Question 1

What happens when you withdraw cash from a bank?

Accepted Answer

A)  The bank's reserves are reduced. 
B)  The bank's reserves are increased. 
C)  The bank's reserves are not affected. 
D)  The bank's total reserves remain unchanged but the composition of required reserves and excess reserves change. 
A)  The bank's reserves are reduced. 
B)  The bank's reserves are increased. 
C)  The bank's reserves are not affected. 
D)  The bank's total reserves remain unchanged but the composition of required reserves and excess reserves change.

Question 2

Keeping a $20 bill in your purse to purchase a movie DVD when it comes out next month means that money functions as a

Accepted Answer

A)  medium of exchange. 
B)  unit of account. 
C)  standard of deferred payment. 
D)  store of value. 
A)  medium of exchange. 
B)  unit of account. 
C)  standard of deferred payment. 
D)  store of value.

Question 3

Table 9-3
Balance Sheet of the Alpha-Beta Bank
(All figures in $ million)
  
-Refer to Table 9-3. What is the value of the bank's net worth?

Accepted Answer

A)  $200 million 
B)  $2,000 million 
C)  $2,800 million 
D)  $3,000 million 
A)  $200 million 
B)  $2,000 million 
C)  $2,800 million 
D)  $3,000 million

Question 4

Which of the following is true?

Accepted Answer

A)  A bank is solvent when its deposits become positive. 
B)  A bank is insolvent when its reserves become negative. 
C)  A bank is solvent when its excess reserves become negative. 
D)  A bank is insolvent when its net worth becomes negative. 
A)  A bank is solvent when its deposits become positive. 
B)  A bank is insolvent when its reserves become negative. 
C)  A bank is solvent when its excess reserves become negative. 
D)  A bank is insolvent when its net worth becomes negative.

Question 5

When you discover money in your coat that you placed there last winter, you unexpectedly find you were using money as a(n)

Accepted Answer

A)  medium of exchange. 
B)  unit of account. 
C)  factor of production. 
D)  store of value. 
A)  medium of exchange. 
B)  unit of account. 
C)  factor of production. 
D)  store of value.

Question 6

A financial institution that accepts deposits, makes loans, and offers checking accounts is

Accepted Answer

A)  an insurance company. 
B)  the Federal Deposit Insurance Corporation. 
C)  the Federal Reserve System. 
D)  a commercial bank. 
A)  an insurance company. 
B)  the Federal Deposit Insurance Corporation. 
C)  the Federal Reserve System. 
D)  a commercial bank.

Question 7

The quantity of reserves that banks must hold against deposits is called

Accepted Answer

A)  the reserve ratio. 
B)  excess reserves. 
C)  total reserves. 
D)  required reserves. 
A)  the reserve ratio. 
B)  excess reserves. 
C)  total reserves. 
D)  required reserves.

Question 8

The price of a 32GC iPhone is $299. What is the function of money in this context?

Accepted Answer

A)  a medium of exchange 
B)  a means of payment 
C)  a unit of account 
D)  a measure of quality 
A)  a medium of exchange 
B)  a means of payment 
C)  a unit of account 
D)  a measure of quality

Question 9

Table 9-2
  
-Refer to Table 9-2. In Year 2, if the supply of money measured by M2 was $1,000 billion, then the components of M2 not shown in the table must have totaled

Accepted Answer

A)  less than $250 billion. 
B)  $250 billion. 
C)  $300 billion. 
D)  $450 billion. 
A)  less than $250 billion. 
B)  $250 billion. 
C)  $300 billion. 
D)  $450 billion.

Question 10

Which of the following items serve as a unit of account?
I. $100 cash
II. checkable deposits
III. an original Picasso painting
IV. a $1,000 corporate bond that you own

Accepted Answer

A)  I only 
B)  I and II 
C)  I, II, and III 
D)  I, II, and IV 
E)  I, II, III, and IV 
A)  I only 
B)  I and II 
C)  I, II, and III 
D)  I, II, and IV 
E)  I, II, III, and IV

Question 11

In the federal penitentiary at Lompoc, California, inmates used packages of mackerel to buy items such as haircuts at the prison barber shop and laundry services. What function do these packages of mackerel serve?

