Question

QUESTION 1

If the Board of Governors of the Federal Reserve increases the reserve requirement then the money supply will decline.

True

False

QUESTION 2

If the required reserve ratio is equal to 10 percent, a single bank can increase its loans up to a maximum amount equal to

		10 times its excess reserves.
		10 percent of its excess reserves.
		its excess reserves.
		its total reserves.

QUESTION 3

In the simple deposit expansion model, an expansion in checkable deposits of $1,000 when the required reserve ratio is equal to 10 percent implies that the Fed

		sold $1,000 in government bonds.
		sold $100 in government bonds.
		purchased $1000 in government bonds.
		purchased $100 in government bonds.

QUESTION 4

1. Purchases and sales of government securities by the Federal Reserve are called

   		federal fund transfers.
   		discount loans.
   		open market operations.
   		swap transactions.

QUESTION 5

Permanent open market operations of the Federal Reserve are executed by the Federal Reserve Bank of New York.  What types of securities does the Federal Reserve buy or sell in permanent open market operations?

		Corporate Debt
		Debt issued by FNMA and FHLMC
		Treasury Securities, Mortgage-Backed Securities, Debt issued by FNMA and FHLMC, The S&P Corporate Debt
		Mortgage Backed Securities, Debt issued by FNMA and FHLMC and Treasury Securities.

Answer 1

1. If Fed increases the reserve requirement, then banks are required to hold more of it's reserve and this will decrease the amount of reserves the banks can loan out. Therefore, money supply in the economy will decrease.

Answer: True