76.Which one of the following is not true about the U.S. Federal Reserve System (Fed)? A.There are 12 regional (district) Federal Reserve Banks. B.The current chairperson of the Fed is Jerome Powell. C.There are 14 members of the Federal Reserve Board of Governors. D.The FOMC contains more members than the Federal Reserve Board of Governors.

77.An important routine function of the district Federal Reserve Bank is to: A.supervise the liquidation of the assets of bankrupt state banks. B.help large commercial banks develop correspondent relationships with smaller commercial banks. C.advise commercial banks as to the most profitable ways of reinvesting profits. D.provide facilities by which commercial banks and thrift institutions clear checks.

78.The Federal Open Market Committee (FOMC) is made up of: A.the chair of the Board of Governors along with the presidents of the 12 district Federal Reserve Banks. B.the seven members of the Board of Governors along with the president of the New York Federal Reserve Bank. C.the seven members of the Board of Governors of the Federal Reserve System along with the three members of the Council of Economic Advisers. D.the seven member of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other district Federal Reserve Bank presidents on a rotating basis.

79. Which of the following is not a responsibility of the Federal Reserve System?

A. Conducting monetary policy

B. Providing for check collection and supervision of member commercial banks and thrifts

C. Conducting fiscal policy

D. Controlling the money supply

80. The U.S. Congress purposefully established the Fed as an independent agency of the government so that it could control the money supply and maintain price stability and not be influenced by political pressure.

A. True

B. False

COMPLETE THE BALANCE SHEETS BELOW AND USE THEM TO ANSWER QUESTIONS 81- 84.

Problem A

Given a bank with no assets and no liabilities, update the balance sheet below assuming this bank receives $4,000,000 in deposits in 'new money' from outside the country and the reserve ratio is .1.

Balance sheet #1

ASSETS	LIABILITIES & NET WORTH
Required Reserves: Excess Reserves: Loans: $0	Demand Deposits Original:
Total:	Total: $4,000,000

Now assume the bank makes a loan of $750,000 to a builder and loan of $250,000 to a small business. Assume the loans are deposited into the builder and small business checking accounts in the bank. The reserve ratio is still .1. Update the balance sheet below.

Balance sheet #2

ASSETS	LIABILITIES & NET WORTH
Required Reserves: $500,000 Excess Reserves: Builder Loan: Small Business Loan:	Demand Deposits Original: Builder: Small Business: $250,000
Total: $5,000,000	Total:

Now assume that the builder and the small business withdraw all of their money from the bank. The reserve ratio is still .1. Update the balance sheet below.

Balance sheet #3

ASSETS	LIABILITIES & NET WORTH
Required Reserves: $400,000 Excess Reserves: Builder Loan: Small Business Loan:	Demand Deposits Original: Builder Small Business
Total:	Total: $4,000,000

81. In balance sheet #1, required reserves are:

A. $800,000

B. $4,000,000

C. $400,000

D. $0

82. In balance sheet #2, excess reserves are:

A. $600,000

B. $250,000

C. $2,500,000

D. $3,500,000

83. Consider balance sheet #3. This bank has how much money that it can now lend?

A. $2,600,000

B. $4,000,000

C. $1,000,000

D. $3,000,000

84. Consider balance sheet #3. What is the value of total assets?

A. $4,000,000

B. $3,000,000

C. $2,000,000

D. $1,000,000

85. Consider monetary policy. If the economy is experiencing a recessionary gap, monetary policy can be used to aggregate demand and real GDP, respectively.

A. contractionary (restrictive), decrease, decrease

B. expansionary, increase, decrease

C. contractionary (restrictive), decrease, increase

D. expansionary, increase, increase

86.Consider monetary policy. Which of the following Fed actions will increase banks' excess reserves? A.the purchase of government bonds from banks B.an increase in the reserve ratio for banks C.an increase in the discount rate D.the sale of government bonds to banks

87.Three tools of monetary policy are:(note: buying/selling govt bonds = open-market operations) A.tax rate changes, the discount rate, and open-market operations. B.tax rate changes, changes in government expenditures, and open-market operations. C.the discount rate, the required reserve ratio, and open-market operations. D.changes in government expenditures, the required reserve ratio, and the discount rate.

88.Which of the following is considered the most important/powerful monetary policy tool? A.the discount rate B.the required reserve ratio C.open market operations D.term auction facility

89.Which of the following will likely accompany a contractionary monetary policy? A.a lower prime interest rate B.a higher Federal funds rate C.a lower discount rate D.higher income tax rates

90.Which of the following best describes the cause-effect chain of contractionary monetary policy? A.A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and RGDP. B.A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and RGDP. C.An increase in the money supply will raise the interest rate, decrease investment spending, and increase aggregate demand and RGDP. D.An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and RGDP.

91.Which of the following best describes the cause-effect chain of expansionary monetary policy? A.A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and RGDP. B.A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and RGDP. C.An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and RGDP. D.An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and RGDP.

92.If the economy were encountering a severe recession, proper monetary and fiscal policies would call for: A.selling government securities, raising the reserve ratio, lowering the discount rate, and a tax increase. B.buying government securities, reducing the reserve ratio, reducing the discount rate, and increasing government spending. C.buying government securities, raising the reserve ratio, raising the discount rate, and a tax increase. D.buying government securities, reducing the reserve ratio, raising the discount rate, and decreasing government spending.

Use the following graphs to answer questions 93 - 96 regarding monetary policy. The top left most graph is the money market. The middle top graph shows investment demand. The middle bottom graph shows the macroeconomy and Qf denotes PRGDP.

MS . MS : 9 Investment demand Interest rate (%) 6 Interest rate 3 Dm O $80 100 120 O $40 50 60 Amount of money Investment demanded and supplied AS Price level AD, (I=$40) AD, (/=$60) AD, ( /=$50) O Real GDP