CH 11 PRACTICE PROBLEMS

#1 . The Federal Reserve has _____ regional banks. The Board of Governors has ____ members who serve 14-year terms.

ANS: 12, 7

#2 List the 3 primary functions of the Fed.

•Regulates banks to ensure they follow federal laws intended to promote safe and sound banking practices.

•Acts as a banker’s bank, making loans to banks and as a lender of last resort.

•Conducts monetary policy by controlling the money supply.


#3 How might the fed increase the money supply?

1-make open market purchases (which lowers the federal funds rate), 2-lower the discount rate 3 - lower the reserve requirement


#4 What is the federal funds rate, and how is it involved in monetary policy?

The interest rate banks charge each other for short-term loans of reserves. By increasing the money supply with open market purchases the fed lowers the federal funds rate. By decreasing the money supply through open market sales the fed increases the federal funds rate.



#5 If the reserve ratio is 5 percent, the money multiplier is _________________________.

(1/5)*100 = 20