When the Federal Reserve System wants to increase the money supply, which of the following actions would the Fed choose?
a. It purchases U.S. government securities.
b. It increases the discount rate.
c. It increases the required reserve ratio.
d. It sells bonds on the open market.
QUESTION 2If the Fed wanted to use all three of its major monetary control tools to decrease the money supply, it would:
a. buy bonds, reduce the discount rate, and reduce reserve requirements.
b. sell bonds, reduce the discount rate, and reduce reserve requirements.
c. sell bonds, increase the discount rate, and increase reserve requirements.
d. buy bonds, increase the discount rate, and increase reserve requirements.
QUESTION 3Which of the following will make the real-world money multiplier smaller than the theoretical formula?
a. Banks actually hold fewer reserves than technically required by the Fed.
b. Banks actually make loans for more money than they have in excess reserves.
c. Banks may keep some excess reserves rather than loan it all out.
d. Both a. and b. above are correct.
QUESTION 4Assume that the Paris First National Bank's loan position contracted from 16 million to 12 million. If the required reserve ratio was increased from 20 percent to 40 percent, how much would the money supply shrink?
a. 5 million.
b. 10 million.
c. 15 million.
d. 20 million.
e. 24 million.
QUESTION 5Assume that the Paris First National Bank currently has deposits of 20 million. If the current required reserve ratio is raised from 20 percent to 40 percent, then:
a. Paris First National Bank does not have to comply with the Federal Reserve mandate.
b. required reserves will decrease from 16 million to 12 million.
c. excess reserves will automatically increase by 20 million.
d. Paris First National Bank must close out 4 million in loans.
e. Paris First National Bank must increase its required reserves from 4 million to 8 million.
QUESTION 6Assume that the Paris First National Bank is a thriving bank with deposits of 20 million. If the required reserve ratio is 20 percent and the bank is fully loaned out, the bank will have outstanding loans totaling:
a. 2 million.
b. 4 million.
c. 10 million.
d. 16 million.
e. 20 million.
QUESTION 7A lowering of the required reserve ratio might not expand the money supply if:
a. tax rates are also lowered at the same time.
b. tax rates are increased at the same time.
c. borrowers are unwilling to borrow the new funds the banks have available for loans.
d. borrowers are willing to borrow the new funds the banks have available for loans..
e. borrowers expand their borrowing because of the lower interest rates that banks offer.
QUESTION 8When the Fed decreases the required reserve ratio, then the:
a. ability of banks to make loans is restricted.
b. ability of banks to make loans is enhanced.
c. ability of banks to make loans is unaffected.
d. interest rate that banks pay to the Fed to borrow money is reduced.
e. interest rate that banks pay other banks to borrow money is decreased.
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