Question 1

Suppose a student writes a check in the amount of $300 to the college bookstore for textbooks. Discuss briefly the impact on the student's balance sheet, his/her bank's balance sheet and the balance sheet of the Fed.

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Question 2

Why is it more correct to say that the Fed (the central bank) controls the monetary base than to say it controls the amount of reserves?

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Question 3

The assets that appear on the central bank's balance sheet include the category of loans. Who are central banks lending to and are these loans associated with the central bank functioning as the government's bank? Explain.

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Question 4

If the central banks of most countries do not set the exchange rates, why do they hold foreign exchange as one of their assets?

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Question 5

What happens to the monetary base if people, fearing a bank run, convert their checking deposits into currency holdings?

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Question 6

Given the prevalence of electronic payment mechanisms like credit cards and debit cards and the safety of checks, why is the amount of currency in the hands of the public increasing?

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Question 7

During the 1990s, the money multipliers for M1 and M2:

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During the 1990s, the money multipliers for both M1 and M2 decreased. This means that the money supply grew at a slower rate than the growth of the monetary base (which includes things like currency, reserves, and other central bank liabilities). This could be due to factors such as increased reserve requirements, changes in banking practices, or other regulatory changes that impacted the ability of banks to create new money through lending.

Question 8

You receive a $1,000 gift from your grandmother when you graduate from college. Your grandmother withdrew the $1,000 from her checking account and gave you ten $100 bills. You deposit the ten bills into your checking account. Discuss the impact of these transactions on your grandmother's balance sheet, your balance sheet, and the Fed's balance sheet.

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Question 9

The required reserve rate set by the Fed is ten percent of all checkable deposits. A bank sells
$1 million of U.S. Treasury securities it owns to the Fed. Describe what this transaction does to the bank's total reserves, its required reserves and its excess reserves.

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Question 10

If the Fed sells euros valued at $100 million to commercial banks, will this change the size of the Fed's liabilities and assets? Explain.

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Question 11

One thing the Fed has learned over the past twenty-five years is:

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The Fed has learned that the money multiplier is unstable over time, meaning it can't be relied on to remain constant. This has influenced their approach to monetary policy and led to a shift towards targeting interest rates instead of the money supply.

Question 12

The Treasury usually requires most businesses to regularly deposit taxes withheld from employees into accounts at designated commercial banks. On a regular basis, the funds in these accounts are transferred to the Treasury's account at the Fed. Discuss what is happening to the balance sheet of the banking system as the businesses are making deposits and these tax accounts are increasing. What happens to the banking system's balance sheet when the funds are transferred to the Fed?

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Question 13

Explain the impact on the Fed's balance sheet from a $10 million open market purchase of U.S. Treasury Securities. Be sure to identify which categories of assets and liabilities change and by what amounts.

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Question 14

If we assume the required reserve rate is ten percent (0.1), and that the public does not change their currency holdings and that banks do not hold any excess reserves, what will be the change in deposits resulting from a $150 million open market purchase by the Fed?

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Question 15

Why do most central banks publish their balance sheets so frequently?

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Question 16

Follow a $1 billion purchase of U.S. Treasury bonds by the Fed from commercial banks. Discuss the changes that occur to the balance sheet of the banking system and the balance sheet of the Fed.

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Question 17

Traveler's checks have no reserve requirements and are included in M1. When people travel during the summer and convert some of their checking account deposits into traveler's checks, explain what happens to the monetary base.

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Question 18

If reserves pay interest below the market federal funds rate, why would a bank hold any excess reserves?

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Question 19

The authors open Chapter 17 with a contrast between the Fed's actions in response to the terrorist attacks of September, 2001 and its response to the financial crisis of the Great Depression. Why was the Fed successful at dealing with the crisis in 2001, and not as successful with the crisis of the early 1930s?

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Question 20

The Federal Reserve's Balance sheet would include an item labeled currency. Is this an asset or a liability of the Fed, and does it include all currency that is printed? Explain.

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Quiz 17: The Central Bank Balance Sheet and the Money Supply Process