Question 1

Which of the following is part of M1? 
I. currency in a bank's vault
II. cash in your wallet
III. checkable deposits
IV. savings deposits

Accepted Answer

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

Question 2

Debit cards are

Accepted Answer

A)  counted as money because they perform the medium of exchange function of money. 
B)  not considered money because they merely show that their owners have a relationship to money. 
C)  are counted as a part of M2 but not M1. 
D)  counted as money because they provide access to their owners' checkable deposits. 
A)  counted as money because they perform the medium of exchange function of money. 
B)  not considered money because they merely show that their owners have a relationship to money. 
C)  are counted as a part of M2 but not M1. 
D)  counted as money because they provide access to their owners' checkable deposits.

Question 3

Scenario 2: Fed sells bonds to Henry Hyde
Consider a banking system in which the reserve requirement is 10%, banks try not to hold excess reserves, consumers and firms hold money only in the form of checking account balances, and all loan proceeds are spent. Suppose initially all banks in the system are loaned up. Now, suppose that the Fed sells a $50,000 bond to Henry Hyde, who pays for the bond by writing a check drawn against Jekyll Bank.
-Refer to Scenario 2. As a result of the open market sale, Jekyll Bank

Accepted Answer

A)  can create $50,000 of new loans. 
B)  will have $45,000 of excess reserves. 
C)  will have to borrow reserves to replenish its reserve deficiency. 
D)  will have an increase in checkable deposits. 
A)  can create $50,000 of new loans. 
B)  will have $45,000 of excess reserves. 
C)  will have to borrow reserves to replenish its reserve deficiency. 
D)  will have an increase in checkable deposits.

Question 4

The principle of fractional reserve banking makes it possible for a

Accepted Answer

A)  bank to make loans. 
B)  bank to print currency. 
C)  bank to avoid reserve requirements. 
D)  bank to sell securities. 
A)  bank to make loans. 
B)  bank to print currency. 
C)  bank to avoid reserve requirements. 
D)  bank to sell securities.

Question 5

A bank has $100,000 in checkable deposits and $30,000 in reserves. If the required reserve ratio is 10%, what is the amount of excess reserves?

Accepted Answer

A)  $0 
B)  $10,000 
C)  $20,000 
D)  $30,000 
A)  $0 
B)  $10,000 
C)  $20,000 
D)  $30,000

Question 6

When a person makes price comparisons among products, money is being used as a(n)

Accepted Answer

A)  unit of account. 
B)  standard of quality. 
C)  medium of exchange. 
D)  checkable deposit. 
A)  unit of account. 
B)  standard of quality. 
C)  medium of exchange. 
D)  checkable deposit.

Question 7

Which of the following illustrates the medium-of-exchange function of money?

Accepted Answer

A)  writing a check to buy a new Volkswagen 
B)  noting that the price of a $20,000 Volkswagen is 16,000 euros 
C)  keeping $20,000 in cash in your mattress instead of buying a new Volkswagen 
D)  driving your $20,000 Volkswagen to a friend's house 
A)  writing a check to buy a new Volkswagen 
B)  noting that the price of a $20,000 Volkswagen is 16,000 euros 
C)  keeping $20,000 in cash in your mattress instead of buying a new Volkswagen 
D)  driving your $20,000 Volkswagen to a friend's house

Question 8

Scenario 2: Fed sells bonds to Henry Hyde
Consider a banking system in which the reserve requirement is 10%, banks try not to hold excess reserves, consumers and firms hold money only in the form of checking account balances, and all loan proceeds are spent. Suppose initially all banks in the system are loaned up. Now, suppose that the Fed sells a $50,000 bond to Henry Hyde, who pays for the bond by writing a check drawn against Jekyll Bank.
-Refer to Scenario 2. Which of the following happens when Henry Hyde pays for the bond by writing a check from his checking account at the Jekyll Bank?

