Question 1

For a given level of reserves, an increase in the reserve requirement ratio will

Accepted Answer

A)  decrease legal reserves and decrease the money supply. 
B)  increase legal reserves and decrease excess reserves. 
C)  increase legal reserves and increase excess reserves. 
D)  increase excess reserves and increase the money supply. 
A)  decrease legal reserves and decrease the money supply. 
B)  increase legal reserves and decrease excess reserves. 
C)  increase legal reserves and increase excess reserves. 
D)  increase excess reserves and increase the money supply. B

Question 2

Open market transactions involve which of the following activities?
I. issuing new Federal Reserve notes
II. buying or selling newly issued government bonds to raise funds for the government
III. buying or selling previously issued government bonds to change the volume of bank reserves

Accepted Answer

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

Question 3

The monetary aggregate, M1, increases when

Accepted Answer

A)  an individual cashes a check written by a business. 
B)  an individual purchases clothes with a debit card. 
C)  an individual switches funds from a savings account to a checking account. 
D)  an individual buys groceries with a credit card. 
A)  an individual cashes a check written by a business. 
B)  an individual purchases clothes with a debit card. 
C)  an individual switches funds from a savings account to a checking account. 
D)  an individual buys groceries with a credit card. C

Question 4

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 5

Which of the following is the most liquid asset?

Accepted Answer

A)  season tickets to the Yankees' games 
B)  the cash that your Aunt Ursula stuffs in her mattress 
C)  a $5,000 6-month certificate of deposit (time deposit) 
D)  one hundred shares of IBM stock 
A)  season tickets to the Yankees' games 
B)  the cash that your Aunt Ursula stuffs in her mattress 
C)  a $5,000 6-month certificate of deposit (time deposit) 
D)  one hundred shares of IBM stock

Question 6

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 7

Which organization is responsible for managing the nation's money supply?

Accepted Answer

A)  The Federal Reserve Bank of New York 
B)  The United States Treasury 
C)  The Federal Open Market Committee 
D)  The American Association of Bankers 
A)  The Federal Reserve Bank of New York 
B)  The United States Treasury 
C)  The Federal Open Market Committee 
D)  The American Association of Bankers

Question 8

The _____ rate is the interest rates charged when a bank lends reserves to another bank.

Accepted Answer

A)  federal funds 
B)  discount 
C)  prime 
D)  reserve rate 
A)  federal funds 
B)  discount 
C)  prime 
D)  reserve rate

Question 9

What is the value of the deposit multiplier in a 100-percent reserve banking system?

Accepted Answer

A)  0. 
B)  1 
C)  a value between 0 and 1 
D)  a value greater than 1 
A)  0. 
B)  1 
C)  a value between 0 and 1 
D)  a value greater than 1

Question 10

The seven members of the Board of Governors serve 14-year terms to

Accepted Answer

A)  provide steady employment. 
B)  reduce political influence. 
C)  prevent illegal appointments. 
D)  inhibit independent decisions. 
A)  provide steady employment. 
B)  reduce political influence. 
C)  prevent illegal appointments. 
D)  inhibit independent decisions.

Question 11

The law requires banks to maintain

Accepted Answer

A)  fractional reserves in the form of deposit liabilities against their liquid assets. 
B)  fractional reserves in the form of federal securities against their outstanding loans. 
C)  fractional reserves in the form of cash in their vaults or deposits with the central bank against their deposit liabilities. 
D)  legal reserves in the form of gold against their outstanding loans. 
A)  fractional reserves in the form of deposit liabilities against their liquid assets. 
B)  fractional reserves in the form of federal securities against their outstanding loans. 
C)  fractional reserves in the form of cash in their vaults or deposits with the central bank against their deposit liabilities. 
D)  legal reserves in the form of gold against their outstanding loans.

