ECO 316 Week 3 Chapter 18 Changes in the Monetary Base

This work of ECO 316 Week 3 Chapter 18 Changes in the Monetary Base shows the solutions to the following problems:

18.1 Multiple Choice Questions

1) In April 2006, about how much in securities did the Federal Reserve hold?

2) In April 2006, discount loans by the Fed amounted to about

3) The Fed’s largest asset is

4) How does the Fed acquire its holdings of securities?

5) Most of the Fed’s portfolio of securities consists of

6) In addition to U.S. Treasury securities, the Fed’s portfolio of securities contains

7) An open market purchase

8) The primary reason the Fed makes discount loans to banks is to

9) Which of the following statements is correct?

10) On the Fed’s balance sheet an item in the process of collection

11) Items in the process of collection are generated by

12) On the Fed’s balance sheet, the Fed’s holdings of foreign exchange reserves

13) Which of the following is NOT a Federal Reserve asset?

14) Special Drawing Rights are issued by

15) The balance in the Gold and SDR certificate account on the Fed’s balance sheet increases when

16) The part of bank reserves deposited at the Fed are

17) The balance in the Gold and SDR certificate account on the Fed’s balance sheet increases when

18) The bulk of the Fed’s holdings of U.S. Treasury currency consists of

19) The Fed’s largest liability is

20) The currency outstanding account on the Fed’s balance sheet

21) The currency outstanding account on the Fed’s balance sheet

22) The Treasury typically

23) Why aren’t Treasury deposits with the Fed part of the monetary base?

24) Which of the following holds a deposit account at the Fed?

25) On the Fed’s balance sheet, a deferred availability cash item

26) Where would shares of stock in the Federal Reserve System purchased by the Fed’s member banks be included on the Fed’s balance sheet?

27) Deposits by depository institutions with the Fed

28) Which of the following is a correct expression for the monetary base?

29) The monetary base will increase for all of the following reasons EXCEPT

30) In August 2006, the average value of the monetary base was about

31) Most reserves tned to consist of

32) Which is the correct expression for currency in circulation?

33) What percentage of the nation’s currency is made up of Federal Reserve Notes?

34) The $300 million in U.S. Treasury notes dating back to Civil War issues and still outstanding are called

35) The terms on the right-hand side of the Fed’s balance sheet

36) Which of the following is true of the Fed’s balance sheet?

37) Federal Reserve float is defined as

38) Increases in which of the following items from the Fed’s balance sheet will result in increases in the monetary base?

39) Increases in which of the following items from the Fed’s balance sheet will result in decreases in the monetary base?

40) Decreases in which of the following items from the Fed’s balance sheet will result in increases in the monetary base?

41) If the volume of discount loans increases by $2 billion, the monetary base will increase by

42) If the Fed purchases $10 billion of U.S. Treasury bills, the monetary base will increase by

43) The “Member Bank Reserve Changes” data published weekly in The Wall Street Journal is most useful for

44) When a bank presents a check to the Fed for clearing, the Fed promises to credit the bank for the amount

45) Over time, the primary cause of increases in the money supply is increases in the

46) When a check for $10,000 is initially presented to the Fed for clearing, the initial impact on the Fed’s balance sheet is that

47) If the Fed credits the payee bank on a check for $10,000 before it debits the payor bank,

48) Suppose a substantial snowstorm in the Northeast slows down the check-clearing process. The likely result will be

49) Which of the following is true of Federal Reserve float?

50) If Federal Reserve float increases by $2 billion, the monetary base will increase by

51) If the Treasury sells $2 million in gold, the Fed’s gold and SDR certificate account will

52) If the Treasury buys $2 million in gold, the monetary base will

53) If the Fed purchases $100 million worth of euros, the monetary base will

54) If the Fed purchases a computer system for $50 million, the monetary base will

55) Treasury currency outstanding

56) If the Treasury mints more coins and sends them to the Fed,

57) If Treasury currency outstanding increases, the monetary base will

58) If Treasury currency outstanding decreases, the monetary base will

59) When the federal government makes a purchase

60) The Treasury’s account at the Fed is known as

61) If the Treasury purchases a computer system and pays the computer vendor with a check for $100,000 drawn on the Treasury’s account with the Fed,

62) To minimize the impact of its transactions on the monetary base, the Treasury

63) The accounts the Treasury has in local commercial banks are called

64) If the Bank of England’s deposit account with the Fed increases by $1 million, the monetary base will

65) When a bank joins the Federal Reserve System,

66) What is the most important source of change in the monetary base?

67) In the United States, federal government expenditures and tax rates are determined by

68) In the United States, budget deficits are financed by

69) Which of the following statements is correct?

70) Which of the following is the correct statement of the government budget constraint?

71) What was the source of controversy between the Treasury and the Fed during the years immediately after World War II?

72) As a result of the Treasury-Federal Reserve Accord,

73) In what year did the Treasury-Federal Reserve Accord take place?

74) What do the media generally mean when they use the phrase “printing money” in relation to the financing of the federal budget deficit?

75) Monetizing the debt refers to

76) Financing government spending by raising taxes

77) Financing government spending by selling bonds to the nonbank public

78) Which of the following means of financing federal government spending will increase the monetary base?

79) About what percentage of the federal budget deficits of the 1980s and early 1990s did the Fed monetize?

80) Research has indicated that countries in which the central bank has the most independence experience

81) The monetary base rises

82) In the early 2000s, it was recognized that Japan had

83) According to the Maastricht Treaty, what is the goal of the European Central Bank?

84) The Maastricht Treaty has made the European Central Bank

18.2 Essay Questions

1) In early 2001, most economists were predicting that the federal government would be running budget surpluses for the next ten years. (Note: It didn’t take place!) Would these surpluses have had any impact on the ability of the Fed to control the monetary base?

2) What does the Treasury do with the tax funds withheld from workers’ paychecks? How does the Treasury make use of these funds when making purchases for the federal government? How do these activities affect the monetary base?

3) How would the Fed go about “pegging” the interest rate on Treasury securities, as it did during World War II? What would be the consequences of pegging the monetary base?

4) An economist argues: “The only effective guarantee of low inflation is an independent central bank.” Do you agree?