self study exercises chapter 6 with answers

8/18/2019 Self Study Exercises Chapter 6 With Answers

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Principles of

Macroeconomics

Self-study quiz and Exercises withAnswers' Keys

Chapter 6 - The Money Supply andthe ederal !eser"e Syste#


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April $%&&


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Chapter 6 The Money Supply and the Federal Reserve

System10.1 An Overview of Money1) Money isA) the same as income.B) anything that is generally accepted as a medium of exchange.C) the value of all coins and currency in circulation at any time.) !ac"ed !y gold in #ort $nox.Answer% B

&) Any transaction that involves exchanging one good for another without using money isconsidered aA) li'uidity transaction.B) !arter transaction.C) deferred payment.) !lac" mar"et exchange.

Answer% B

() aco! ma"es excellent tamales and Amanda is very good at mowing lawns. Amanda agreesto mow aco! s lawn* if he ma"es her a do+en tamales. ,his is an example of ʹA) legal tender.B) !arter.C) commodity money.) fiat money.Answer% B

-) hich of the following factors causes the !arter system to !e inefficient/

A) ts cost of transaction is too low.B) ,he cost associated with information search is too low.C) t re'uires a dou!le coincidence of wants.) t re'uires high li'uidity.Answer% C

) osie wants to trade swimming lessons for coo"ing lessons. Maria wants to trade coo"inglessons for swimming lessons. osie and Maria haveA) the !asis for a li'uidity exchange. B) a dou!le incidence of demand.C) the !asis for a dou!le fiat exchange.

) a dou!le coincidence of wants.Answer%

2) ,he development of money as a medium of exchange has facilitated the expansion of trade !ecauseA) holding money increases people s wealth.ʹB) holding money increases people s income.ʹC) money eliminates the dou!le coincidence of wants pro!lem.ʺ ʺ) no other mediums of exchange are availa!le.Answer% C

3) hen money is used as a medium of exchange


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A) the need for a !arter system diminishes.B) the cost of transactions increases.C) the need for a !an"ing system in the economy decreases.) it reduces the num!er of transactions in the economy.Answer% A

4) Betty won 500 in a po"er tournament. 6he deposits her 500 winnings into a moneymar"et fund so that she can use the money next year to help her pay for a trip to 7as 8egas.,his is an example of money serving as a9n)A) unit of account. B) medium of exchange.C) store of value. ) investment good.Answer% C

:) hen you pay 54 for salad you ordered for lunch* you are using money as a9n)A) store of value.B) investment good.C) medium of exchange. ) unit of account.Answer% C

10) 8eronica received a federal income tax re!ate chec" of 5200 in May &004. 8eronica putthis money in a saving account so that she could spend it when she went on vacation in uly&004. ,his is an example of money serving as a9n)A) store of value.

B) medium of exchange.C) unit of account. ) investment good.Answer% A

11) hen you "eep your savings in a saving account* you are using money as a9n)A) investment good.B) store of value.C) medium of exchange.) unit of account.Answer% B

1&) ,he main disadvantage of using money as a store of value is thatA) money is not porta!le.B) it re'uires a dou!le coincidence of wants.C) currency is intrinsically worthless.) the value of money actually falls when the prices of goods and services rise.Answer%

1() ,he li'uidity property of money is the property that ma"es moneyA) a good medium of exchange and a good unit of account.B) a good store of value and a good unit of account.C) a good medium of exchange and a good store of value.) a good store of value and a good standard of deferred payment.Answer% C


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1-) hen the manager of a department store attaches price tags to his;her products* he;she isusing money as aA) medium of exchange.B) store of value.C) unit of transfer.) unit of account.Answer%

1) Circuit City* a retailer of electronics* has &*000 different products in inventory. CircuitCity reports its inventory is worth 51& million. ,his is an example of using money as aA) medium of exchange.B) unit of account.C) standard of deferred payment. ) store of value.Answer% B

