Multiple Choice Questions

Taxes.*Setting the level of taxes is an important fiscal lever controlled by the U.S Congress and President.
  • Which of the following is true about an increase in the discount rate?
  • All of the following are tools available to the Fed for controlling the money supply except:
  • Which of the following represents the money multiplier?
  • Which of the following is the principal mechanism used by the Federal Reserve to directly alter the reserves of the banking system?
$25 billion.*If the reserve requirement is changed to 20 percent, the banking system will now only need $20 billion in reserves versus the $25 billion needed with a 0.25 required reserve ratio, so banks will have excess reserves of $5 billion; this will allow for new loans of $25 billion, since the money multiplier is 5.
  • Suppose that total deposits in the banking system are $120 billion and that the required reserve ratio is 0.20. If total reserves in the banking system are $39 billion and the money multiplier is 7, what is the available lending capacity of the banking system?
  • Suppose all of the banks in the Federal Reserve System have $100 billion in transactions accounts, the required reserve ratio is 0.25, and there are no excess reserves in the system. If the required reserve ratio is changed to 0.20, then the total lending capacity of the system is increased by:
  • Members of the Federal Reserve Board of Governors are appointed for one fourteen-year term so that they:
  • Which of the following is the principal mechanism used by the Federal Reserve to directly alter the reserves of the banking system?
It signals the Federal Reserve's desire to restrain money growth *A higher discount rate discourages borrowing from the Fed, slowing the growth in the money supply.
  • Which of the following represents the money multiplier?
  • Which of the following is true about an increase in the discount rate?
  • Which of the following is the principal mechanism used by the Federal Reserve to directly alter the reserves of the banking system?
  • When the Fed wishes to increase the reserves of the member banks, it:
$150
  • Suppose all of the banks in the Federal Reserve System have $100 billion in transactions accounts, the required reserve ratio is 0.25, and there are no excess reserves in the system. If the required reserve ratio is changed to 0.20, then the total lending capacity of the system is increased by:
  • By changing the reserve requirements, the Fed can directly alter the lending capacity of the banking system.
  • If annual interest payments on a bond are $60 and the price paid for the bond is $900, then the yield is:
  • Suppose that total deposits in the banking system are $120 billion and that the required reserve ratio is 0.20. If total reserves in the banking system are $39 billion and the money multiplier is 7, what is the available lending capacity of the banking system?
The Federal Open Market Committee*The FOMC plays the very important role of setting short term interest rates and setting the level of reserves held by private banks.
  • Monetary policy involves the use of money and credit controls to:
  • Suppose the Federal Reserve System has a required reserve ratio of 0.10 and there are no excess reserves in the system. If the Open Market Committee buys $50 million of securities from the commercial banking system, then the total lending capacity for the system:
  • Members of the Board of Governors are:
  • Who is responsible for buying and selling of government securities to influence reserves in the banking system?
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  • A certificate acknowledging a debt and the amount of interest to be paid each year until repayment; an IOU.
  • The rate of interest charged by Federal Reserve banks for lending reserves to member banks is the:
  • By changing the reserve requirements, the Fed can directly alter the lending capacity of the banking system.
  • If annual interest payments on a bond are $60 and the price paid for the bond is $900, then the yield is:
Make their decisions based on economic, rather than political, considerations.*An independent Fed requires insulation from the political process, so that what is best for the economy is pursued, rather than what is good for an election year.
  • Members of the Federal Reserve Board of Governors are appointed for one fourteen-year term so that they:
  • Which of the following is true about an increase in the discount rate?
  • The rate of interest charged by Federal Reserve banks for lending reserves to member banks is the:
  • Which of the following is the principal mechanism used by the Federal Reserve to directly alter the reserves of the banking system?
Discount rate.*Traditionally, the Fed will lend to member banks at an interest rate known as the discount rate, which is an overnight loan allowing member banks to meet the minimum level of required reserves.
  • The rate of interest charged by Federal Reserve banks for lending reserves to member banks is the:
  • By raising and lowering the discount rate, the Fed changes the:
  • Members of the Federal Reserve Board of Governors are appointed for one fourteen-year term so that they:
  • The federal funds rate is the interest rate charged when:
Shift the aggregate demand curve.*Monetary policy is a tool that the Federal Reserve uses to try to achieve its macroeconomic goals.
