Chapter 11.2

Question 1

The central bank of the United States is known as the:

Fed

Department of the Treasury

Bank of America

First National Bank

Bundesbank

Answer 1

Fed

Question 2

The Federal Reserve

exists only to control the supply of currency in the economy

is another name for the U.S. Treasury.

exists only to control the supply of currency in the economy.

serves as a bank to other banks.

exists primarily to be the bank of the federal government

Answer 2

serves as a bank to other banks.

Question 3

The Federal Reserve System is a government agency.

true
false

Answer 3

false

Question 4

If the Fed attempts to decrease the amount of deposits that banks hold, it can

sell domestic deposits to foreign investors.

sell government bonds in an open market operation.

buy government bonds in an open market operation.

None of the above are correct.

force banks by decree to do so.

Answer 4

sell government bonds in an open market operation.

Question 5

Suppose the required reserve ratio is 10 percent, and banks hold no excess reserves. If an individual withdraws $10 million from Bank A, then the amount of reserves held by Bank A will

increase by $10 million.

decrease by $1 million.

increase by $1 million.

decrease by $10 million.

increase by $20 million.

Answer 5

decrease by $1 million.

Question 6

Suppose the required reserve ratio is 10 percent, and banks hold no excess reserves. If the Fed purchases $10 million worth of government bonds from Bank INF, the amount of deposits held by the entire banking system will ultimately

decrease by $10 million.

increase by $10 million.

increase by $100 million.

decrease by $100 million.

increase by $1 million.

Answer 6

increase by $100 million.

Question 7

Suppose the required reserve ratio is 9 percent, and banks hold no excess reserves. If the Fed purchases $30 million worth of government bonds from Bank GHI, how much will the amount of deposits held by the entire banking system ultimately change?

decrease by 333 million

increase by 33 million

increase by 333 million

decrease by 33 million

increase by 3 million

Answer 7

increase by 333 million

Question 8

When the Fed sells government bonds to banks, reserves increase.

false
true

Answer 8

false

Question 9

Suppose people are holding $100 million of currency, total deposits in the banking system are $2,000 million, and bank reserves are $400 million. In this case,

the supply of money is $2,000 million.

the supply of money is $2,400 million.

the supply of money is $1,800 million.

the supply of money is $2,100 million.

the supply of money is $2,500 million.

Answer 9

the supply of money is $2,100 million.