Sample Final Exam #B
ECN 135, Money and Banking
Instructor: Derek Stimel
(120 points total)
The exam is 30 multiple choice questions and 3 written questions (questions have parts) in length and you have 2 hours to complete the exam. The time limit will be strictly enforced.
The exam is closed book and closed note. You may use a calculator. Read all the questions carefully and work quickly, but diligently. For credit, you must bubble in the Scantron cleanly and clearly for multiple choice questions. We cannot correct stray eraser marks after the fact. For credit, you must show work on written questions. For example you must show calculations and not just the answer.
Keep your eyes on your own exam. Academic honesty is expected. Relax and Good Luck!
Federal Funds Rate Target = Inflation Rate + Equilibrium Real Fed Fund Rate + 1/2(inflation gap) + 1/2(output gap)
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Multiple Choice Questions (60 points total, 2 points per question) 1) The Depository Institutions Deregulation and Monetary Control Act of 1980 A) established higher reserve requirements for nonmember than for member banks. B) established higher reserve requirements for member than for nonmember banks. C) abolished reserve requirements.
D) established uniform reserve requirements for all banks.
2) The case for Federal Reserve independence does not include the idea that A) political pressure would impart an inflationary bias to monetary policy. B) a politically insulated Fed would be more concerned with long-run objectives and thus be a defender of a sound dollar and a stable price level.
C) policy is always performed better by an elite group such as the Fed. D) a Federal Reserve under the control of Congress or the president might make the so-called political business cycle more pronounced.
3) Members of Congress are able to influence monetary policy, albeit indirectly, through their ability to A) withhold appropriations from the Board of Governors.
B) withhold appropriations from the Federal Open Market Committee. C) propose legislation that would force the Fed to submit budget requests to Congress, as must other government agencies.
D) instruct the General Accounting Office to audit the foreign exchange market functions of the Federal Reserve.
4) Excess reserves are equal to
A) total reserves minus discount loans.
B) vault cash plus deposits with Federal Reserve banks minus required reserves. C) vault cash minus required reserves.
D) deposits with the Fed minus vault cash plus required reserves. 5) Suppose that from a new checkable deposit, First National Bank holds eight million dollars on deposit with the Federal Reserve, one million dollars in required reserves, and faces a required reserve ratio of ten percent. Given this information, we can say First National Bank has ________ million dollars in vault cash.
6) When an individual sells a $100 bond to the Fed, she may either deposit the check she receives or cash it for currency. In both cases
A) reserves increase.
B) high-powered money increases.
C) reserves decrease.
D) high-powered money decreases.
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7) A ________ in market interest rates relative to the discount rate will cause discount borrowing to ________.
A) fall; increase
B) rise; decrease
C) rise; increase
D) fall; remain unchanged
8) If the Fed injects reserves into the banking system and they are held as excess reserves, then the money supply
A) increases by only the initial increase in reserves.
B) increases by only one-half the initial increase in reserves. C) increases by a multiple of the initial increase in reserves. D) does not change.
9) If the required reserve ratio is one-third, currency in circulation is $300 billion, checkable deposits are $900 billion, and there is no...
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