Accepted Answer

A)  They functioned as money. 
B)  They served as a corruption deterrent. 
C)  They enabled prison officers to monitor illegal money flows. 
D)  They forced prisoners to engage in barter. 
A)  They functioned as money. 
B)  They served as a corruption deterrent. 
C)  They enabled prison officers to monitor illegal money flows. 
D)  They forced prisoners to engage in barter.

Question 12

One disadvantage of commodity money is that

Accepted Answer

A)  it cannot be readily converted to gold. 
B)  its quantity can fluctuate erratically. 
C)  its value does not change. 
D)  it has no value apart from its use as money. 
A)  it cannot be readily converted to gold. 
B)  its quantity can fluctuate erratically. 
C)  its value does not change. 
D)  it has no value apart from its use as money.

Question 13

Table 9-2
  
-Refer to Table 9-2. In Year 2, if savings deposits had been $250 billion instead of $200 billion, M2 would have been

Accepted Answer

A)  $575 billion. 
B)  larger by $50 billion. 
C)  smaller by $50 billion. 
D)  unaffected. 
A)  $575 billion. 
B)  larger by $50 billion. 
C)  smaller by $50 billion. 
D)  unaffected.

Question 14

The deposit multiplier is the inverse of

Accepted Answer

A)  legal reserves. 
B)  excess reserves. 
C)  checkable deposits. 
D)  the required reserve ratio. 
A)  legal reserves. 
B)  excess reserves. 
C)  checkable deposits. 
D)  the required reserve ratio.

Question 15

What are the primary tools the Fed can use to conduct monetary policy? Discuss how each tool can be used to expand or contract the economy.

Accepted Answer

The primary tools the Fed can use to con

Question 16

How does the Fed decide which monetary measure should be the focus of its monetary policy choices?

Accepted Answer

A)  The Fed would like to track a monetary measure that is most closely related to the market interest rate. 
B)  The Fed would like to track a monetary measure that is most closely related to the quantity of money demanded by economic agents. 
C)  The Fed would like to track a monetary measure that is most closely related to the level of real GDP and the price level. 
D)  The Fed would like to track a monetary measure that is most closely related to government spending. 
A)  The Fed would like to track a monetary measure that is most closely related to the market interest rate. 
B)  The Fed would like to track a monetary measure that is most closely related to the quantity of money demanded by economic agents. 
C)  The Fed would like to track a monetary measure that is most closely related to the level of real GDP and the price level. 
D)  The Fed would like to track a monetary measure that is most closely related to government spending.

Question 17

Lowering the discount rate is

Accepted Answer

A)  a contractionary policy stance because the cost of borrowing funds falls, thereby encouraging consumption and investment spending. 
B)  a contractionary policy because it reduces banks' profit margins by lowering the return on lending. 
C)  an expansionary policy stance because consumers and businesses can now borrow funds directly from the Fed at a lower cost, thereby encouraging private spending. 
D)  an expansionary policy stance because it will be less costly for banks to borrow funds and this puts downward pressure on interest rates in the economy. 
A)  a contractionary policy stance because the cost of borrowing funds falls, thereby encouraging consumption and investment spending. 
B)  a contractionary policy because it reduces banks' profit margins by lowering the return on lending. 
C)  an expansionary policy stance because consumers and businesses can now borrow funds directly from the Fed at a lower cost, thereby encouraging private spending. 
D)  an expansionary policy stance because it will be less costly for banks to borrow funds and this puts downward pressure on interest rates in the economy.

Question 18

Table 9-5
Bolton Bank: Partial Balance Sheet
(All figures in $ million)
  
-Refer to Table 9-5. The required reserve ratio is 10%. What is the amount of Bolton Bank's excess reserves?

Accepted Answer

A)  $30 million 
B)  $70 million 
C)  $100 million 
D)  zero 
A)  $30 million 
B)  $70 million 
C)  $100 million 
D)  zero

Question 19

What happens to the value of the deposit multiplier when banks hold excess reserves?

Accepted Answer

A)  It is larger than the value implied by the formula. 
B)  It is smaller than the value implied by the formula. 
C)  It is only affected by the amount of loans that banks are willing to make, not the amount of excess reserves held. 
D)  There is insufficient information to answer the question. 
A)  It is larger than the value implied by the formula. 
B)  It is smaller than the value implied by the formula. 
C)  It is only affected by the amount of loans that banks are willing to make, not the amount of excess reserves held. 
D)  There is insufficient information to answer the question.