  • If the Fed wishes to increase the money supply it could:
  • Monetary policy involves the use of money and credit controls to:
  • Suppose the Federal Reserve System has a required reserve ratio of 0.10 and there are no excess reserves in the system. If the Open Market Committee buys $50 million of securities from the commercial banking system, then the total lending capacity for the system:
  • If the banking system has excess reserves of $12.10 billion and the money multiplier is 4, the unused lending capacity is:
Buys securities.*When the Fed buys securities, reserves are injected directly into banks in exchange for their bonds, making more loans possible.
  • When the Fed wishes to increase the reserves of the member banks, it:
  • Which of the following is true about an increase in the discount rate?
  • Which of the following represents the money multiplier?
  • If the Fed wishes to increase the money supply it could:
1 ÷ (required reserve ratio)*The money multiplier tells us how much money creation will result from each dollar of deposits.
  • The minimum amount of reserves a bank is required to hold is:
  • Which of the following represents the money multiplier?
  • Which of the following is the principal mechanism used by the Federal Reserve to directly alter the reserves of the banking system?
  • Which of the following is true about an increase in the discount rate?
Raise taxes
  • When the Fed wishes to increase the reserves of the member banks, it:
  • Which of the following is true about an increase in the discount rate?
  • To reduce the money supply, the Fed can do all of the following except:
  • To increase the money supply, the Fed can do all of the following except: Decrease taxes. Lower reserve requirements. Reduce the discount rate. Buy bonds.
a bond
  • If annual interest payments on a bond are $60 and the price paid for the bond is $900, then the yield is:
  • A certificate acknowledging a debt and the amount of interest to be paid each year until repayment; an IOU.
  • Members of the Federal Reserve Board of Governors are appointed for one fourteen-year term so that they:
  • By changing the reserve requirements, the Fed can directly alter the lending capacity of the banking system.
decrease taxes
  • To reduce the money supply, the Fed can do all of the following except:
  • By changing the reserve requirements, the Fed can directly alter the lending capacity of the banking system.
  • To increase the money supply, the Fed can do all of the following except: Decrease taxes. Lower reserve requirements. Reduce the discount rate. Buy bonds.
  • Which of the following is the principal mechanism used by the Federal Reserve to directly alter the reserves of the banking system?
Required reserves.*The Fed requires banks to hold a certain percent of all deposits as reserves called required reserves.
  • The federal funds rate is the interest rate charged when:
  • Which of the following represents the money multiplier?
  • The minimum amount of reserves a bank is required to hold is:
  • The current chairman of the Federal Reserve is:
Reserves increase for the bank.*When a bank borrows money from the Fed, the bank's balance sheet has an equal increase in liabilities which includes loans from the Fed and assets which includes the additional reserves.
  • The current chairman of the Federal Reserve is:
  • By raising and lowering the discount rate, the Fed changes the:
  • Which of the following represents the money multiplier?
  • When a bank borrows money from the Federal Reserve:
7 members, appointed for 14 year terms.*Long, fourteen year terms result in a Fed that is politically independent since their terms span three and a half presidential terms.
  • The federal funds rate is the interest rate charged when:
  • When a bank borrows money from the Federal Reserve:
  • The Board of Governors consists of:
  • The current chairman of the Federal Reserve is:
Open market operations*Open market purchases and sales of bonds alter the amount of reserves on banks balance sheets, thereby altering the amount of money they can lend and create; it is the main policy lever used by the Fed.
  • Which of the following is the principal mechanism used by the Federal Reserve to directly alter the reserves of the banking system?
  • Which of the following represents the money multiplier?
  • Which of the following is true about an increase in the discount rate?
  • Members of the Federal Reserve Board of Governors are appointed for one fourteen-year term so that they:
Ben Bernanke.*Ben Bernanke was appointed to be the chairman of the Fed by former president George W. Bush in January 2006.
  • Discounting refers to the Fed's practice of:
  • The federal funds rate is the interest rate charged when:
  • The minimum amount of reserves a bank is required to hold is:
  • The current chairman of the Federal Reserve is:
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Multiple Choice Questions
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