QUESTION 1 . How exactly can the Federal Reserve decrease reserves in the econom

Question

QUESTION 1

   .   How exactly can the Federal Reserve decrease reserves in the economy by $500,000 using open market operations?

   .   They can issue a $500,000 discount loan to a commercial bank

   .   The can sell $500,000 worth of securities

   .   They can call in a discount loan worth $500,000 earlier than its maturity date   

   .   They can buy $500,000 worth of securities

QUESTION 2

   .   If the Federal Reserve buys $900 worth of securities from the non-bank public then

   .   R rises by $900 and MB rises by $900

   .   C falls by $450, R falls by $450 and MB falls by $900

   .   C rises by $900 and MB rises by $900

   .   Both (a.) and (c.) can be correct

QUESTION 3

   .   How many of the members of the Board of Governors sit on the FOMC?

   .   2

   .   5

   .   12

   .   all of them

QUESTION 4

   .   According to the simple deposit multiplier, what value would the Federal Reserve Bank have to buy in securities to increase deposits by $12,500, assuming the required reserve ratio is 8%

   .   $100

   .   $156,250

   .   $1,000

   .   $50,500

QUESTION 5

   .   With regard to the simple deposit multiplier model, if borrowers keep higher portions of their loans as cash instead of deposits, then this will

   .   increase the multiplier effect

   .   decrease the multiplier effect

   .   not change the multiplier effect

   .   none of the above

Explanation / Answer

1)

The can sell $500,000 worth of securities

2)

C rises by $900 and MB rises by $900

3)

12

4)

$50,500

5)

increase the multiplier effect

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