12) enny s lists the price of a


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C) it is !ac"ed !y a large reserve of gold and silver.) !y law* it is decreed as money.Answer% &1) hich of the following is an example of fiat money/A) cigarettes B) an ounce of goldC) a =.6. one>hundred dollar !ill ) a government !ondAnswer% C

&&) Money that a government has re'uired to !e accepted in settlement of de!ts isA) fiat money. B) commodity money.C) !arter money. ) legal tender.Answer%

&() ,o ensure that paper money will !e accepted* the =.6. government implicitly promises the pu!lic thatA) it will not print money so fast that it loses its value.B) it will not change the rate at which the dollar is exchanged for other currencies.C) it will always remain the strongest currency of all industriali+ed nations.) the =.6. monetary system will always !e !ac"ed !y a precious metal.Answer% A

&-) Currency de!asement occurs when

A) the value of money falls as a result of a rapid increase in its supply.B) the government re'uires that a certain form of money must !e accepted in settlement ofde!ts.C) items are designated as money that are intrinsically worthless.) items are used as money that also have intrinsic value in some other use.Answer% A

&) Assume that in the country of 6almon* the government tripled the money supplyovernight.As a result of this action* the price of a loaf of !read increased from 1 !ill to 100 !ills. ,his isan

example of A) a change in the legal tender.B) a change from commodity money to fiat money.C) currency de!asement.) deflation.Answer% C

&2) Currency held outside !an"s ? demand deposits ? travelers chec"s ? other chec"a!ledeposits@A) M (. B) M & > M 1.C) M ( > M 1. ) M 1.


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Answer%

&3) ,ransaction money isA) M 1. B) M &.C) M (. ) M -.Answer% A

&4) ,raveler s chec"s areʹA) not money.B) included in M 1 and M &.C) not included in M &. ) not included in M 1.Answer% B

&:) hich of the following is included in M &* !ut not included in M 1/A) currency held outside !an"sB) travelers chec"sC) demand deposits ) savings accountsAnswer%

(0) aime transfers 5&*00 from his chec"ing account to his savings account. ,his transactionwill

A) decrease !oth M 1 and M &.B) not change M 1 and decrease M &.C) decrease M 1 and not change M &.) increase !oth M 1 and M &.Answer% C

(1) u!y transfers 5300 from her saving account to her chec"ing account. ,his transactionwillA) increase M 1 and not change M &.B) not change M 1 and decrease M &.C) increase !oth M 1 and M &.

) decrease !oth M 1 and M &.Answer% A

(&) ,eddy transfers 513 from his money mar"et fund to his chec"ing account. ,histransaction willA) decrease M & and increase M 1.B) increase M 1* !ut leave M & unchanged.C) decrease M 1 and increase M &.) decrease !oth M 1 and M &.Answer% B

(() hich of the following would O, !e counted as part of M 1/


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A) demand depositsB) traveler s chec" ʹC) money mar"et accounts) currencyAnswer% C

(-) 6aving account !alances are included inA) M 1.B) M &.C) neither M 1 nor M &. ) !oth M 1 and M &.Answer% B

() hich of the following would O, !e included in M &/

A) demand deposits B) money mar"et accountsC) chec"ing accounts ) ,reasury !ondsAnswer%

(2) ncluded in M & areA) !an" loans.B) credit cards.C) !an" capital.) demand deposits.

