Ample Reserves "Test"

Legally, how much do banks have to hold in reserve in their vaults?

• 10%

• They have to follow the reserve requirement set by the Fed

• 0

• They have to match the discount rate

Answer explanation

This became true on March 26, 2020

Why do banks now lend out a smaller percentage of their excess reserves?

• The Fed requires them to.

• Banks are now more conservative in their lending practices after the 2008 Financial Crisis.

• The FDIC is no longer in effect

• The Great Depression changed their lending practices

• Jerome Powell won't let them

Why is the banking system considered an "Ample Reserves" type system today?

• Banking executives get bonuses for having more reserves

• It's not, we still have a limited reserve system

• The FED increased the amount covered by FDIC

• The FED is elected by people who want banks to have larger reserves

• The FED pays banks interest on reserves(IOR)

What is the policy rate on the Reserve Market Graph?

• The % of banks covered by the FOMC

• Same as the Federal Funds Rate that banks charge each other

• The % of money banks are required to keep in reserves

• The number of banks that use the FDIC.

• The interest rate on bonds bought by the FED during open market operations

Why is there a downward sloping demand curve for reserves?

• A direct relationship exists between price and quantity demanded

• The demand for bonds is an inverse relationship with the federal funds rate

• Inverse relationship between the federal funds rate and the quantity of reserves demanded

• The supply of money is limited by Congress

• Inverse relationship between your grade and studying

What does the flat line at the beginning of the reserve market graph represent?

• The Discount Rate a bank is charged when borrowing from the Fed

• The Reserve Requirement

• Stability in the bond market

• The lowest amount of interest a bank is willing to pay

• The maximum amount of ample reserves

Which is true if the IOR(Interest on reserves) is 2%?

• Banks would rather just borrow at the 5% Discount Rate

• The Federal Funds rate only exists in a limited reserve system

• A bank shouldn't use a 1% Federal Funds Rate to loan to another bank

• The Federal Funds Rate automatically goes to 2%

• Show me the money!

What is the main difference between limited and ample reserve systems?

• The Discount Rate is higher in the limited reserve system

• The Fed only regulates the Ample Reserve System

• Banks are incentivized to keep less reserves in the Ample Reserve System by the Fed

• Banks are incentivized to keep more reserves due to the IOR paid by the Fed in the Ample Reserve system

Which monetary policy tool does the Fed use today to influence interest rates in the Ample Reserves System?

• Buying Bonds

• Federal Funds Rate

• Reserve Requirement

• Open Market Operations

• Interest on Reserves

Country H's current domestic output is lower than its potential domestic output. Assume that the central bank now decreases its interest rates. What will be the short-run effects of the central bank's action on cyclical unemployment and real income?

• Cyclical unemployment will increase, and real income will increase

• Cyclical unemployment will increase, and real income will decrease

• Cyclical Unemployment will remain the same and real income will increase

• Cyclical Unemployment will remain the same, and real income will decrease

• Cyclical Unemployment will decrease and real income will increase