Q32. Assume total reserves are $1 million, checkable deposits are $5 million, an
ID: 1213202 • Letter: Q
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 )Excess reserves are 1 million because bank has a separate checkable deposit which they will not count in the reserves .So the reservee requirement will be fulfilled on the excess reserve requirement .
33) Government uses T bill to conduct open market operations . usually these are 91 to 182 days t bills .
34)When banks fall short of primary reserves they can borrow funds from Fed to increase their reserves.This is why the fed are knows as the lenders of last resorts for insolvency of commercial bank .
35) Fed is responsible for change in the discount rates at their discount window . Therefore all the decisions are taken by the fed.
36) To curb inflation the government has to lower the money supply ,with fall in money supply interest rate rises but the prices fall to and helps in curbing inflation .
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