Accepted Answer

A)  Jekyll Bank's checkable deposits decreases by $50,000 and its reserves decreases by $45,000. 
B)  Jekyll Bank's checkable deposits decreases by $45,000 and its reserves decreases by $50,000. 
C)  Jekyll Bank's checkable deposits and reserves decrease by $50,000 each. 
D)  Jekyll Bank's checkable deposits and reserves increase by $45,000 each. 
A)  Jekyll Bank's checkable deposits decreases by $50,000 and its reserves decreases by $45,000. 
B)  Jekyll Bank's checkable deposits decreases by $45,000 and its reserves decreases by $50,000. 
C)  Jekyll Bank's checkable deposits and reserves decrease by $50,000 each. 
D)  Jekyll Bank's checkable deposits and reserves increase by $45,000 each.

Question 9

Money that some authority, generally a government, has ordered to be accepted as a medium of exchange is called _______ money.

Accepted Answer

A)  fiat 
B)  intrinsic 
C)  commodity 
D)  debt 
A)  fiat 
B)  intrinsic 
C)  commodity 
D)  debt

Question 10

Which of the following is an example of a bank's assets?

Accepted Answer

A)  reserves borrowed from the Fed 
B)  checkable deposits 
C)  vault cash 
D)  savings deposits 
A)  reserves borrowed from the Fed 
B)  checkable deposits 
C)  vault cash 
D)  savings deposits

Question 11

Which of the following statements is false about M1 and M2?

Accepted Answer

A)  M2 is a broader measure of the money supply than M1. 
B)  M2 contains assets that are less liquid than those in M1. 
C)  All the assets included in M1 are also included in M2. 
D)  All the assets included in M2 are also included in M1. 
A)  M2 is a broader measure of the money supply than M1. 
B)  M2 contains assets that are less liquid than those in M1. 
C)  All the assets included in M1 are also included in M2. 
D)  All the assets included in M2 are also included in M1.

Question 12

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 total reserves?

Accepted Answer

A)  $25 million 
B)  $75 million 
C)  $100 million 
D)  $200 million 
A)  $25 million 
B)  $75 million 
C)  $100 million 
D)  $200 million

Question 13

Which of the following is included in M2 but not in M1?

Accepted Answer

A)  currency 
B)  demand deposits 
C)  small-denomination time deposits 
D)  debit cards 
A)  currency 
B)  demand deposits 
C)  small-denomination time deposits 
D)  debit cards

Question 14

When a bank receives new deposits, it can make new loans up to the amount of

Accepted Answer

A)  the deposits received. 
B)  the excess reserves generated by the deposits 
C)  the reserves generated by the deposits. 
D)  the required reserves generated by the deposits. 
A)  the deposits received. 
B)  the excess reserves generated by the deposits 
C)  the reserves generated by the deposits. 
D)  the required reserves generated by the deposits.

Question 15

The Federal Reserve System 
I. is the central bank for the United States.
II. is a United States government owned bank.
III. is a branch of the Treasury of the United States.

Accepted Answer

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

Question 16

The Federal Depository Insurance Corporation (FDIC) has the power to close a bank when

Accepted Answer

A)  the bank's net worth falls below a certain level. 
B)  the bank's excess reserves fall below a certain level. 
C)  the bank's total deposits fall below a certain level. 
D)  the bank has inadequate insurance. 
A)  the bank's net worth falls below a certain level. 
B)  the bank's excess reserves fall below a certain level. 
C)  the bank's total deposits fall below a certain level. 
D)  the bank has inadequate insurance.

Question 17

Table 9-3
Balance Sheet of the Alpha-Beta Bank
(All figures in $ million)
  
-Refer to Table 9-3. If the required reserve ratio is 10%, what is the amount of excess reserves held by Alpha-Beta Bank?