Answer%

(3) hich of the following would O, !e included in M 1/A) demand deposits B) money mar"et accountsC) chec"ing accounts) traveler s chec"sʹAnswer% B

(4) Currency held outside !an"s is included in

A) !oth M 1 and M &.B) M & only.C) M 1 only.) neither M 1 nor M &.Answer% A

(:) Close su!stitutes for transactions money are "nown asA) fiat monies.B) near monies.C) commodity monies. ) to"en monies.Answer% B


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-0) hich of the following is the !est example of a near money/A) a valua!le paintingB) a dollar !illC) a ,reasury !ond) a money mar"et accountAnswer%

-1) An e'uation for M 1 isA) M & ? 6avings Accounts > Currency eld Outside Ban"s ? Other ear Monies.B) M & > 6avings Accounts > Money Mar"et Accounts > Other ear Monies.C) Money Mar"et Accounts ? Automatic>transfer 6avings Accounts.) M & ? ear Monies.Answer% B

-&) ,he main advantage of using M & instead of M 1 as the measure for money is that

A) M & can !e measured more accurately.B) M & includes only instantly accessi!le assets.C) M & is sometimes more sta!le.) M & varies as the interest rate varies.Answer% C

-() Commercial !an"sA) implement monetary policy.B) are nonprofit organi+ations that lend and !orrow funds.C) are financial intermediaries that lend funds and accept deposits.) hold reserves against !an" capital.

Answer% C

--) Among the assets of a commercial !an" areA) loans.B) demand deposits.C) savings deposits.) time deposits.Answer% A

-) Among the lia!ilities of commercial !an"s areA) loans.B) demand deposits.C) reserves. ) government securities.Answer% B

-2) et worth isA) assets > lia!ilities.B) assets ? capital.C) assets > capital.) assets ? lia!ilities.Answer% A


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2 True/False

1) hen you use money to fill your car with gas every wee"* you are using money as a unit of account.Answer% #A76D&) Money is anything that generally is accepted as a medium of exchange.Answer% ,=D() n an economy that uses fiat money* there is no need for dou!le coincidence of wants.Answer% ,=D-) hen you ta"e 5100 from your saving account and deposit it in your chec"ing account* M &decreases.Answer% #A76D) f all !an"s are loaned up and so will not ma"e further loans* a 51*000 deposit creates51*000 innew money.Answer% #A76D2) #iat money is money the government says is money.Answer% ,=D

3) ,he M1 definition of money includes money mar"et accounts.Answer% #A76D4) ,he M& definition of money includes demand deposits.Answer% ,=D

102 !o" #an$s Create Money

1) apoli ational Ban" has lia!ilities of 5( million and net worth of 5&00*000. apoli ational Ban" s assets areʹA) 5&00*000. B) 5( millionC) 5(.& million.

) 5&.4 million.Answer% C

&) 6aturn County 6avings and 7oan has lia!ilities of 5-00*000 and net worth of 51&*000.6aturnCounty 6avings and 7oan s assets areʹA) 5&*000. B) 5&3*000. C) 5-00*000. ) 51&*000.Answer% A

() ,hompson ational ,rust has assets of 500*000 and lia!ilities of 5-00*000. ,hompson ational ,rust s net worth isʹA) 5:00*000.B) 5-00*000. C) 5100*000. ) 500*000.Answer% C

-) A commercial !an" listsA) loans as lia!ilities. B) deposits as lia!ilities.


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C) re'uired reserves as lia!ilities.) excess reserves as lia!ilities.Answer% B

) ,hings that a firm owns that are worth something are classified asA) lia!ilities. B) assets. C) deposits.) net worth.Answer% B

2) hich of the following is considered a lia!ility to a !an"/A) time depositsB) reservesC) the !an" s loansʹ ) the !an" s !uildings and e'uipmentʹAnswer% A

3) ,he central !an" of the =nited 6tates is "nown as theA) #ederal eserve 6ystem.B) #ederal eposit nsurance Corporation.C) epartment of the ,reasury.) #ederal 6avings and 7oan nsurance Corporation.Answer% A

4) A loan made !y a !an" is considered EEEEEEEE of that !an".A) a lia!ilityB) capitalC) net worth

) an assetAnswer%

:) A chec"ing deposit in a !an" is considered EEEEEEEE of that !an".A) an assetB) a lia!ilityC) net worth) capitalAnswer% B

