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Multiple Choice:
___ 1. The functions of the Fed include:
a. holding banks’ reserves
b. supplying the economy with currency
c. controlling the money supply
d. All of the above
___ 2. A bank in need of reserves:
a. will usually borrow reserves from other banks
b. as a last resort, may borrow from the Fed
c. Both of the above
d. Neither of the above
___ 3. Monetary base consists of:
a. currency in circulation
b. bank reserves
c. checkable deposits
d. Both a. and b. above
___ 4. If the monetary base increases by $200 million and the money supply increases by $550
million, the actual money multiplier is:
a. .36
b. 2.50
c. 2.75
d. 5.50
___ 5. Open market operations refers to the Fed:
a. acting as lender of last resort for banks
b. changing the required-reserve ratio
c. buying and selling U.S. government securities in the open market
___ 6. If the Fed buys U.S. government securities in the open market:
a. bank reserves will increase
b. monetary base will increase
c. the money supply will increase by a multiplied amount
d. All of the above
___ 7. If the Fed lowers the reserve ratio:
a. banks will be short on reserves
b. the money supply will decrease
c. Both of the above
d. Neither of the above
___ 8. When a bank borrows from the Fed:
a. the interest rate paid is the discount rate
b. the Fed is injecting new reserves into the financial system
c. the money supply increases
d. All of the above
___ 9. The Fed can decrease the money supply by:
a. lowering the required-reserve ratio
b. selling U.S. government securities in the open market
c. lowering the discount rate
d. All of the above
FOR REVIEW ONLY - NOT FOR DISTRIBUTION
The Federal Reserve System 11 - 14