Economics Unit 5 CFA

Commercial banks can create money by

• transferring depositors' accounts at the Federal Reserve for conversion to cash
• buying Treasury bills from the Federal Reserve
• sending vault cash to the Federal Reserve
• maintaining a 100 percent reserve requirement
• lending excess reserves to customers

If a central bank significantly increases its sales of government bonds, it is most likely responding to which of the following?

• Slow economic growth
• An appreciating domestic currency
• Rising unemployment
• Rising price levels
• Rising imports and declining exports

Assume that the reserve requirement is 20 percent. If a bank initially has no excess reserves and $10,000 cash is deposited in the bank, the maximum amount by which this bank may increase its loans is

• $2,000
• $8,000
• $10,000
• $20,000
• $50,000

Which of the following accurately describes the federal funds rate?

• The interest rate that banks charge state governments
• The interest rate that banks charge other banks for overnight loans
• The interest rate that banks pay on long-term savings
• The interest rate on personal loans
• The interest rate on government bonds

n the United States, which event would have caused the shift of the money supply curve from S1 to S2 in the money market shown above?

• The purchase of government bonds on the open market by the Federal Reserve
• An increase in the required reserve ratio
• A short-run increase in output, employment, and income
• An increase in general price level in the United States
• An increase in the supply of dollars in foreign exchange markets