Question 12

Money is any item that

Accepted Answer

A)  serves as a medium of exchange for goods and services. 
B)  can be converted into silver with relatively little loss in value. 
C)  can be converted into gold with relatively little loss in value. 
D)  facilitates a connecting link between credit instruments and debt instruments. 
A)  serves as a medium of exchange for goods and services. 
B)  can be converted into silver with relatively little loss in value. 
C)  can be converted into gold with relatively little loss in value. 
D)  facilitates a connecting link between credit instruments and debt instruments.

Question 13

The Dodd-Frank Wall Street Reform Act was a response to the financial crisis of 2008.

Accepted Answer

A) True 
 B)False

Question 14

Assume that banks do not hold excess reserves, all deposits remain in the banking system and that the required reserve ratio is 20%. If one bank obtains excess reserves of $10,000, then the maximum increase in money supply is

Accepted Answer

A)  $10,000. 
B)  $20,000. 
C)  $40,000. 
D)  $50,000. 
A)  $10,000. 
B)  $20,000. 
C)  $40,000. 
D)  $50,000.

Question 15

Suppose the reserve ratio is 25% and banks do not hold excess reserves. When the Fed sells $40 million of bonds to the public,

Accepted Answer

A)  bank reserves increase by $40 million and money supply could increase by a maximum of $40 million. 
B)  bank reserves increase by $40 million and money supply could increase by a maximum of $160 million. 
C)  bank reserves decrease by $40 million and money supply could decrease by a maximum of $40 million. 
D)  bank reserves decrease by $40 million and money supply could decrease by a maximum of $160 million. 
A)  bank reserves increase by $40 million and money supply could increase by a maximum of $40 million. 
B)  bank reserves increase by $40 million and money supply could increase by a maximum of $160 million. 
C)  bank reserves decrease by $40 million and money supply could decrease by a maximum of $40 million. 
D)  bank reserves decrease by $40 million and money supply could decrease by a maximum of $160 million.

Question 16

Table 9-2
  
-Refer to Table 9-2. In Year 1, if the supply of money measured by M2 was $650 billion, then the components of M2 not shown in the table must have totaled

Accepted Answer

A)  less than $100 billion. 
B)  $100 billion. 
C)  $200 billion. 
D)  $250 billion. 
A)  less than $100 billion. 
B)  $100 billion. 
C)  $200 billion. 
D)  $250 billion.

Question 17

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 18

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 19

Table 9-6: Deposit Expansion Stages
   In Table 9-6, assume that banks loan out 100% of their excess banking reserves, there are no cash withdrawals, and all loan proceeds are spent. Figures have been rounded up to the nearest whole number.
-Refer to Table 9-6. What is the value of $H (the total loans)?

Accepted Answer

A)  $1,000 
B)  $4,000 
C)  $5,000 
D)  $6,000 
A)  $1,000 
B)  $4,000 
C)  $5,000 
D)  $6,000

Question 20

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.

Exam 24: The Aggregate Demandaggregate Supply Model

For a given level of reserves, an increase in the reserve requirement ratio will

Open market transactions involve which of the following activities? I. issuing new Federal Reserve notes II. buying or selling newly issued government bonds to raise funds for the government III. buying or selling previously issued government bonds to change the volume of bank reserves

The monetary aggregate, M1, increases when

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.

Which of the following is the most liquid asset?

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

Which organization is responsible for managing the nation's money supply?

The _____ rate is the interest rates charged when a bank lends reserves to another bank.

What is the value of the deposit multiplier in a 100-percent reserve banking system?

The seven members of the Board of Governors serve 14-year terms to

The law requires banks to maintain

Money is any item that

The Dodd-Frank Wall Street Reform Act was a response to the financial crisis of 2008.

Assume that banks do not hold excess reserves, all deposits remain in the banking system and that the required reserve ratio is 20%. If one bank obtains excess reserves of $10,000, then the maximum increase in money supply is

Suppose the reserve ratio is 25% and banks do not hold excess reserves. When the Fed sells $40 million of bonds to the public,

Table 9-2 -Refer to Table 9-2. In Year 1, if the supply of money measured by M2 was $650 billion, then the components of M2 not shown in the table must have totaled

The principle of fractional reserve banking makes it possible for a

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

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

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