HW9
HW9
Name__
[Part A: Choose the best answer among the choices. 3 pts. each]
1) What makes the Federal Reserve so unique compared to other central banks around the world is its
A) centralized structure.
B) decentralized structure.
C) regulatory functions.
D) monetary policy functions.
3) Which of the following functions is NOT performed by any of the twelve regional Federal Reserve Banks?
A) check clearing
B) conducting economic research
C) issuing new currency
D) determining monetary policy
7) When the Federal Reserve purchases a government bond from a bank, reserves in the banking system ________ and
the monetary base ________, everything else held constant.
A) increase; increases
B) increase; decreases
C) decrease; increases
D) decrease; decreases
8) There are two ways in which the Fed can provide additional reserves to the banking system: it can ________
government bonds or it can ________ discount loans to commercial banks.
A) sell; extend
B) sell; call in
C) purchase; extend
D) purchase; call in
9) The relationship between borrowed reserves (BR), the nonborrowed monetary base (MB n), and the monetary base
(MB) is
A) MB = MBn - BR.
B) BR = MBn - MB.
C) BR = MB - MBn.
D) MB = BR - MBn.
10) In the simple model of Money (deposit) creation, a decline in checkable deposits of $500 when the required
reserve ratio is equal to 10 percent implies that the Fed
A) purchased $50 in government bonds.
B) purchased $500 in government bonds.
C) sold $500 in government bonds.
D) sold $50 in government bonds.
11) If the required reserve ratio is 25 percent, the simple money multiplier is
A) 5.0.
B) 2.5.
C) 4.0.
D) 10.0.
12) If reserves in the banking system increase by $100, then deposits will increase by $2,000 in the simple model of
deposit creation when the required reserve ratio is
A) 0.01.
B) 0.05.
C) 0.10.
D) 0.20.
13) Decisions by ________ about their holdings of currency and by ________ about their holdings of excess reserves
affect the money supply.
A) borrowers; depositors
B) banks; depositors
C) depositors; borrowers
D) depositors; banks
14) Everything else held constant, a decrease in currency holdings will cause
A) the money supply to rise be.
B) the money supply to remain constant.
C) the money supply to fall.
D) checkable deposits to rise.
15) If the Fed injects reserves into the banking system and they are held as excess reserves (i.e. not used for loans at
all), then the monetary base ________ and the money supply ________.
A) remains unchanged; remains unchanged
B) remains unchanged; increases
C) increases; increases
D) increases; remains unchanged
[Part B: Short Answers. Show your work to get full credit. 5 pts. each.]
1. In a simple money supply model, if Fed sold $300 million government securities, determine the size and
direction of the maximum Money supply in the banking system assuming the required reserve ratio is 12%.
(Increase vs. decrease and how much)
2. In a simple money supply model, when Fed purchased $200 million government securities, the total money
supply has changed by 1,400 million. (A) What is the money multiplier? (B) What should be the required
reserve ratio?
A. 7
B. 28m