ECON 160 MIDTERM 2 EXAM | QUESTIONS AND
SOLUTIONS | WINTER 2026 | WITH COMPLETE
SOLUTIONS - UCLA.
INSTRUCTIONS
Total Questions: 50 multiple-choice questions
Time Allotted: 75 minutes
Materials Allowed: One 8.5" × 11" handwritten cheat sheet (both sides),
non-programmable calculator
Scoring: Each question is worth 2 points (100 points total)
Instructions: Select the single best answer for each question. Show your
work on the exam booklet for partial credit consideration .
, The Federal Reserve does not tightly control the monetary base because
it does NOT completely control:
A) Open market sales
B) Borrowed reserves
C) The discount rate
D) Open market purchases
E) None of the above
Answer: B) Borrowed reserves
Rationale: The Fed controls open market operations and the discount
rate directly, but borrowed reserves depend on banks' decisions to
borrow from the discount window, making them 不完全 controllable .
In a simplified banking system with a required reserve ratio (rr) of 20%,
the Fed purchases $100,000 of bonds directly from Bank A. What is the
maximum loan Bank C can make after Bank A and Bank B have
completed their lending?
A) $500,000
, B) $100,000
C) $80,000
D) $64,000
E) $51,200
**Answer: E) $51,200**
Rationale: The maximum loan Bank C can make = $100,000 × (1 - rr)³ =
$100,000 × (0.8)³ = $100,000 × 0.512 = $51,200 .
After the Fed purchases $100,000 of bonds directly from Bank A with
rr=20%, the banking system reaches equilibrium. The Fed then decides it
wants a money supply of $800,000 and decreases rr to 10%. What action
must the Fed take to achieve this target?
A) Open market purchase of bonds of $300,000
B) Open market purchase of bonds of $60,000
C) Open market sale of bonds of $60,000
D) Open market sale of bonds of $20,000
,
E) Open market purchase of bonds of $20,000
**Answer: D) Open market sale of bonds of $20,000**
Rationale: With rr=10%, the target money supply of $800,000 requires
reserves of $80,000. Since current reserves are $100,000, the Fed must
decrease reserves by $20,000 through an open market sale .
Since 2008, the Fed has dramatically increased non-borrowed reserves,
which explains the rise in the monetary base. However, the money
multiplier has fallen due to an increase in:
A) The required reserve ratio
B) The excess reserve ratio
C) The discount rate
D) The federal funds rate
E) The currency ratio
Answer: B) The excess reserve ratio
Rationale: Since 2008, there has been a dramatic increase in the excess
reserve ratio (e), which has caused the money multiplier to fall. These
opposing effects help explain why M1 has not increased proportionally
to the monetary base .
SOLUTIONS | WINTER 2026 | WITH COMPLETE
SOLUTIONS - UCLA.
INSTRUCTIONS
Total Questions: 50 multiple-choice questions
Time Allotted: 75 minutes
Materials Allowed: One 8.5" × 11" handwritten cheat sheet (both sides),
non-programmable calculator
Scoring: Each question is worth 2 points (100 points total)
Instructions: Select the single best answer for each question. Show your
work on the exam booklet for partial credit consideration .
, The Federal Reserve does not tightly control the monetary base because
it does NOT completely control:
A) Open market sales
B) Borrowed reserves
C) The discount rate
D) Open market purchases
E) None of the above
Answer: B) Borrowed reserves
Rationale: The Fed controls open market operations and the discount
rate directly, but borrowed reserves depend on banks' decisions to
borrow from the discount window, making them 不完全 controllable .
In a simplified banking system with a required reserve ratio (rr) of 20%,
the Fed purchases $100,000 of bonds directly from Bank A. What is the
maximum loan Bank C can make after Bank A and Bank B have
completed their lending?
A) $500,000
, B) $100,000
C) $80,000
D) $64,000
E) $51,200
**Answer: E) $51,200**
Rationale: The maximum loan Bank C can make = $100,000 × (1 - rr)³ =
$100,000 × (0.8)³ = $100,000 × 0.512 = $51,200 .
After the Fed purchases $100,000 of bonds directly from Bank A with
rr=20%, the banking system reaches equilibrium. The Fed then decides it
wants a money supply of $800,000 and decreases rr to 10%. What action
must the Fed take to achieve this target?
A) Open market purchase of bonds of $300,000
B) Open market purchase of bonds of $60,000
C) Open market sale of bonds of $60,000
D) Open market sale of bonds of $20,000
,
E) Open market purchase of bonds of $20,000
**Answer: D) Open market sale of bonds of $20,000**
Rationale: With rr=10%, the target money supply of $800,000 requires
reserves of $80,000. Since current reserves are $100,000, the Fed must
decrease reserves by $20,000 through an open market sale .
Since 2008, the Fed has dramatically increased non-borrowed reserves,
which explains the rise in the monetary base. However, the money
multiplier has fallen due to an increase in:
A) The required reserve ratio
B) The excess reserve ratio
C) The discount rate
D) The federal funds rate
E) The currency ratio
Answer: B) The excess reserve ratio
Rationale: Since 2008, there has been a dramatic increase in the excess
reserve ratio (e), which has caused the money multiplier to fall. These
opposing effects help explain why M1 has not increased proportionally
to the monetary base .
