%. If you deposit $1000 at your bank today, what is the change in the money supply as a result of your deposit??*

$100

$1000

$900

$9000

25. Which of the following is NOT a regulation on banking?*

Deposit Insurance

Capital Requirements

Reserve Requirements

The Discount Window

Open-Market Operations

26. FDIC covers each bank account depositor up to $_____ if the bank fails (and was a member of FDIC of course!)*

100,000

150,000

250,000

500,000

27. If your bank needs to borrow money overnight to meet daily reserve requirements, who SHOULD they borrow from? (Who is the preferred lender?)*

Fellow banks.

The Federal Reserve

FDIC

The US Treasury

28. The bank-to-bank lending rate is the:*

LIBOR rate

The discount rate

The federal funds rate

The sub-prime rate

29. The Fed-to-bank lending rate is the:*

LIBOR rate

The discount rate

The federal funds rate

The sub-prime rate

30. How does the Fed penalize banks for having to borrow from the Fed?*

By debiting their reserves.

By charging a higher interest rate than if a fellow bank lent the money.

By increasing FDIC premiums.

By taking over bank operations until reserve requirements are met.

31. What is THE main tool of monetary policy?*

The Reserve Requirement

FDIC

The Discount Window

Open-Market Operations

32. True or False: buying government debt (as either a treasury bill, note, or bond) allows you to earn interest from the government.*

True (ahem)

False

33. True or False: banks that become primary dealers are required to buy and sell government bonds with the Federal Reserve WHEN the Fed tells them to do so.*

True (ahemmmm)

False

34. True or False: The accounts of banks held at the Federal Reserve are considered liabilities to the Fed.*

True

False

35. If the Fed buys bonds, what happens to the money supply?*

It will decrease.

It will increase.

36. If the Fed sells bonds, what happens to the money supply?*

It will decrease.

It will increase.

37. If the Fed buys bonds, what happens to the interest rate?*

It will decrease.

It will increase.

38. If the Fed buys bonds, what happens to Aggregate Demand?*

It will decrease.

It will increase.

39. If the Fed sells bonds, what happens to Aggregate Demand?*

It will decrease.

It will increase.

40. The Fed's purchase of bonds is considered:*

Expansionary Monetary Policy

Contractionary Monetary Policy

Expansionary Fiscal Policy

Contractionary Fiscal Policy

41. The Fed's sale of bonds is considered:*

Expansionary Monetary Policy

Contractionary Monetary Policy

Expansionary Fiscal Policy

Contractionary Fiscal Policy

42. Think carefully...if we are producing below potential output, what type of policy would the Federal Reserve enact??*

Expansionary Monetary Policy

Contractionary Monetary Policy

Expansionary Fiscal Policy

Contractionary Fiscal Policy