Question 20

Excess reserves plus total reserves equal required reserves.

Accepted Answer

A) True 
 B)False

What happens when you withdraw cash from a bank?

Keeping a $20 bill in your purse to purchase a movie DVD when it comes out next month means that money functions as a

Table 9-3 Balance Sheet of the Alpha-Beta Bank (All figures in $ million) -Refer to Table 9-3. What is the value of the bank's net worth?

Which of the following is true?

When you discover money in your coat that you placed there last winter, you unexpectedly find you were using money as a(n)

A financial institution that accepts deposits, makes loans, and offers checking accounts is

The quantity of reserves that banks must hold against deposits is called

The price of a 32GC iPhone is $299. What is the function of money in this context?

Table 9-2 -Refer to Table 9-2. In Year 2, if the supply of money measured by M2 was $1,000 billion, then the components of M2 not shown in the table must have totaled

Which of the following items serve as a unit of account? I. $100 cash II. checkable deposits III. an original Picasso painting IV. a $1,000 corporate bond that you own

In the federal penitentiary at Lompoc, California, inmates used packages of mackerel to buy items such as haircuts at the prison barber shop and laundry services. What function do these packages of mackerel serve?

One disadvantage of commodity money is that

Table 9-2 -Refer to Table 9-2. In Year 2, if savings deposits had been $250 billion instead of $200 billion, M2 would have been

The deposit multiplier is the inverse of

What are the primary tools the Fed can use to conduct monetary policy? Discuss how each tool can be used to expand or contract the economy.

How does the Fed decide which monetary measure should be the focus of its monetary policy choices?

Lowering the discount rate is

Table 9-5 Bolton Bank: Partial Balance Sheet (All figures in $ million) -Refer to Table 9-5. The required reserve ratio is 10%. What is the amount of Bolton Bank's excess reserves?

What happens to the value of the deposit multiplier when banks hold excess reserves?

Excess reserves plus total reserves equal required reserves.

Economics: the Study of Choice

Demand and Supply

Applications of Demand and Supply

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

Financial Markets and the Economy

Monetary Policy and the Fed

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Economic Development

Socialist Economies in Transition

Filters

Exam 9: The Nature and Creation of Money

What happens when you withdraw cash from a bank?

Keeping a $20 bill in your purse to purchase a movie DVD when it comes out next month means that money functions as a

Table 9-3 Balance Sheet of the Alpha-Beta Bank (All figures in $ million) -Refer to Table 9-3. What is the value of the bank's net worth?

Which of the following is true?

When you discover money in your coat that you placed there last winter, you unexpectedly find you were using money as a(n)

A financial institution that accepts deposits, makes loans, and offers checking accounts is

The quantity of reserves that banks must hold against deposits is called

The price of a 32GC iPhone is $299. What is the function of money in this context?

Table 9-2 -Refer to Table 9-2. In Year 2, if the supply of money measured by M2 was $1,000 billion, then the components of M2 not shown in the table must have totaled

Which of the following items serve as a unit of account? I. $100 cash II. checkable deposits III. an original Picasso painting IV. a $1,000 corporate bond that you own

In the federal penitentiary at Lompoc, California, inmates used packages of mackerel to buy items such as haircuts at the prison barber shop and laundry services. What function do these packages of mackerel serve?

One disadvantage of commodity money is that

Table 9-2 -Refer to Table 9-2. In Year 2, if savings deposits had been $250 billion instead of $200 billion, M2 would have been

The deposit multiplier is the inverse of

What are the primary tools the Fed can use to conduct monetary policy? Discuss how each tool can be used to expand or contract the economy.

How does the Fed decide which monetary measure should be the focus of its monetary policy choices?

Lowering the discount rate is

Table 9-5 Bolton Bank: Partial Balance Sheet (All figures in $ million) -Refer to Table 9-5. The required reserve ratio is 10%. What is the amount of Bolton Bank's excess reserves?

What happens to the value of the deposit multiplier when banks hold excess reserves?

Excess reserves plus total reserves equal required reserves.

Economics: the Study of Choice

Demand and Supply

Applications of Demand and Supply

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

Financial Markets and the Economy

Monetary Policy and the Fed

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Economic Development

Socialist Economies in Transition

Filters