Question

Which of the following is not a role of the Board of Governor of the Federal Reserve System?

		Advice the presidents of Federal Reserve Banks on the structure and organization of those Banks.
		Advice the President of the United States on economic policy.
		Set interest rate paid on reserves.
		Set reserve requirements.

Suppose the Federal Reserve System conducts an open market purchase of $250 million. Which of the following is an effect of the transaction?

		The total amount of checkable deposits in the banking system decreases.
		The "securities" section in the balance sheet of the Federal Reserve System decreases by $250 million.
		The "reserves" section in the balance sheet of the Federal Reserve System increases by $250 million.
		Interest rate rises.
		The money supply in the economy falls.

If a depositor withdraws $100 from her checking account and hold it as cash,

		The "currency in circulation" section of the balance sheet of the Federal Reserve System decreases.
		The M1 money supply increases.
		The "reserves" section of the balance sheet of the Federal Reserve decreases.
		The money multiplier rises.

Which of the following will cause an increase in the money supply?

		The Fed conducts an open market sale.
		Banks taking out discount loans.
		The Fed increases the required reserve ratio.
		Banks hold more excess reserves.
		Depositors hold more money as cash.

During the 2008 financial crisis, even though monetary base increased starkly, the M1 money supply stayed rather stable. What was the reason behind this?

		Banks started holding more excess reserves.
		The money multiplier rose.
		The Fed increased the required reserve ratio to promote a stabler banking system.
		Depositors held more money as cash because of their distrust of the banking system.
		Fed gave out large amount of discount loans to banks.

Which of the following statement about the market for reserves is false?

		The supply of reserves is vertical as long as the federal funds rate is above the interest rate paid on reserves.
		The equilibrium federal funds rate is always in between the interest rate paid on reserves and the discount rate.
		The demand for reserves is downward sloping as long as the the federal funds rate is above the interest rate paid on reserves.
		If the federal funds rate is currently equal to the discount rate, there might be some borrowed reserves.

Answer 1

1.Option B

Advice the President of the United States on economic policy

The Board of Governors of the Federal Reserve System, commonly known as the Federal Reserve Board, is the main governing body of the Federal Reserve System. It is charged with overseeing the Federal Reserve Banks and with helping implement the monetary policy of the United States.

2.Option C

The "reserves" section in the balance sheet of the Federal Reserve System increases by $250 million.

The balance sheet of the Fed automatically expands when the Fed buys assets .

3.Option C

The "reserves" section of the balance sheet of the Federal Reserve decreases.

Reserves are the amount of money that banks keep in vaults, and they are a fraction of all deposits made. When money is withdrawn reserves fall.

4.Option D

Bank holds more excess reserves.

Excess reserves are the amount by which actual reserves exceed required reserves: Excess reserves: Excess reserves = actual reserves - required reserves. Commercial banks can safely lend excess reserves, thereby increasing the money supply.