ECO 301 EXAM QUESTIONS WELL ANSWERED LATEST UPDATE 2026

ECO 301 EXAM QUESTIONS WELL ANSWERED LATEST UPDATE 2026 4) Which of the following are reported as liabilities on a bank's balance sheet? A) Discount loans B) Reserves C) U.S. Treasury securities D) Loans - Answers Answer: A 7) In recent years the interest paid on checkable and time deposits has accounted for around ________ of total bank operating expenses, while the costs involved in servicing accounts have been approximately ________ of operating expenses. A) 45 percent; 55 percent B) 55 percent; 4 percent C) 25 percent; 50 percent D) 50 percent; 30 percent - Answers Answer: C 8) Which of the following statements are true? A) Checkable deposits are payable on demand. B) Checkable deposits do not include NOW accounts. C) Checkable deposits are the primary source of bank funds. D) Demand deposits are checkable deposits that pay interest. - Answers Answer: A 1) The interest rate charged on overnight loans of reserves between banks is the A) prime rate. B) discount rate. C) federal funds rate. D) Treasury bill rate. - Answers Answer: C 2) The primary indicator of the Fed's stance on monetary policy is A) the discount rate. B) the federal funds rate. C) the growth rate of the monetary base. D) the growth rate of M2. - Answers Answer: B 4) Everything else held constant, when the federal funds rate is ________ the interest rate paid on reserves, the quantity of reserves demanded rises when the federal funds rate ________. A) above, rises B) above, falls C) below, rises D) below, falls - Answers Answer: B 6) In the market for reserves, when the federal funds rate is above the interest rate paid on excess reserves, the demand curve for reserves is A) vertical. B) horizontal. C) positively sloped. D) negatively sloped. - Answers Answer: D 8) Which of the following is NOT an argument for the Federal Reserve paying interest on excess reserve holdings? A) Paying interest reduces the effective tax on deposits. B) Paying interest will help in the implementation of monetary policy. C) Paying interest will help the Federal Reserve have more control of the amount of discount loans. D) Paying interest increases the capacity of the Fed's balance sheet which will make it easier to address financial crises. - Answers Answer: C 12) In the market for reserves, if the federal funds rate is above the interest rate paid on excess reserves, then an open market ________ the supply of reserves, raising the federal funds interest rate, everything else held constant. A) sale decreases B) sale increases C) purchase increases D) purchase decreases - Answers Answer A 17) In the market for reserves, a lower discount rate A) decreases the supply of reserves. B) increases the supply of reserves. C) lengthens the vertical section of the supply curve of reserves. D) shortens the vertical section of the supply curve of reserves. - Answers Answer: D 18) In the market for reserves, a lower interest rate paid on excess reserves A) decreases the supply of reserves. B) increases the supply of reserves. C) decreases the effective floor for the federal funds rate. D) increases the effective floor for the federal funds rate. - Answers Answer: C 27) Everything else held constant, in the market for reserves, when the demand for federal funds intersects the reserve supply curve along the horizontal section, increasing the discount rate A) increases the federal funds rate. B) lowers the federal funds rate. C) has no effect on the federal funds rate. D) has an indeterminate effect on the federal funds rate. - Answers Answer: A 29) Everything else held constant, in the market for reserves, when the demand for federal funds intersects the reserve supply curve on the vertical section, increasing the discount rate A) increases the federal funds rate. B) lowers the federal funds rate. C) has no effect on the federal funds rate. D) has an indeterminate effect on the federal funds rate. - Answers Answer: C 31) Everything else held constant, in the market for reserves, increases in the discount rate affect the federal funds rate A) when the funds rate is below the discount rate. B) when the funds rate equals the discount rate. C) when the demand for federal funds intersects the vertical section of the reserve supply curve. D) when the demand for federal funds equals zero. - Answers Answer: B 33) After 2003, The Federal Reserve usually keeps the discount rate A) above the target federal funds rate. B) equal to the target federal funds rate. C) below the target federal funds rate. D) equal to zero. - Answers Answer: A 36) In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, an increase in the reserve requirement ________ the demand for reserves, ________ the federal funds rate, everything else held constant. A) decreases; lowering B) increases; lowering C) increases; raising D) decreases; raising - Answers Answer: C 40) In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, an increase in the reserve requirement ________ the ________ for reserves and causes the federal funds interest rate to rise, everything else held constant. A) decreases; demand B) increases; demand C) increases; supply D) decreases; supply - Answers Answer: B 41) In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, a ________ in the reserve requirement ________ the demand for reserves, lowering the federal funds interest rate, everything else held constant. A) rise; decreases B) rise; increases C) decline; increases D) decline; decreases - Answers Answer: D 