Question

1. Between February 2020 and April 2020, the monetary base of the United states Economy (not seasonally adjusted) increased from under $1 trillion to over $8 trillion. This is due to the massive buying of assets by the Federal Reserve. True or False
2. .The monetary base consists of

		reserves and Federal Reserve Notes.
		currency in circulation and Federal Reserve notes.
		currency in circulation and reserves.
		currency in circulation and the U.S. Treasury's monetary liabilities.

3. A major source of funds for Dime Community Bancshares is core deposits. True/ False

4. Increases in the monetary base are positively correlated with declines in the supply of money as measured by M1. True/False

5. Bank’s are indifferent to the rate of inflation since inflation affects both the asset side and liability sides of the balance sheet equally. True/False

6. When a bank sells a government bond to the Federal Reserve, reserves in the banking system ________ and the monetary base ________, everything else held constant.

		decrease; decreases
		increase; decreases
		increase; increases
		decrease; increases

Answer 1

1. False (MB does not include assets of the banks, and thus increase in assets cannot lead to increase in MB)

2. MB = Currency in circulation + reserves

3. True

4. True (as MB increases, less money is circulated in the economy, leading to fall in money supply)

5. False (ratio of assets to liabilities is always different with banks)

6. Increases, Increases

Reason: This is because money with banks increases (in exchange of bonds), leading to increase in reserves and MB