Question 1

Which of the following does the central bank not do?

Accepted Answer

convert central bank notes into gold

Answer

control the supply of money

Answer

regulate the banking system

Answer

control the value of money

Question 2

When the central bank conducts open-market operations to increase the money supply, it

Accepted Answer

buys government bonds from the public.

Answer

redeems central bank notes.

Answer

raises the discount rate.

Answer

decreases its lending to member banks.

Question 3

When the central bank conducts open-market purchases,

Accepted Answer

it buys government bonds, which increases the money supply.

Answer

it lends money to member banks, which decreases the money supply.

Answer

it borrows money from member banks, which increases the money supply.

Answer

it buys government bonds, which decreases the money supply.

Question 4

The central bank can increase the money supply by conducting open market

Accepted Answer

purchases and lowering the discount rate.

Answer

sales and lowering the discount rate.

Answer

sales and raising the discount rate.

Answer

purchases and raising the discount rate.

Question 5

On a bank’s T-account,

Accepted Answer

reserves are assets, deposits are liabilities.

Answer

deposits are assets, reserves are liabilities.

Answer

both deposits and reserves are assets.

Answer

both deposits and reserves are liabilities.

Question 6

When a bank loans out $1,000, the money supply

Accepted Answer

<P>increases.</P>

Answer

does not change.

Answer

<P>decreases.</P>

Question 7

If the reserve ratio is 10 percent, $1,000 of additional reserves can create

Accepted Answer

$10,000 of new money.

Answer

$1,000 of new money.

Answer

$100 of new money.

Question 8

The money supply increases when the central bank

Accepted Answer

lowers the discount rate. The increase will be larger the smaller the reserve ratio is.

Answer

raises the discount rate. The increase will belarger the larger the reserve ratio is.

Answer

lowers the discount rate. The increase will be larger the larger the reserve ratio is.

Answer

raises the discount rate. The increase will be larger the smaller the reserve ratio is.

Question 9

To increase the money supply, the central bank could

Accepted Answer

decrease the discount rate.

Answer

sell government bonds.

Answer

increase the reserve requirement.

Answer

None of the above is correct.

Question 10

Which of the following lists two things that both increase the money supply?

Accepted Answer

make open market purchases, lower the reserve requirement ratio

Answer

make open market sales, lower the reserve requirement ratio

Answer

make open market sales, raise the reserve requirement ratio

Answer

make open market purchases, raise the reserve requirement ratio

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