1) 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

2) When the federal funds rate equals the interest rate paid on excess reserves ________.

A) the supply curve of reserves is vertical

B) the supply curve of reserves is horizontal

C) the demand curve for reserves is vertical

D) the demand curve for reserves is horizontal

3) 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.

4) The quantity of reserves supplied equals

A) nonborrowed reserves minus borrowed reserves.

B) nonborrowed reserves plus borrowed reserves.

C) required reserves plus borrowed reserves.

D) total reserves minus required reserves.