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1.The most important tool the Fed has to control the money supply is

a. changing the federal funds rate.
b. changing the required reserve ration.
c. open market operations.
d. changing the discount rate

2. Banks use their excess reserves to

a. make new loans to customers.
b. show their customers that they are responsible and will be able to turn money over when demanded.
c. satisfy the government requirement that a certain percentage of transaction deposits be kept on hand.
d. make other banks think that this bank is more prosperous than it really is.

3. If a bank discovers it has insufficient required reserves, it can do all of the following EXCEPT

a. call in loans.
b. change the required reserve ratio.
c. borrow from the federal funds market.
d. borrow from the Fed.

4.The more people decide to hold currency, the

a. larger the money supply.
b. greater control the Fed has over the money supply.
c. larger the actual money multiplier.
d. smaller the actual money multiplier.

5. If depository insurance exists, bank managers may make riskier loans than they would have otherwise, which is an example of

a. irrational behavior.
b. moral hazard.
c. adverse selection.
d. regulatory lag

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