Accepted Answer

A)  $25 million 
B)  $40 million 
C)  $60 million 
D)  $75 million 
A)  $25 million 
B)  $40 million 
C)  $60 million 
D)  $75 million

Question 18

The Fed's narrowest measure of money supply is

Accepted Answer

A)  M1. 
B)  M2. 
C)  credit card balances. 
D)  balances held in money market funds. 
A)  M1. 
B)  M2. 
C)  credit card balances. 
D)  balances held in money market funds.

Question 19

When the Fed _______ governments bonds it _______ bank reserves.

Accepted Answer

A)  sells; increases 
B)  buys; increases 
C)  buys; decreases 
D)  issues new; increases 
A)  sells; increases 
B)  buys; increases 
C)  buys; decreases 
D)  issues new; increases

Question 20

Which of the following statements is true?

Accepted Answer

A)  The higher the required reserve ratio, the higher the deposit multiplier. 
B)  The higher the excess reserves, the higher the deposit multiplier. 
C)  The value of the deposit multiplier falls if economic agents withdraw cash from the banking system. 
D)  The deposit multiplier only works to increase money supply, not to decrease money supply. 
A)  The higher the required reserve ratio, the higher the deposit multiplier. 
B)  The higher the excess reserves, the higher the deposit multiplier. 
C)  The value of the deposit multiplier falls if economic agents withdraw cash from the banking system. 
D)  The deposit multiplier only works to increase money supply, not to decrease money supply.

Which of the following is part of M1? I. currency in a bank's vault II. cash in your wallet III. checkable deposits IV. savings deposits

Debit cards are

The principle of fractional reserve banking makes it possible for a

A bank has $100,000 in checkable deposits and $30,000 in reserves. If the required reserve ratio is 10%, what is the amount of excess reserves?

When a person makes price comparisons among products, money is being used as a(n)

Which of the following illustrates the medium-of-exchange function of money?

Money that some authority, generally a government, has ordered to be accepted as a medium of exchange is called _______ money.

Which of the following is an example of a bank's assets?

Which of the following statements is false about M1 and M2?

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 total reserves?

Which of the following is included in M2 but not in M1?

When a bank receives new deposits, it can make new loans up to the amount of

The Federal Reserve System I. is the central bank for the United States. II. is a United States government owned bank. III. is a branch of the Treasury of the United States.

The Federal Depository Insurance Corporation (FDIC) has the power to close a bank when

Table 9-3 Balance Sheet of the Alpha-Beta Bank (All figures in $ million) -Refer to Table 9-3. If the required reserve ratio is 10%, what is the amount of excess reserves held by Alpha-Beta Bank?

The Fed's narrowest measure of money supply is

When the Fed _ governments bonds it _ bank reserves.

Which of the following statements is true?

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

Which of the following is part of M1? I. currency in a bank's vault II. cash in your wallet III. checkable deposits IV. savings deposits

Debit cards are

The principle of fractional reserve banking makes it possible for a

A bank has $100,000 in checkable deposits and $30,000 in reserves. If the required reserve ratio is 10%, what is the amount of excess reserves?

When a person makes price comparisons among products, money is being used as a(n)

Which of the following illustrates the medium-of-exchange function of money?

Money that some authority, generally a government, has ordered to be accepted as a medium of exchange is called _______ money.

Which of the following is an example of a bank's assets?

Which of the following statements is false about M1 and M2?

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 total reserves?

Which of the following is included in M2 but not in M1?

When a bank receives new deposits, it can make new loans up to the amount of

The Federal Reserve System I. is the central bank for the United States. II. is a United States government owned bank. III. is a branch of the Treasury of the United States.

The Federal Depository Insurance Corporation (FDIC) has the power to close a bank when

Table 9-3 Balance Sheet of the Alpha-Beta Bank (All figures in $ million) -Refer to Table 9-3. If the required reserve ratio is 10%, what is the amount of excess reserves held by Alpha-Beta Bank?

The Fed's narrowest measure of money supply is

When the Fed _______ governments bonds it _______ bank reserves.

Which of the following statements is true?

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

When the Fed _ governments bonds it _ bank reserves.