Question

QUESTION 1

1. Open market operations are conducted through the Washington D.C. Federal Reserve Bank.

   True

   False

QUESTION 2

1. In a system of free banking, a bank’s ability to expand credit is limited by the trust the public has in the redemption of their bank notes.

True

False

1 points   

1 points   

QUESTION 3

1. Bank reserves tend to move in the same direction as the public’s demand to hold cash (i.e., they both go up together or they both go down together).

True

False

1 points   

QUESTION 4

1. Free banking is likely to be quite inflationary.

True

False

1 points   

QUESTION 5

1. Central banking usually means that this bank has a monopoly on the issuance of bank notes (i.e., currency).

True

False

Answer 1

Answer 1 :-

True

Open market operations are conducted by Federal Reserve Bank of US whose headquarters are located in Washington DC .

Answer 2 :-

True

If the public will not have trust on the bank that they will get the assured amount on redemption of Bank notes , they will not purchase them at first place . This will disable the government to expand its credit .

Answer 3 :-

True

The demand for holding money is the desired holding of financial assets in the form of money that is cash or bank deposits rather than investment.

While the bank reserves are a certain proportion of deposits that are internally held by the bank or is deposited to central bank .

If the demand of holding deposits increases , automatically the bank reserves will increase due to minimum reserve requirements.

Thus they have a positive relationship

Answer 4 :-

True

Free banking can cause an increase in money supply when the banks print more notes in engaging fractional reserve lending , this can cause high inflation.

Answer 5 :-

True

Only the central bank has the authority to print and issue notes .