Refer to the information provided in Table 10.1 below to answer the questions that follow.Ta%le 101


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10) efer to ,a!le 10.1. ,he re'uired reserve ratio is &F. f the #irst Charter Ban" ismeeting its reserve re'uirement and has no excess reserves* its reserves e'ualA) 5100.B) 5&00. C) 5200.) 5(00.Answer% B

11) efer to ,a!le 10.1. ,he re'uired reserve ratio is &F. f the #irst Charter Ban" ismeeting itsreserve re'uirement and has no excess reserves* its loans e'ualA) 5:00. B) 51*000. C) 5200. ) 51*400.Answer% B

1&) efer to ,a!le 10.1. #irst Charter Ban" s total assets areʹA) 51*&00. B) 5-00. C) 5400. ) 5&*-00Answer% A

Refer to the information provided in Table 10.2 below to answer the questions that follow.Ta%le 102

1() efer to ,a!le 10.&. #irst Commercial Ban" s excess reserves e'ual 5EEEEEEEE.ʹA) 200*000 B) 1*000*000 C) &00*000 ) 1*00*000Answer% A

1-) efer to ,a!le 10.&. ,he re'uired reserve ratio


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A) is F.B) is 10F.C) is &0F.) cannot !e determined from the given information.Answer% B

1) efer to ,a!le 10.&. #irst Commercial Ban" s total loans e'ual 5EEEEEEEE.ʹA) 1*000*000B) *000*000 C) &*00*000 ) 1*300*000.Answer%

Refer to the information provided in Table 10.3 below to answer the questions that follow.

Ta%le 10&

12) efer to ,a!le 10.(. ,he net worth of Geople s Ban" is 5EEEEEEEE.ʹA) 1*000*000 B) &00*000C) 400*000 ) (00*000Answer%

13) efer to ,a!le 10.(. ,he re'uired reserve ratio is

A) &F.B) &0F.C) 0F. ) 10F.Answer% B

14) efer to ,a!le 10.(. Geople s Ban" excess reserves are 5EEEEEEEE.ʹA) &00*000 B) 100*000

C) (00*000 ) -00*000


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Answer% A

1:) efer to ,a!le 10.(. ,otal loans of Geople s Ban" e'ual 5EEEEEEEE.ʹA) 100*000B) -00*000C) 00*000 ) 400*000Answer% C

&0) Crescent City Ban" has 5&00 million in deposits. Crescent City Ban" is meeting itsreservere'uirement and has no excess reserves. t has 5-0 million in reserves. Crescent City Ban"facesa re'uired reserve ratio of A) F.B) -F.

C) &0F. ) &F.Answer% C

&1) arnia ational Ban" has 530 million in deposits. ,he re'uired reserve ratio is (0F. arnia ational Ban" must "eep EEEEEEEE in reserves.A) 51& millionB) 510 million

C) 5&& million ) 5&0 millionAnswer% C

&&) eon Ban" has 5(00 million in deposits. ,he re'uired reserve ratio is &F. eon Ban"must"eep EEEEEEEE in reserves.A) 5&3 millionB) 51- millionC) 53 million) 51&0 million

Answer% C

&() ,he ntracoastal Ban" has 5 million in deposits and 500*000 in reserves. f the re'uiredreserve ratio is F* excess reserves are e'ual toA) 51&*000. B) 500*000. C) +ero. ) 5&0*000.Answer%

&-) ,he Ban" of Arugula has 5: million in deposits and 5:00*000 in reserves. f the re'uiredreserve ratio is 10F* excess reserves are e'ual to


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A) 5:0*000.B) 5140*000. C) 541*000. ) +ero.Answer%

&) ,he Ban" of ed Oa" has 5& million in deposits and 5-00*000 in reserves. f excessreserves aree'ual to 5100*000* the re'uired reserve ratio isA) 1F.B) 10F.C) &0F.) F.Answer% A

