Question

According to the textbook, which of the following is NOT a reason the New York Federal Reserve Bank president always gets to vote at the Federal Open Market Committee meetings?

A.All Fed purchases and sales of bonds go through the New York Fed’s trading desk

.B.New York is the traditional financial center of the U.S. economy.

C. New York has higher population than other cities in the U.S.

D.All of the above are reasons.

E.Both A and B are not reasons.

A bank loans $75,000 to Dora’s Dress Shop for the remodel of a building that Dora’s wants to use as a new store. On their respective balance sheets, this loan is a

A.liability for the bank and an asset for Dora’s Dress Shop. The loan does not increase the money supply.

B.liability for Dora’s Dress Shop and an asset for the bank. The loan does not increase the money supply.

C.liability for the bank and an asset for Dora’s Dress Shop. The loan increases the money supply.

D.liability for the bank and an asset for Dora’s Dress Shop. The loan decreases the money supply.

E. liability for Dora’s Dress Shop and an asset for the bank. The loan increases the money supply.

14.Which of the following statements is (are) correct?

(x)Loans are an asset for a bank and the deposits of its customers are a liability

(y)If a bank has a reserve requirement of 15 percent, then the bank could have a reserve ratio of 10 percent but not 20 percent.

(z)If a bank has a reserve ratio of 8 percent, then the bank keeps 8 percent of its deposits as reserves and loans out the rest.

A.(x), (y) and (z)

B.(x) and (y), only

C. (x) and (z), only

D.(y) and (z), only

E.(x) only

Answer 1

For the first question, the right answer is C. New York has higher population than other cities in the U.S. is not a reason.

13. The right answer is E. The loan is an asset for the bank (it represents a claim the bank has on Dora's shop), and a liability for Dora (it represents an obligation she has to the bank), and it increases money supply by giving Dora ability to spend on the remodelling of her shop.

14. The right answer is C. Loans are an asset for a bank and the deposits of its customers are a liability is true. Statement y is not true since a bank cannot have a reserve ratio lower than the reserve requirement. Statement z is also true since the fact that a bank having a reserve ratio of 8 percent means that it keeps 8 percent of its deposits as reserves and loans out the rest.