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Exam 14: The Federal Reserve System

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Question 21

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Regional Fed banks

A) Hold deposits for individuals.
B) Clear checks between private banks.
C) Participate in open market operations.
D) Insure the deposits in private banks.

E) A) and B)
F) B) and C)

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Question 22

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If the Fed sells $5 billion of U.S.bonds in the open market and the reserve requirement is 5 percent,M1 will eventually

A) Increase by $25 billion.
B) Increase by $100 billion.
C) Decrease by $25 billion.
D) Decrease by $100 billion.

E) None of the above
F) B) and D)

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Question 23

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If the Fed buys $150 billion of U.S.bonds in the open market and the reserve requirement is 5 percent,M1 will eventually

Which of the following is the principal mechanism used by the Federal Reserve to directly alter the reserves of the banking system?

If banks do not have enough reserves to satisfy the reserve requirement,they can borrow additional reserves in the federal funds market.

Table 14.1 Monetary Aggregates of the U.S.Financial System $\begin{array}{|l|r|}\hline\text { Item } & \text { Amount } \\\hline \text { Cash held by public } & \text { \$250billion } \\\hline\text { Transactions deposits } & \text { \$1,000billion } \\\hline\text { Required reserves } & \text { \$150billion } \\\hline\text { Excess reserves } & \text { \$0billion } \\\hline \text { U.S. bonds held by public } & \$ 1,000 \text { billion }\\\hline \end{array}$ Assume an original balance sheet: The level of total reserves in Table 14.1 is

If the required reserve ratio is 25 percent and the Federal Reserve sells $100,000 worth of bonds,the money supply can potentially

Table 14.3 Monetary Aggregates of the U.S.Financial System $\begin{array}{|l|r|}\hline{\text { Item }} & \text { Amount } \\\hline \text { Cash held by public } & \$ 40 \text { billion } \\\hline\text { Transactions deposits } & \$ 80 \text { billion } \\\hline\text { Required reserves } & \$ 20 \text { billion } \\\hline\text { Excess reserves } & \$ 0 \text { billion } \\\hline\text { U.S. bonds held by public } & \$ 125 \text { billion }\\\hline \end{array}$ Assume an original balance sheet: In Table 14.3,if the Fed changes the required reserve ratio to 10 percent,the lending capacity of the system would eventually

The Fed now targets the federal funds rate rather than the money supply.

Monetary policy involves the use of money and credit controls to

The minimum amount of reserves a bank is required to hold is

Open market operations involve the Fed

If the Fed wants to sell more government bonds than people are willing to buy,then the Fed should

When the Fed buys bonds from the public,it

Suppose the Federal Reserve System has a required reserve ratio of 0.20 and there are no excess reserves in the system.If the Open Market Committee buys $20 million of securities from the commercial banking system,the total lending capacity of the system

One of the major functions performed by the Federal Reserve district banks is

Which of the following is responsible for the Fed's daily activity in financial markets?

The federal funds rate is the interest rate charged when

The use of money and credit controls to achieve macroeconomic goals is

The ability of the banking system to make loans depends on excess reserves and the reserve requirement.