Refer to the information provided in Table 10.4 below to answer the questions that follow .Ta%le 10'

&2) efer to ,a!le 10.-. f the re'uired reserve ratio is 1F* #irst Charter Ban" A) is loaned up.B) has too few reserves on hand.C) is meeting its re'uired reserve ratio and has 5&00*000 in excess reserves.) has excess reserves of 5100*000.Answer% A

&3) efer to ,a!le 10.-. #irst Charter Ban" could ma"e additional* first round loans of5-00*000 if

the re'uired reserve ratio wereA) 10F.B) 4F.C) 3.F.) 1&F.Answer% A

&4) efer to ,a!le 10.-. f the re'uired reserve ratio were changed to F and #irst CharterBan" continues to hold 51*&00*000 in reserves* its excess reserves will !eA) 5200*000. B) 51*000*000.C) 5400*000.) 5-00*000.


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Answer% C

&:) ollar Ban" is currently loaned up. f the re'uired reserve ratio is lowered*A) ollar Ban" s net worth will increase.ʹB) ollar Ban" will have excess reserves that it can lend out.C) ollar Ban" will still !e loaned up !ecause it did not receive any additional deposits.) ollar Ban" s actual reserves will increase* !ut it will still !e loaned up.ʹAnswer% B

(0) hen a !an" has no excess reserves* and thus can ma"e no more loans* it is said to !eA) !an"rupt.B) ripe for a ta"eover.C) in receivership.) loaned up.

Answer%

(1) Commercial !an"s create money throughA) printing treasury notes.B) ma"ing loans.C) facilitating !orrowing from the #ederal eserve to the pu!lic.) reducing ris" in the economy.Answer% B

(&) ,he multiple !y which total deposits can increase for every dollar increase in reserves istheA) re'uired reserve ratio. B) !an" s line of credit.ʹC) deposit insurance limit.) money multiplier.Answer%

(() 6uppose the re'uired reserve ratio is &0F. A 5-0 million cash deposit will* at most* allowan expansion of the money supply toA) 5&0 million.B) 540 million.

C) 5&00 million. ) 5400 million.Answer% C

(-) 6uppose the re'uired reserve ratio is 1F. A 510 million deposit will* at most* allow anexpansion of the money supply toA) 51-3. million.B) 5&0 million.C) 510 million.) 522.3 million.Answer%


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() ,he re'uired reserve ratio is F. ,he money multiplier isA) 0.. B) .C) 1.) &0.Answer%

(2) ,he re'uired reserve ratio is 0F. ,he money multiplier isA) &..B) 10.C) .) &.Answer%

(3) f the money multiplier is 4* the re'uired reserve ratio isA) 4F.

B) 12F. C) 1&.F.) &0F.Answer% C

(4) Assume that !an"s !ecome more conservative in their lending policies and start holdingsomeexcess reserves. Compared to a situation in which !an"s are not holding excess reserves* thesi+e of the money supply will !eA) +ero. B) larger. C) the same.

) smaller.Answer%

(:) As commercial !an"s "eep more excess reserves* money creationA) increases. B) decreases.C) remains the same. ) could either increase or decrease.Answer% B

Refer to the information provided in Scenario 10.1 below to answer the questions that

follow .

6CDAO 10.1% ,he following ta!le shows the changes in deposits* reserves* and loans of - !an"s as aresult of a 5100*000 initial deposit in Ban" o. 1. Assume all !an"s are loaned up.


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-0) efer to 6cenario 10.1. hat is the re'uired reserve ratio/A) -F B) FC) 4F ) 10FAnswer% B

-1) efer to 6cenario 10.1. hat is the money multiplier in this economy/A) &0 B) 10 C) 0 ) 12.23Answer% A

-&) efer to 6cenario 10.1. Based on the initial 5100*000 deposit* the money supply will* atmost* expand toA) 51 million.

