The Fed's Balance Sheet and the Money Supply

The Fed's Balance Sheet and the Money Supply

1. 1. According to the lesson, what two components make up the Federal Reserve's monetary base?

   Treasury securities and mortgage-backed securitiesCurrency in circulation and bank reservesCurrency in circulation and Treasury securitiesBank reserves and deposits at commercial banks

2. 2. If banks hold a required reserve ratio of 10 percent (r = 0.10) and the public holds no currency, what is the simple deposit multiplier?

3. 3. Which of the following factors reduce the realistic money multiplier below the simple deposit multiplier? (Select all that apply.)

   The public's decision to hold currency outside the banking systemBanks holding excess reserves beyond the required reserve ratioThe Fed's purchase of Treasury securities on the open marketAn increase in the currency-to-deposit ratio

4. 4. The lesson notes that after 2008, the Federal Reserve's money multiplier fell dramatically. What was the primary cause within the Fed's control?

   A sudden increase in the public's currency-to-deposit ratio due to loss of confidence in banksThe Fed's decision to pay interest on reserve balances, encouraging banks to hold excess reserves instead of lendingA decrease in the monetary base due to quantitative tighteningCommercial banks' inability to meet customer deposit demands

5. 5. According to the lesson, which of the following does the Federal Reserve directly control?

   The currency-to-deposit ratio, C/DThe reserve-to-deposit ratio, R/D, which determines total bank lendingThe monetary base (MB) through open-market operations and the size of its balance sheetThe broad money supply (M2) directly through reserve requirements