23) The interest rate the Federal Reserve charges a bank when it borrows reserve

Question

23) The interest rate the Federal Reserve charges a bank when it borrows reserves from the Fed is called the A) market interest rate B) federal funds rate. C) discount rate. D) prime rate. E) borrowing rate. 24) Open market operations are the A) purchase or sale of government securities by the Fed. B) lending of reserves to the banking system by the Fed C) borrowing of reserves by the Fed from the banking system. D) minimum percentage of loans that banks must retain as reserves in the open market. E) purchase or sale of gold by the Fed. 25) When the Fed purchases government securities, A) excess reserves in the banking system increase, leading to more loans being made. B) fequired reserves in the banking system increase, leading to more loans being made. C) excess reserves in the banking system decrease, leading to fewer loans being made. D) required reserves in the banking system decrease, leading to fewer loans being made. E) the monetary base does not change. 26) To increase the quantity of money in the economy, the Federal Reserve can A) print more money and give it to the banks. B) increase the required reserve ratio. C) buy government borids in an open market operation. D) sell government bonds in an open market operation. E) cut taxes. 27) Suppose that banks desire to hold no excess reserves. If the reserve requirement is 5 percent and a bank receives a new deposit of $400, it A) must increase required reserves by $20. B) will initially see reserves increase by $400. C) will be able to use this deposit to make new loans amounting to $380. D) All of the above are correct 28) Other things the same if reserve requirements are decreased, the reserve ratio A) decreases, the money multiplier increases, and the money supply decreases increases, the money multiplier increases, and the money supply increases. Q decreases, the money multiplier increases, and the money supply increases. D) increases, the money multiplier increases, and the money supply decteases Table 1. An economy starts with $10,000 in currency. All of this currency is deposited into a single bank, and the bank then makes loans totaling $9,250. The T-account of the bank is shown below Liabilities Reserves Loans S750 9,250 Deposits S1O,000

Explanation / Answer

23). B). The answer is federal funds rate. This is the rate of interest charged by the Fed when lending money to the bank

24). A). Open market operations are purchasing and selling of securities by the Fed. This is usually carried out in order to maintain the money supply in the economy at a certain desired level.

25). The answer B). The Fed buying securities is generally to induce an increase demand in the economy. Thus, the Fed would want the banks to increase its lending process.

26). C). The Fed can buy bonds in the open market. This will increase the quantity of money in the market.

27). A). The answer is that bank will increase its reserve by $ 20. All others are wrong choices since it has already mentioned that the bank does not want to keep any excess reserves, thus option B) automatically gets eleminated.

28.

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.