Monetary Policy (Class 1)

If the bank of Waterloo receives a $10,000 deposit, and the reserve requirement is 10%,

how much can the bank loan out?

 

• $1,000

• $9,000

• $10,000

• $11,000

The Fed can increase the federal funds rate by __________

• buying Treasury bills, which increases bank reserves

• buying Treasury bills, which decreases bank reserves

• selling Treasury bills, which increases bank reserves.

• selling Treasury bills, which decreases bank reserves.

A bank is legally required to hold a fraction of its _______ as ________.

• deposits; excess reserves

• loans; excess reserves

• loans; required reserves

• deposits, required reserves

Banks are legally required to hold some of their _____ as _____.

• loans; excess reserves

• loans; required reserves

• deposits; excess reserves

• deposits; required reserves

Investment spending _______ during an expansion and ___________ during a recession.

• Declines; increases

• Declines; declines

• Increases; increases

• Increases; declines

If Sam deposits $20,000 into a checking account at Bank A and the reserve deposit ratio is 40%,

how much of that money is the bank allowed to loan out?

• $8,000

• $12,000

• $16,000

• $22,000

The interest rate that the Federal Reserve charges commercial banks is called:

• prime lending rate

• federal funds rate

• discount lending rate

• deferral funds rate

The federal reserve (FED) usually buys bonds with the goal of:

• Decrease the quantity of money supply

• Lowering interest rates

• Increasing interest rates

• The FED does not use bonds for monetary policy, the trading of bonds is part of fiscal policy