1. As far as the impact on bank reserves and the monetary base is concerned, what is the difference between the Fed buying $1 million of government securities from bond dealers and buying $1 million of candy bars from Walmart?

a. buying securities expands R and B; buying candy bars does not

b. buying securities reduces R and B; buying candy bars does not

c. buying securities has a much stronger effect than buying candy bars

d. both transactions would have identical effects on R and B

2. Which of the following transactions would have a dollar-for-dollar effect on bank reserves and the monetary base?

a. the Fed buys U.S. government securities from dealers

b. the Fed buys U.S. government securities from banks

c. the Fed buys automobiles from General Motors

d. all of the above

3. When the Federal Reserve sells securities in the open market

a. the federal funds rate falls and the Treasury bill yield rises

b. the federal funds rate rises and the Treasury bill yield falls

c. the federal funds rate rises and the Treasury bill yield rises

d. the federal funds rate falls and the Treasury bill yield falls

4. When the Manager of the System Open Market Account wishes to purchase government securities, she contacts

a. the U.S. Treasury and purchases newly issued securities

b. government securities dealers and requests "ask" prices

c. government securities dealers and requests "bid" prices

d. commercial banks and buys directly from them

5. Today, Federal Reserve operations in the foreign exchange market

a. are conducted primarily as a method do open market operations

b. are conducted to correct everyday fluctuations in the value of the dollar

c. are infrequent, and used only to correct exchange rate fluctuations perceived as unjustified by economic fundamentals

d. none of the above

ANSWER KEY - 1d, 2d, 3c, 4b, 5c