43) In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, a decline in the reserve requirement ________ the ________ curve of reserves and causes the federal funds interest rate to fall, everything else held constant. A) decreases; demand B) increases; demand C) increases; supply D) decreases; supply - Answers Answer: A 45) Suppose, at a given federal funds rate, there is an excess demand for reserves in the federal funds market. If the Fed wants the federal funds rate to stay at that level, then it should undertake an open market ________ of bonds, everything else held constant. If the Fed does nothing, however, the federal funds rate will ________. A) sale; increase B) purchase; increase C) sale; decrease D) purchase; decrease - Answers Answer: B 46) Suppose, at a given federal funds rate, there is an excess supply of reserves in the federal funds market. If the Fed wants the federal funds rate to stay at that level, then it should undertake an open market ________ of bonds, everything else held constant. If the Fed does nothing, however, the federal funds rate will ________. A) sale; increase B) purchase; increase C) sale; decrease D) purchase; decrease - Answers Answer: C 1) ________ are the most important monetary policy tool because they are the primary determinant of changes in the ________, the main source of fluctuations in the money supply. A) Open market operations; monetary base B) Open market operations; money multiplier C) Changes in reserve requirements; monetary base D) Changes in reserve requirements; money multiplier - Answers Answer: A 2) Open market purchases raise the ________ thereby raising the ________. A) money multiplier; money supply B) money multiplier; monetary base C) monetary base; money supply D) monetary base; money multiplier - Answers Answer: C 4) Open market sales shrink ________ thereby lowering ________. A) the money multiplier; the money supply B) the money multiplier; reserves and the monetary base C) reserves and the monetary base; the money supply D) the money base; the money multiplier - Answers Answer: C 6) The two types of open market operations are A) offensive and defensive. B) dynamic and reactionary. C) active and passive. D) dynamic and defensive. - Answers Answer: D 7) There are two types of open market operations: ________ open market operations are intended to change the level of reserves and the monetary base, and ________ open market operations are intended to offset movements in other factors that affect the monetary base. A) defensive; dynamic B) defensive; static C) dynamic; defensive D) dynamic; static - Answers Answer: C 9) When the Federal Reserve engages in a repurchase agreement to offset a withdrawal of Treasury funds from the Federal Reserve, the open market operation is said to be A) defensive. B) offensive. C) dynamic. D) reactionary. - Answers Answer: A 10) The Federal Open Market Committee makes the Fed's decisions on the purchase or sale of government securities, but these purchases or sales are executed by the Federal Reserve Bank of A) Chicago. B) Boston. C) New York. D) San Francisco. - Answers Answer: C 11) The actual execution of open market operations is done at A) the Board of Governors in Washington, D.C. B) the Federal Reserve Bank of New York. C) the Federal Reserve Bank of Philadelphia. D) the Federal Reserve Bank of Boston. - Answers Answer: B 12) If float is predicted to decrease because of unseasonably good weather, the manager of the trading desk at the Federal Reserve Bank of New York will likely conduct a ________ open market ________ of securities. A) defensive; sale B) defensive; purchase C) dynamic; sale D) dynamic; purchase - Answers Answer: B 13) When bad storms slow the check-clearing process, float tends to ________ causing the Fed to initiate defensive open market ________. A) decrease; sales B) decrease; purchases C) increase; sales D) increase; purchases - Answers Answer: C 17) If float is predicted to increase because of bad weather, the manager of the trading desk at the New York Fed bank will likely conduct ________ open market operations to ________ reserves. A) defensive; inject B) defensive; drain C) dynamic; inject D) dynamic; drain - Answers Answer: B 18) If float is predicted to decrease because of good weather, the manager of the trading desk at the New York Fed bank will likely conduct ________ open market operations to ________ reserves. A) defensive; inject B) defensive; drain C) dynamic; inject D) dynamic; drain - Answers Answer: A 19) If Treasury deposits at the Fed are predicted to increase, the manager of the trading desk at the New York Fed bank will likely conduct ________ open market operations to ________ reserves. A) defensive; inject B) defensive; drain C) dynamic; inject D) dynamic; drain - Answers Answer: A 23) If the Fed expects currency holdings to rise, it conducts open market ________ to offset the expected ________ in reserves. A) purchases; increase B) purchases; decrease C) sales; increase D) sales; decrease - Answers Answer: B 26) The Federal Reserve will engage in a repurchase agreement when it wants to ________ reserves ________ in the banking system. A) increase; permanently B) increase; temporarily C) decrease; temporarily D) decrease; permanently - Answers Answer: B 27) If the Fed wants to temporarily inject reserves into the banking system, it will engage in A) a repurchase agreement. B) a matched sale-purchase transaction. C) a reverse repurchase agreement. D) an open market sale. - Answers Answer: A