Choose the best answer

1			The monetary base is defined as
			A)	currency outstanding plus demand deposits
			B)	currency outstanding plus bank reserves
			C)	required reserves plus excess reserves
			D)	high-powered money minus bank reserves
2			The coins and notes that are in the vaults of commercial banks are counted as
			A)	currency outstanding but are subtracted from money supply
			B)	currency outstanding and are therefore part of money supply
			C)	bank reserves and are therefore part of money supply
			D)	bank reserves and are therefore part of the monetary base
3			The amount of reserves that banks hold in excess of the required reserves
			A)	is generally about 5% of deposits since banks want to avoid liquidity problems
			B)	generally decreases as market interest rates increase
			C)	is not counted as part of high-powered money
			D)	is the same amount as the currency that is held as vault cash
4			The money multiplier is the ratio of
			A)	bank deposits divided by bank reserves
			B)	the monetary base divided by bank reserves
			C)	money supply divided by high-powered money
			D)	bank deposits divided by high-powered money
5			The size of the money multiplier can be affected by
			A)	the central bank
			B)	commercial banks
			C)	consumers
			D)	all of the above
6			The size of the money multiplier increases
			A)	with an increase in the currency-deposit ratio
			B)	with a decrease in the reserve ratio
			C)	as the Fed undertakes open market sales
			D)	as the Fed decreases the discount rate
7			The size of the money multiplier is likely to decrease as
			A)	the Fed conducts open market sales
			B)	the Fed decreases reserve requirements
			C)	banks decrease their excess reserve holdings
			D)	interest rates decrease
8			In the 1930s, after the FDIC was established and bank deposits were insured,
			A)	the size of the money multiplier increased
			B)	the money multiplier became more stable
			C)	the currency-deposit ratio decreased
			D)	all of the above
9			Which of the following statements is FALSE?
			A)	since the introduction of the FDIC, no more runs on financial institutions have occurred
			B)	the introduction of the FDIC affected the size of the money multiplier
			C)	it is possible that a run on a bank can occur even if that bank is fundamentally sound
			D)	bank runs can lead to disintermediation
10			Disintermediation occurs
			A)	when banks lose deposits and can no longer extend their loans
			B)	every time the Fed undertakes open market sales
			C)	when the Fed increases the discount rate
			D)	when the government sells securities to the Fed
11			Assume the currency-deposit ratio is 20%, banks are required to hold 8% of their deposits in reserves, and they hold an additional 2% in excess reserves. If the stock of high-powered money is H = $300 billion, the stock of money is
			A)	$900 billion
			B)	$990 billion
			C)	$1,200 billion
			D)	$3,000 billion
12			If M1 is $1,080 billion, total bank deposits are $800 billion and the reserve ratio is 10%, by how much would the Fed have to change bank reserves to lower M1 by 2%?
			A)	-$21.6 billion
			B)	-$7.2 billion
			C)	-$5.4 billion
			D)	-$2.2 billion
13			Assume the currency outstanding is $650 billion, bank deposits are $400 billion, and the reserve ratio is 12.5%. What is the size of the money multiplier?
			A)	1.2
			B)	1.5
			C)	2.6
			D)	3.2
14			Which is the most useful instrument for the Fed in conducting monetary policy?
			A)	open market operations
			B)	discount rate changes (or primary credit rate)
			C)	reserve requirement changes
			D)	foreign exchange market interventions
15			The federal funds rate
			A)	can easily be affected by open market operations
			B)	is often an immediate target of the Fed
			C)	is the rate banks have to pay if they borrow from each other
			D)	all of the above
16			During the 1991 recession, the Fed
			A)	reduced interest rates in large increments, which is why the recession was so short-lived
			B)	reduced interest rates fairly cautiously, since it did not want to reignite inflation
			C)	left interest rates alone since banks rationed credit
			D)	conducted monetary policy almost entirely by concentrating on monetary aggregates
17			Which of the following statements is FALSE?
			A)	the Fed cannot simultaneously target interest rates and the money supply
			B)	money supply changes when the government finances a budget deficit by selling bonds to the public
			C)	the money multiplier can be influenced by actions of the Fed, banks, and the public
			D)	an open market sale decreases bank reserves
18			If the Fed decides to peg interest rates after an increase in government spending,
			A)	it can do so by purchasing government securities
			B)	it may succeed in the short run, but not in the long run
			C)	it may cause inflationary pressure
			D)	all of the above
19			The central bank should try and target interest rates
			A)	if it is sure that disturbances to the economy come only from the money sector
			B)	any time the government undertakes expansionary fiscal policy
			C)	by undertaking open market sales any time interest rates increase
			D)	if its primary goal is to keep inflation under control
20			Assume that after it announces interest rate targets, the Fed discovers that most disturbances in the economy are coming from the money sector. What should the Fed do?
			A)	abandon the interest rate targets and announce new monetary targets
			B)	stick to interest rate targets, since they are better than monetary targets in this situation
			C)	conduct open market sales whenever interest rates rise
			D)	lower the federal funds rate whenever money demand decreases