Chapter 15
1. Classify each of these transactions as an asset, a
liability, or neither for each of the
“players” in the money supply process—the federal
reserve, banks, and depositors.
a. You get a $10,000 loan from the bank to buy an automobile.
b. You deposit $400 into your checking account at the local bank.
c. The Fed provides an emergency loan to a bank for $1,000,000.
d. A bank borrows $500,000 in overnight loans from another bank.
e. You use your debit card to purchase a meal at a restaurant for $100.
2. The First National Bank receives an extra $100 of reserves but decides not to lend
out any of these reserves. How much deposit creation takes place for the entire
banking system?
7. “The Fed can perfectly control the amount of borrowed reserves in the banking
system.” Is this statement true, false, or uncertain? Explain.
11. “The money multiplier is necessarily greater than 1.” Is this statement true, false,
or uncertain? Explain your answer.
13. During the Great Depression years from 1930–1933, both the currency ratio c
and the excess reserves ratio e rose dramatically. What effect did these factors have
on the money multiplier?
Chapter 16
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5. “The only way that the Fed can affect the level of borrowed reserves is by adjusting
the discount rate.” Is this statement true, false, or uncertain? Explain your answer.
7. “The federal funds rate can never be below the interest rate paid on excess
reserves.” Is this statement true, false, or uncertain? Explain your answer.
8. Why is paying interest on excess reserves an important tool for the Federal Reserve
in managing crises?
11. Following the global financial crisis in 2008, assets on the Federal Reserve’s
balance sheet increased dramatically, from approximately $800 billion at the end
of 2007 to over $4.5 trillion in 2015. Many of the assets held are longer-term
securities acquired through various loan programs instituted as a result of the
crisis. In this situation, how could reverse repos (matched sale–purchase
transactions) help the Fed reduce its assets held in an orderly fashion, while
reducing potential inflationary problems in the future?
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