Q32. Assume total reserves are $1 million, checkable deposits are $5 million, an

Question

Q32. Assume total reserves are $1 million, checkable deposits are $5 million, and the reserve requirement is 10 percent. What are the excess reserves?
   a. $4 million
   b. $6 million
   c. $1 million
   d. $500,000

Q33. When the Fed conducts open-market operations, it primarily uses
   a. Treasury bills
   b. long-term U. S. government bonds
   c. bonds of publicly traded corporations
   d. overnight loans of major banks

Q34. If depositors withdraw their funds and create a shortage of reserves, bankers
   a. have no alternative but to call in outstanding loans
   b. can borrow reserves from the Fed
   c. must close their operations until their reserves increase
   d. must sell bank stock to replenish reserves

Q35. Changes in the discount rate are initiated by
   a. the Federal Open Market Committee
   b. Federal Reserve Banks
   c. member banks of the Fed
   d. the president of the New York Federal Reserve Bank

Q36. If the Fed is following policies to reduce inflation, it is most likely to be
   a. lowering interest rates
   b. raising the money supply
   c. lowering the money supply
   d. both lowering interest rates and raising the money supply

Explanation / Answer

32.   d. $500,000

actual reserves = 1000000

required reserves = 5000000*0.10=500000

excess reserves = 1000000-500000=500000

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