Monetary Policy

If the Federal Reserve sets the minimum reserve ratio for private banks at 25%, then the money multiplier is:

• 2.5

• 4

• 1

• 0.4

If the Federal Reserve increases the minimum reserve ratio that private banks are required to hold, the following will occur:

• a. The banks can make more loans and the money supply decreases.

• b. The banks can make more loans and the money supply increases.

• c. The banks can make fewer loans and the money supply increases.

• d. The banks can make fewer loans and the money supply decreases.

The control the Federal Reserve has in manipulating the money supply by setting the minimum reserve ratio is limited because:

• a. Banks can decide to hold more cash than the minimum reserve ratio requires.

• b. More people use credit cards than cash.

• c. People might not hold their money in banks, which limits the loanability of that cash.

• d. a and c.

• e. a and b.

Which of the following count as money?

• a. Currency, checkable deposits, stocks.

• b. Jewelry, checkable deposits, currency.

• c. Currency, checkable deposits, savings deposits, bonds.

• d. Money market mutual funds, currency, checkable deposits.

Which of the following best describes the monetary base?

• a. Currency plus reserve deposits.

• b. M1 plus M2.

• c. Currency plus M1.

• d. Reserve deposits plus M1 and M2.

Over which aspect of the money supply does the Fed have the most direct control?

• a. Checkable deposits.

• b. Monetary base.

• c. M2.

• d. M1 and M2.

Gift cards are a part of

• a. The monetary base.

• b. M1 only.

• c. M2 only.

• d. M1 and M2.

• e. None of the above.

Which of the following is not a reason that banks keep reserves?

• a. To settle transactions with other banks.

• b. To meet the Fed’s minimum reserve requirement.

• c. To meet customers’ withdrawals.

• d. To keep the interest rate from becoming too low.

What is the intended effect of expansionary open market operations (OMOs)?

• a. Increase in the federal funds rate.

• b. Banks keep reserves above the minimum requirement.

• c. Increase in aggregate demand.

• d. Greater savings in the economy.

Which of the following is not a result of expansionary OMOs?

• a. Increase in the money supply.

• b. Less investment spending.

• c. Decrease in the federal funds rate.

• d. Banks make more loans.