B) 5& million.C) 50 million. ) 512.23 million.Answer% B

-() efer to 6cenario 10.1. f the re'uired reserve ratio were changed to 10F* total loans ofBan" o. & will change toA) 41*000. B) :0*000. C) 4*000.) 33*--0.Answer% A

2 True/False

1) Only the re'uired reserve ratio determines how much money the #ederal eserve cancreate.Answer% #A76D&) Dxcess reserves in a !an" are the difference !etween re'uired reserves and the !an" s totalʹnet worth.Answer% #A76D() Among the assets of commercial !an"s are demand deposits.Answer% #A76D-) ,he amount of money !an"s can loan out is determined !y the discount rate.Answer% #A76D

) Among the lia!ilities of commercial !an"s are deposits.Answer% ,=D2) 6ince they must lend money to ma"e money* all !an"s are necessarily insolvent.Answer% #A76D

10.( ,he #ederal eserve 6ystem1) ,he #ederal eserve 6ystem consists of EEEEEEEE #ederal eserve Ban"s.A) 4 B) 10C) 1& ) 1-Answer% C

&) hich of the following activities is one of the responsi!ilities of the #ederal eserve/


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A) issuing new !onds to finance the federal !udget deficitB) loaning money to other countries that are friendly to the =nited 6tatesC) assisting !an"s that are in a difficult financial position) auditing the various agencies and departments of the federal governmentAnswer% C

() Among the mem!ers of the #ederal Open Mar"et CommitteeA) is the 6ecretary of the ,reasury.B) is the Comptroller of the Currency.C) are the seven mem!ers of the Board of


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&) ,he #ederal Open Mar"et Committee 9#OMC) directs the Open Mar"et es" toA) determine the re'uired reserve ratio. B) determine the discount rate.C) !uy or sell government securities.) determine the federal funds rate.Answer% C

() hich of the following is O, a tool availa!le to the #ed to change the supply of money/A) open mar"et operations B) the re'uired reserve ratioC) the money multiplier ) the discount rateAnswer% C

-) ,he discount rate isA) the interest rate commercial !an"s charge each other for !orrowing funds.B) the interest rate commercial !an"s charge their new customers.C) the interest rate the #ed charges commercial !an"s for !orrowing funds.) the interest rate commercial !an"s charge their most creditworthy customers.

Answer% C

) A decrease in the re'uired reserve ratioA) will increase the money supply. B) will decrease the money supply.C) will not change the money supply. ) will decrease the discount rate.Answer% A

2) Assume that all commercial !an"s are loaned up. ,otal deposits in the !an"ing system are5&00 million. ,he re'uired reserve ratio is increased. ,he money supply willA) decrease.B) increase.C) not change !ecause there was no change in deposits.

) not change !ecause the re'uired reserve ratio has no impact on money supply.Answer% A

3) ,he #ed has tended not to use changes in the reserve re'uirement as a means of controllingthe money supply !ecauseA) only !an"s that are mem!ers of the #ed are su!Iect to reserve re'uirements* and most

!an"s do not !elong to the #ed.B) a change in the reserve re'uirement has only a very small impact on the money supply.C) it is a crude monetary policy tool !ecause a change in the re'uirement does not affect

!an"s until a!out two wee"s after the change is implemented.) it ta"es a long time for the Congress to approve a change in the reserve re'uirement.Answer% C

4) ,he interest rate !an"s pay to !orrow money from the #ed is theA) federal funds rate. B) discount rate.C) prime lending rate. ) reserve rate.Answer% B

:) hich of the following represents an action !y the #ederal eserve that is designed toincrease the money supply/A) a decrease in the re'uired reserve ratioB) an increase in the discount rateC) a decrease in federal tax rates) selling government securities in the open mar"et


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Answer% A

10) hich of the following represents an action !y the #ederal eserve that is designed toincrease the money supply/A) !uying government securities in the open mar"etB) an increase in the re'uired reserve ratioC) a decrease in federal spending) an increase in the discount rateAnswer% A

