Eighth Homework Assignment
ECON 272-5
Due at the beginning of class on Friday, April 14
(34 pts.)
Directions: Copy and paste this into a word document - then type your answers. Answers that are not typed will not be graded.
1. Explain how the FED would decrease the excess reserves in banks by using open market operations. You don't have to talk about the federal funds rate, just open market operations and reserves. Be specific. (4 pts.)
For all multiple choice questions - you must type your answer or it will not count. For example, at the end of the question, type: answer: a or b or c, etc. (2 pts. each)
2. When the Federal Reserve purchases a government bond from a financial institution in the secondary market:
a. excess reserves in the banking system increase.
b. more credit expansion could occur
c. less credit expansion could occur
d. the FED is likely trying to decrease unemployment
e. More than one answer could be correct
ANSWER:
3. A bank cannot increase its loans by an amount greater than
a. 5 percent of its net worth.
b. 10 percent of its net worth.
c. the total reserves it has before it makes the loan.
d. the excess reserves it has before it makes the loan.
e. More than one answer could be correct
4. Which best explains how the Federal Reserve alters the amount of the nation's money supply?
a. reducing the liabilities of the banking system.
b. controlling the assets of the nation's largest banks.
c. minting coins and printing currency that is distributed to banks.
d. manipulating the size of excess reserves held by commercial banks.
e. none of the above is correct
ANSWER:
5. What consumer behavior is the Federal Reserve Board trying to encourage when it implements a loose (easy) monetary policy?
a. increased saving and reduced spending
b. decreased saving and increased spending
c. increased saving and spending
d. decreased saving and spending
e. none of the above
ANSWER:
6. Which action would most likely increase the excess reserves of commercial banks?
a. The FED sells bonds to the public.
b. The FED sells bonds to commercial banks.
c. The FED buys bonds from commercial banks.
d. The Board of Governors of the FED increases the discount rate.
e. All of the above would increase excess reserves.
ANSWER:
7. Which of the following are true statements about the federal funds rate?
I. It is the same thing as the discount rate.
II. It is the interest rate that banks charge each other for short-term loans.
III. It is targeted by open market operations.
a. I only
b. II only
c. III only
d. I and II only
e. II and III only
ANSWER:
8. Monetary policy:
a. is the use of tax increases or cuts designed to change the amount of money available for spending.
b. is the use of audits to make certain that banks follow bank policy.
c. is the use of the money supply and credit controls to influence economic activity.
d. exists only in textbooks and has no applicability to the "real world."
e. none of the above makes sense.
ANSWER:
9. The discount rate:
a. is the rate of interest charged by the Fed when it lends money to banks
b. is the reduction in the prime rate that big banks provide to corporate borrowers
c. is always equal to the market rate minus the core rate of inflation
d. is the rate the banks charge other banks for a short term loan.
e. none of the above makes sense
ANSWER:
10. If the Fed wanted to "stimulate" the economy, it would might:
a. reduce the discount rate.
b. decrease the reserves in the banking system
c. increase reserves in the banking system
d. target the federal funds rate up
e. more than one answer is correct
ANSWER:
11. Which of the following is a tool used by the Fed to conduct monetary policy?
a. buying and selling government bonds.
b. making loans to banks.
c. setting reserve requirements
d. selling stock
e. more than one answer is correct
ANSWER:
12. If the Fed is concerned about inflation, it will probably:
a. buy bonds or raise the discount rate.
b. buy bonds or reduce the discount rate.
c. sell bonds or raise the discount rate.
b. sell bonds or reduce the discount rate.
e. all of the above are correct.
13. When the Fed ______________ bonds from banks, the federal funds rate is being targeted _____________________.
a. Buys, upward.
b. Buys, downward.
c. Sells, upwards.
d. Sells, downward.
e. More than one answer is correct
ANSWER:
14. According to Say, money:
a. is a source of wealth for an economy - therefore increasing the money supply will increase overall productivity
b. is not a source of wealth for an economy - therefore increasing the money supply will have no effect on prices or productivity
c. is a source of wealth for an economy - therefore increasing the money supply will increase both prices and productivity
d. is not a source of wealth for an economy - therefore increasing the money supply will increase prices but not productivity
e. none of the above is correct
ANSWER:
15. According to Bastiat, economic policy should always be focused on the welfare of the:
a. Producer
b. Government
c. Corporation
d. Consumer
e. None of the above makes sense.
ANSWER:
16. Which of the following would both Say and Bastiat say is true about money?
a. Money is wealth to an economy.
b. Money facilitates trade - which is basically always exchanging productivity for productivity.
c. An increase in the money supply (monetary policy) is a good policy to use when economic activity is low.
d. In markets, in order to obtain money, one (someone) must be productive
e. More than one answer is correct.
ANSWER: