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ECO 4223 Final Exam Questions with 100% correct answers | verified | latest update 2024
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ECO 4223 Final ExamIf currency held by the public equals $100 billion, reserves held by banks equal $50 billion, and
bank deposits equal $500 billion, then the money supply equals:
A. 150 billion
B. 650 Billion - ANS-A
In a system with fractional-reserve banking:
A. All banks must hold reserves equal to a fraction of their loans
B. All banks must hold reserves equal to a fraction of their deposits - ANS-B
In a 100% reserve banking system, if a customer deposits $100 currency into a bank, then the
money supply:
A. increases $100
B. remains the same - ANS-B
If the ratio of reserves to deposits (rr) increases, while the ratio of currency to deposits (cr) is
constant, and the monetary base (B) is constant, then:
A. The money supply increases
B. The money supply decreases - ANS-B
To reduce the money supply, the Fed:
A. buys government bonds
B. sells government bonds - ANS-B
When the Fed makes and open-market sale, it:
A. increases the monetary base
B. decreases the monetary base - ANS-B
To prevent banks from using excess reserves to make loans that would increase the money
supply, the Fed could conduct open-market _______ and ______ the interest rate paid on bank
reserves:
A. Sales; raise
B. purchases; lower - ANS-A
If the fed wishes to increase the money supply it should:
A. decrease the discount rate
B. increase the discount rate - ANS-A
Direct loans made to member banks by the Fed are called:
A. discount loans
B. federal funds loans - ANS-B
, The interest rate charged on loans by the Federal Reserve to banks is called:
A. Federal funds rate
B. Discount rate - ANS-B
If the monetary base fell and the currency-deposit ratio rose, but the reserve ratio remained the
same, then:
A. The money supply would fall but not by as much as it would have fallen if the reserve-deposit
ratio has risen
B. The money supply would fall but not by as much as it would have fallen if the reserve-deposit
ratio has fallen - ANS-A
The most frequently used tool for monetary policy:
A. open-market operations
B. changes in discount rate - ANS-A
When the Fed increases the interest rate, it pays banks on their reserves and:
A. the reserve-deposit ratio increases
B. the money supply increases - ANS-A
If many banks fail, this is likely to:
A. cause surviving banks to lower their ratios of reserves to deposits
B. cause surviving banks to raise their ratios to deposits - ANS-B
In a fractional- banking system, banks create money when they:
A. make loans
B. accept deposits - ANS-A
If there is no currency and the proceeds of all loans are deposited somewhere in the banking
system and if rr denotes the reserve-deposit ratio, then the total money supply is:
A. reserves divided by rr
B. reserves divided by (1-rr) - ANS-A
To increase the monetary base, the Fed can:
A. conduct open-market sales
B. conduct open-market purchases - ANS-B
If many banks fail, this is likely to:
A. decrease the ratio of currency to deposits
B. increase the ratio of currency to deposits - ANS-B
If the Fed increases the rate paid on reserves, banks will tend to hold ___ excess reserves,
which will _____ the money multiplier
A. more; increase
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