11) Of the tools availa!le to the #ed to regulate the money supply* which is the least used/A) the federal funds rate B) the reserve ratioC) tax cutting ) the open>mar"et operationsAnswer% B

1&) f the #ed sells government securities* then there isA) an increase in the supply of money.B) a decrease in the supply of money.C) a decrease in the discount rate.) an increase in the re'uired reserve ratio.Answer% B

1() hich of the following represents an action !y the #ederal eserve that is designed todecrease the money supply/A) a decrease in the discount rateB) a decrease in federal spendingC) selling government securities in the open mar"et

) a decrease in the re'uired reserve ratioAnswer% C

1-) hen the #ed raises the re'uired reserve ratio* the !an"s excess reserves willʹinitiallyEEEEEEEE and the money supply EEEEEEEE.A) remains constantJ decreases B) decreaseJ decreasesC) increaseJ remain constant) increaseJ increasesAnswer% B

1) ,he !est instrument for controlling wee">to>wee" changes in the money supply is

A) the re'uired reserve ratio. B) moral suasion.C) open>mar"et operations. ) the discount rate.Answer% C

12) hich of the following statements is #A76D/A) Open>mar"et operations can !e used !y the #ederal eserve with some precision.B) Open>mar"et operations are extremely flexi!le.C) ,he #ederal eserve underta"es open>mar"et operations on an infre'uent !asis.) Open>mar"et operations have a fairly predicta!le effect on the supply of money.Answer% C


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13) An open>mar"et purchase of securities !y the #ed results in EEEEEEEE in reservesandEEEEEEEE in the supply of money.A) an increaseJ a decrease B) a decreaseJ a decreaseC) an increaseJ an increase ) a decreaseJ an increaseAnswer% C

14) An open>mar"et sale of securities !y the #ed results in EEEEEEEE in reserves and EEEEEEEE in the supply of money.A) an increaseJ a decreaseB) an increaseJ an increaseC) a decreaseJ an increase ) a decreaseJ a decreaseAnswer%

1:) Assume there is no lea"age from the !an"ing system and that all commercial !an"s are

loanedup. ,he re'uired reserve ratio is 12F. f the #ed sells 5 million worth of governmentsecuritiesto the pu!lic* the change in the money supply will !eA) >512 million B) >5(1.& million.C) >5&1 million.) >511.3 million.Answer% B

&0) Assume there is no lea"age from the !an"ing system and that all commercial !an"s areloaned up. ,he re'uired reserve ratio is 10F. f the #ed !uys 510 million worth of

government securities from the pu!lic*the change in the money supply will !eA) 51 million. B) 5110 million.C) 5100 million.) 510 million.Answer% C

&1) ,he money supply has increased from 51.- trillion to 51.- trillion. hich of thefollowing could have caused this increase/A) ,he #ed sold government securities to the pu!lic.B) Consumers who were holding money outside the !an"ing system deposit this money.C) ,he #ed increased the discount rate.

) Commercial !an"s !egan to hold excess reserves.Answer% B

&&) f the #ed sets the money supply independent of the interest rate* then the money supplycurve isA) upward sloping. B) downward sloping.C) vertical. ) hori+ontal.Answer% C

2 True/False

1) A decrease in the re'uired reserve ratio increases the money supply.Answer% ,=D


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&) A sale of government securities to the pu!lic !y the #ederal eserve will increase themoney supply.Answer% #A76D() ,he discount rate cannot !e used to control the money supply with great precision !ecauseits effects on !an"s demand for reserves are uncertain.ʹAnswer% ,=D-) ,he tool most fre'uently used !y the #ed to change the money supply is changing there'uired reserve ratio.Answer% #A76D) f the #ed !uys securities on the open mar"et* it will increase the money supply.Answer% ,=D

self study exercises chapter 6 with answers

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