Financial Institutions – Exam 1, Lecture Notes, 2026 – Study Material and
Practice Questions
The monetary base will decrease when: - correct answer ✔✔ The Fed sells securities on the
open market.
Deposits tend to expand whenever: - correct answer ✔✔ Reserve requirements decrease.
An increase in excess reserves will cause: - correct answer ✔✔ Depository institutions to lend
more freely.
The velocity of money measures: - correct answer ✔✔ The relationship between money supply
and economic activity.
Ordinarily the money supply will decrease if: - correct answer ✔✔ The Fed makes fewer loans at
its discount window, the Fed sells securities on the open market, or the Fed raises reserve
requirements.
The money supply: - correct answer ✔✔ Is NOT exclusively controlled by the Fed, is NOT smaller
than the monetary base, does NOT exclude interest-bearing deposits
What tool of the monetary policy has the greatest impact? - correct answer ✔✔ Open market
operations
An increase in the assets of Federal Reserve banks: - correct answer ✔✔ Increases the
monetary base
Consumption spending should increase if: - correct answer ✔✔ Reserve requirements decrease
Practice Questions
The monetary base will decrease when: - correct answer ✔✔ The Fed sells securities on the
open market.
Deposits tend to expand whenever: - correct answer ✔✔ Reserve requirements decrease.
An increase in excess reserves will cause: - correct answer ✔✔ Depository institutions to lend
more freely.
The velocity of money measures: - correct answer ✔✔ The relationship between money supply
and economic activity.
Ordinarily the money supply will decrease if: - correct answer ✔✔ The Fed makes fewer loans at
its discount window, the Fed sells securities on the open market, or the Fed raises reserve
requirements.
The money supply: - correct answer ✔✔ Is NOT exclusively controlled by the Fed, is NOT smaller
than the monetary base, does NOT exclude interest-bearing deposits
What tool of the monetary policy has the greatest impact? - correct answer ✔✔ Open market
operations
An increase in the assets of Federal Reserve banks: - correct answer ✔✔ Increases the
monetary base
Consumption spending should increase if: - correct answer ✔✔ Reserve requirements decrease
