Econ Focused Quizzes 26-27

How do open market operations increase the money

supply?

• a. by changing the money multiplier

• b. by decreasing the discount rate

• c. by reducing money available for withdrawal

• d. by purchasing government bonds

• e. by selling government bonds

If a bank’s money supply were $1,000,000, its assets

would

• a. match with available print currency

• b. equal its liabilities

• c. improve with the money multiplier

• d. reduce in size over time

• e. surpass its liabilities

How could a commercial bank loan money to others?

• a. increasing the federal funds rate

• b. increasing print currency

• c. reducing investments

• d. improving foreign stock options

• e. maintaining fractional reserves

While an institution can increase the money supply,

it does NOT directly create

• a. greater funds for loans

• b. lower interest rates

• c. a more liquid economy

• d. wealth

• e. more money

What is the money multiplier?

• a. the amount of money created by banks with

  each dollar from reserves

• b. the spike in money withdrawals following a

  period of uncertainty

• c. the funds maintained by commercial banks

  for potential withdrawals

• d. the rate at which the Fed loans money to

  commercial banks

• e. the currency held by the public and deposited

  for investments

An economist would find the money multiplier by

• a. using the reserve ratio’s reciprocal

• b. dividing the amount of currency by the

  discount rate

• c. multiplying the monetary base by the federal

  funds rate

• d. adding all loans and reserves together

• e. subtracting liabilities from assets

Which quantity is excluded by the definition of

monetary base?

• a. liquid money

• b. reserves

• c. print currency

• d. currency in circulation

• e. bank loans

Why would the money supply increase if the reserve

ratio is lowered?

• a. The Fed would increase the monetary base

• b. Banks would decrease foreign loans.

• c. The public would more likely purchase

  government bonds.

• d. Currency in circulation would increase.

• e. The federal funds rate would add to available

  reserves.

To avoid disrupting banking, the Fed only rarely

makes changes in

• a. printed currency

• b. reserve requirements

• c. the discount rate

• d. the money multiplier

• e. the liquidity of money

How does a high discount rate reduce the supply of

money?

• a. Banks will increase loans to the public.

• b. The Federal Reserve will more willingly take

  currency from banks.

• c. The Fed will decrease the federal funds rate.

• d. Banks are discouraged from increasing

  borrowed reserves.

• e. The public will more likely purchase

  government bonds.