1-What will happen when banks decide to increase their reserve ratios? Select on
ID: 2441135 • Letter: 1
Question
1-What will happen when banks decide to increase their reserve ratios?
Select one:
a. The money supply will not change.
b. The money supply might expand or contract.
c. The money supply will expand.
d. The money supply will contract.
2-U.S. currency is printed by the:
Select one:
a. U.S. Department of the Treasury.
b. Federal Reserve.
c. Comptroller of the Currency.
d. President's Council of Economic Advisors.
3-The Federal Funds rate is the:
Select one:
a. interest rate banks pay when they borrow directly from the Fed.
b. overnight lending rate on loans from one major bank to another.
c. interest rate on short-term Treasury securities.
d. ratio of reserves to deposits.
4-The Federal Reserve controls the Federal Funds rate through its control of:
Select one:
a. the monetary base.
b. M1.
c. M2.
d. currency in circulation.
5-A money market mutual fund invests in:
Select one:
a. short-term debt and government securities.
b. long-term debt and government securities.
c. stocks.
d. real estate.
6-The amount by which the money supply expands with each additional dollar in reserves is the:
Select one:
a. reserve ratio.
b. discount rate.
c. fractional reserve.
d. money multiplier.
7-An insolvent bank is one that:
Select one:
a. borrows in the market for federal funds.
b. borrows at the discount window.
c. has more liabilities than assets.
d. sells in the open market.
8-
Which is TRUE of the structure of the Fed?
Select one:
a. All seven members of the Board of Governors are appointed by the President.
b. The President serves as a member of the Board of Governors.
c. The Secretary of the Treasury chairs the Federal Open Market Committee.
d. The President is a member of the Federal Open Market Committee.
9-The Term Auction Facility involves the Federal Reserve:
Select one:
a. buying and selling government bonds.
b. lending reserves directly to banks.
c. providing reserves to banks through an auction.
d. competing with investment banks for Treasury securities.
10-
Which is an example of moral hazard?
Select one:
a. Only people with very high risk of default on loans borrow from banks.
b. Drivers have less incentive to avoid accidents after getting auto insurance.
c. When one bank fails, other banks become more cautious in lending.
d. People living along the Gulf Coast are more likely to buy flood insurance.
11-
Under fractional reserve banking, banks:
Select one:
a. hold all deposits in a special kind of vault known as a fraction.
b. hold only a fraction of deposits in reserve, lending the rest.
c. do not reveal to their customers the fraction of deposits held in reserve.
d. make only a fraction of customers' deposits available on demand.
12-
Systemic risk is present when:
Select one:
a. a bank or other financial institution acts recklessly, hoping that the Fed and regulators will later bail them out.
b. the U.S. government defaults on Treasury securities.
c. the failure of one financial institution will bring down other institutions as well.
d. the Fed increases the money supply when it should decrease it.
Explanation / Answer
Ans:
1) Option D
The money supply will contract.
Reserve ratio is the percentage of deposits which banks are required to keep as cash.If reserve ratio is increased the money supply in the economy decreases.
2) Option A
U.S. Department of the Treasury.
In United States, Department of the Treasury is responsible to design and produce paper currency for the Federal Reserve.
3) Option B
overnight lending rate on loans from one major bank to another.
The federal funds rate is the interest rate at which banks and other institutions lend reserve balances to other banks on an overnight basis.
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