Question 1. 1. (TCO 2) The asset of Federal Reserve banks associated with open m

Question

Question 1.1. (TCO 2) The asset of Federal Reserve banks associated with open market operations is (Points : 3)        Federal Reserve notes.
       U.S. government securities.
       loans to member banks.
       float. Question 2.2. (TCO 2) For what purposes do depository institutions keep deposits in the Federal Reserve banks? (Points : 3)        For clearing checks
       To satisfy reserve requirements
       To earn interest
       For clearing checks and to satisfy reserve requirements. Question 3.3. (TCO 2) Which Fed action does not directly increase total reserves in the banking system? (Points : 3)        Lowering the Discount Rate
       Lowering reserve requirements
       Buying U.S. Government securities on the open market
       None of the above Question 4.4. (TCO 2) The Fed's primary tools of monetary policy include all the following except (Points : 3)        changing the discount rate.
       open market operations.
       adjusting reserve requirements.
       changes in the Federal Funds rate. Question 5.5. (TCO 2) The Federal Reserve System established (Points : 3)        a system for federal chartering of banks.
       a system for controlling bank note issuance.
       a source of liquidity for the banking system.
       the beginning of demand deposit accounts. Question 6.6. (TCO 2) Which of the following can be associated with the modern objectives of the Fed? (Points : 3)        Coordinate an efficient payments mechanism.
       Provide an elastic money supply.
       Regulate the financial system.
       All of the above Question 7.7. (TCO 2) Reserve requirements apply to (Points : 3)        national banks.
       state banks.
       savings-and-loan associations.
       All of the above Question 8.8. (TCO 2) Using this data, answer the question below:

Total Reserves $90,000,000
Reserve Requirement 5%
Total Deposits $700,000,000

What is the level of excess reserves? (Points : 3)        $ 5,000,000
       $ 55,000,000
       $ 70,000,000
       Not ascertainable Question 9.9. (TCO 3) The monetary base will decrease when (Points : 3)        banks withdraw currency from the Fed.
       the Fed makes loans at the discount window.
       the Fed sells securities on the open market.
       the Fed buys securities on the open market. Question 10.10. (TCO 3) The money supply (Points : 3)        is not exclusively controlled by the Fed.
       is not related to the monetary base.
       excludes any interest-bearing deposits.
       None of the above Question 11.11. (TCO 3) An increase in excess reserves will cause (Points : 2)        the Fed Funds rate to rise.
       planned inventory investment to fall.
       depository institutions to lend more freely.
       foreign investors to buy more T-Bills. Question 12.12. (TCO 3) Consumption spending should increase if (Points : 2)        financial wealth decreases.
       reserve requirements decrease.
       interest rates increase.
       credit availability decreases. Question 13.13. (TCO 3) If the money supply increases too rapidly then (Points : 2)        inflationary expectations will rise.
       government spending will decrease.
       bank lending will decrease.
       investment spending will fall. Question 14.14. (TCO 3) Monetary policy impacts the economy (Points : 2)        by affecting real spending directly.
       by affecting real spending through the financial sector.
       by changing interest rates and the cost of housing.
       All of the above Question 15.15. (TCO 3) M2 includes (Points : 2)        currency in circulation.
       demand deposits.
       Both A and B
       None of the above Question 1.1. (TCO 2) The asset of Federal Reserve banks associated with open market operations is (Points : 3)        Federal Reserve notes.
       U.S. government securities.
       loans to member banks.
       float. Question 2.2. (TCO 2) For what purposes do depository institutions keep deposits in the Federal Reserve banks? (Points : 3)        For clearing checks
       To satisfy reserve requirements
       To earn interest
       For clearing checks and to satisfy reserve requirements. Question 3.3. (TCO 2) Which Fed action does not directly increase total reserves in the banking system? (Points : 3)        Lowering the Discount Rate
       Lowering reserve requirements
       Buying U.S. Government securities on the open market
       None of the above Question 4.4. (TCO 2) The Fed's primary tools of monetary policy include all the following except (Points : 3)        changing the discount rate.
       open market operations.
       adjusting reserve requirements.
       changes in the Federal Funds rate. Question 5.5. (TCO 2) The Federal Reserve System established (Points : 3)        a system for federal chartering of banks.
       a system for controlling bank note issuance.
       a source of liquidity for the banking system.
       the beginning of demand deposit accounts. Question 6.6. (TCO 2) Which of the following can be associated with the modern objectives of the Fed? (Points : 3)        Coordinate an efficient payments mechanism.
       Provide an elastic money supply.
       Regulate the financial system.
       All of the above Question 7.7. (TCO 2) Reserve requirements apply to (Points : 3)        national banks.
       state banks.
       savings-and-loan associations.
       All of the above Question 8.8. (TCO 2) Using this data, answer the question below:

Total Reserves $90,000,000
Reserve Requirement 5%
Total Deposits $700,000,000

What is the level of excess reserves? (Points : 3)        $ 5,000,000
       $ 55,000,000
       $ 70,000,000
       Not ascertainable Question 9.9. (TCO 3) The monetary base will decrease when (Points : 3)        banks withdraw currency from the Fed.
       the Fed makes loans at the discount window.
       the Fed sells securities on the open market.
       the Fed buys securities on the open market. Question 10.10. (TCO 3) The money supply (Points : 3)        is not exclusively controlled by the Fed.
       is not related to the monetary base.
       excludes any interest-bearing deposits.
       None of the above Question 11.11. (TCO 3) An increase in excess reserves will cause (Points : 2)        the Fed Funds rate to rise.
       planned inventory investment to fall.
       depository institutions to lend more freely.
       foreign investors to buy more T-Bills. Question 12.12. (TCO 3) Consumption spending should increase if (Points : 2)        financial wealth decreases.
       reserve requirements decrease.
       interest rates increase.
       credit availability decreases. Question 13.13. (TCO 3) If the money supply increases too rapidly then (Points : 2)        inflationary expectations will rise.
       government spending will decrease.
       bank lending will decrease.
       investment spending will fall. Question 14.14. (TCO 3) Monetary policy impacts the economy (Points : 2)        by affecting real spending directly.
       by affecting real spending through the financial sector.
       by changing interest rates and the cost of housing.
       All of the above Question 15.15. (TCO 3) M2 includes (Points : 2)        currency in circulation.
       demand deposits.
       Both A and B
       None of the above

Explanation / Answer

Solution 1: option B

US government securities are associated with open market operations. When government has to increase money supply, it purchases government securities and when it has to reduce money supply, it sells government securities to the public. This is one of the ways how government controls money supply.

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