SOLVED

20.4Â Â Putting It All to Use 1) Suppose that the Treasury decides to spend $12 billion on a given day. Because about $12 billion in new tax revenues are expected to replenish the Treasury’s account at the Fed a week later, the best policy for the Fed to pursue if it wishes to stabilize reserves is to A) do a $12 billion government security repurchase agreement. B) do a $12 billion government security reverse repurchase agreement. C) buy $12 billion in government securities outright and hold them to prevent bank reserves from falling. D) sell $12 billion in government securities to prevent bank reserves from rising. 2) A sound monetary policy response to a sudden temporary increase in currency held by the public would be to A) reduce the rate of currency printing. B) carry out defensive open market operations. C) carry out dynamic open market operations. D) raise reserve requirements. 3) Open market operations that represent an attempt to offset short-term fluctuations in bank reserves are known as A) defensive open market operations. B) dynamic open market operations. C) temporary open market operations. D) equilibrating open market operations. 4) If reserves are __________ because of a temporary __________ in the Treasury’s balance at the Fed, open market __________ may be used to offset such influences. A) falling; decline; sales B) rising; increase; sales C) rising; decline; sales D) rising; decline; purchases 5) Reverse repurchase agreements are often used to A) increase bank reserves permanently. B) increase bank reserves temporarily. C) reduce bank reserves permanently. D) reduce bank reserves temporarily. 6) Repurchase agreements are often used to A) increase bank reserves permanently. B) increase bank reserves temporarily. C) reduce bank reserves permanently. D) reduce bank reserves temporarily. 7) The Federal Reserve uses dynamic open market operations to A) alter the money multiplier. B) alter the growth path of bank reserves. C) inject reserves temporarily into the system. D) take reserves temporarily from the system. 8) Which of the following situations is likely to lead to dynamic open market operations? A) A recession B) An increase in Federal Reserve float C) An increase in Treasury cash holdings D) An increase in currency outstanding 9) The monetary base is equal to A) Fed liabilities plus currency outstanding. B) Fed liabilities minus loans to commercial banks. C) bank reserves plus currency held by the non-bank public. D) the M1 money supply minus Fed loans to commercial banks. 10) The monetary base will increase if A) currency outstanding decreases. B) loans by the Fed to commercial banks decrease. C) bank reserves increase. D) vault cash in banks increases.