Question 1

Table 9-2
  
-Refer to Table 9-2. In Year 1, the supply of money measured by M1 was

Accepted Answer

A)  $150 billion. 
B)  $300 billion. 
C)  $450 billion. 
D)  $950 billion. 
A)  $150 billion. 
B)  $300 billion. 
C)  $450 billion. 
D)  $950 billion.

Question 2

When the Federal Reserve conducts open market transactions, it

Accepted Answer

A)  buys or sells corporate bonds in the bond market. 
B)  issues government bonds to raise funds for the government. 
C)  makes credit available to financial institutions in crises. 
D)  buys or sells previously issued government bonds. 
A)  buys or sells corporate bonds in the bond market. 
B)  issues government bonds to raise funds for the government. 
C)  makes credit available to financial institutions in crises. 
D)  buys or sells previously issued government bonds.

Question 3

Gresham's Law is the tendency for low-quality money to drive high-quality money out of circulation.

Accepted Answer

A) True 
 B)False

Question 4

A bank is "loaned up" when

Accepted Answer

A)  legal reserves are zero. 
B)  excess reserves are zero. 
C)  primary reserves are zero. 
D)  required reserves are zero. 
A)  legal reserves are zero. 
B)  excess reserves are zero. 
C)  primary reserves are zero. 
D)  required reserves are zero.

Question 5

Table 9-5
Bolton Bank: Partial Balance Sheet
(All figures in $ million)
  
-Refer to Table 9-5. The required reserve ratio is 10%. By how much could the banking system ultimately increase the money supply if all excess reserves are loaned out, people never withdraw cash, and all loan proceeds are spent?

Accepted Answer

A)  $30 million 
B)  $70 million 
C)  $300 million 
D)  $700 million 
A)  $30 million 
B)  $70 million 
C)  $300 million 
D)  $700 million

Question 6

Suppose the required reserve ratio is 10%. If a bank has total reserves of $80,000 and checkable deposits of $550,000, what is the amount of the bank's excess reserves?

Accepted Answer

A)  $25,000 
B)  $55,000 
C)  $80,000 
D)  $250,000 
A)  $25,000 
B)  $55,000 
C)  $80,000 
D)  $250,000

Question 7

Scenario 1: Fed Buys Bonds from Sheila Jones
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 buys a $100,000 bond from Sheila Jones, who banks at the Perez Bank, and that she deposits her check in her checking account at Perez Bank.
-Refer to Scenario 1. Immediately following Sheila's $100,000 deposit into her checking account, Perez Bank

Accepted Answer

A)  has no excess reserves. 
B)  has $10,000 in excess reserves. 
C)  has $90,000 in excess reserves. 
D)  has $100,000 in excess reserves. 
A)  has no excess reserves. 
B)  has $10,000 in excess reserves. 
C)  has $90,000 in excess reserves. 
D)  has $100,000 in excess reserves.

Question 8

Which of the following is true regarding the reserve requirements?

Accepted Answer

A)  The Fed changes them frequently because they are a power monetary policy tool. 
B)  The Fed does not change them much at all because taxation is a more impactful monetary policy tool. 
C)  The Fed changes them frequently because doing so simplifies banking operations. 
D)  The Fed does not change them much at all because doing so would make banking operations difficult. 
A)  The Fed changes them frequently because they are a power monetary policy tool. 
B)  The Fed does not change them much at all because taxation is a more impactful monetary policy tool. 
C)  The Fed changes them frequently because doing so simplifies banking operations. 
D)  The Fed does not change them much at all because doing so would make banking operations difficult.

Question 9

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% and the market interest rate is 6%, then the opportunity cost of holding excess reserves is

Accepted Answer

A)  zero since Alpha-Beta does not hold any excess reserves. 
B)  $0.9 million. 
C)  $2.4 million. 
D)  $4 million. 
A)  zero since Alpha-Beta does not hold any excess reserves. 
B)  $0.9 million. 
C)  $2.4 million. 
D)  $4 million.

Question 10

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 value of the deposit multiplier?

Accepted Answer

A)  1 
B)  2.5 
C)  7 
D)  10 
A)  1 
B)  2.5 
C)  7 
D)  10

Question 11

For a given level of reserves, a decrease 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)  decrease legal reserves and increase excess reserves. 
D)  decrease excess reserves and decrease the money supply. 
A)  decrease legal reserves and decrease the money supply. 
B)  increase legal reserves and decrease excess reserves. 
C)  decrease legal reserves and increase excess reserves. 
D)  decrease excess reserves and decrease the money supply.

Question 12

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 13

Table 9-1
  
-Refer to Table 9-1. The money supply measured by M1 is

Accepted Answer

A)  $325 billion. 
B)  $450 billion. 
C)  $1,425 billion. 
D)  $1,875 billion. 
A)  $325 billion. 
B)  $450 billion. 
C)  $1,425 billion. 
D)  $1,875 billion.

Question 14

The unit-of-account function of money means that money is used

Accepted Answer

A)  as a consistent means of measuring the value of things. 
B)  as the common denominator of future payments. 
C)  to pay for goods and services. 
D)  to accumulate purchasing power. 
A)  as a consistent means of measuring the value of things. 
B)  as the common denominator of future payments. 
C)  to pay for goods and services. 
D)  to accumulate purchasing power.

Question 15

When her $1,000 time deposit expires, Suneeta decides not to renew the time deposit and opts to cash out. As a result of her transaction

Accepted Answer

A)  M1 and M2 increase. 
B)  M1 increases and M2 decreases. 
C)  M1 is unaffected and M2 decreases. 
D)  M1 increases and M2 is unaffected. 
A)  M1 and M2 increase. 
B)  M1 increases and M2 decreases. 
C)  M1 is unaffected and M2 decreases. 
D)  M1 increases and M2 is unaffected.

Question 16

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 required 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 17

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 maximum amount of new loans that Bolton bank can create and by how much can Bolton initially increase the money supply, assuming that newly created deposits are transferred to another bank?

Accepted Answer

A)  $30 million; $30 million 
B)  $70 million; $30 million 
C)  $70 million; $70 million 
D)  $70 million; $700 million 
A)  $30 million; $30 million 
B)  $70 million; $30 million 
C)  $70 million; $70 million 
D)  $70 million; $700 million

Question 18

Scenario 1: Fed Buys Bonds from Sheila Jones
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 buys a $100,000 bond from Sheila Jones, who banks at the Perez Bank, and that she deposits her check in her checking account at Perez Bank.
-Refer to Scenario 1. Once the full impact of the Fed's open market purchase and Sheila's deposit worked its way through the banking system, what is the maximum change on the money supply as a result of these two events?

Accepted Answer

A)  Money supply falls by $100,000. 
B)  Money supply falls by $1,000,000. 
C)  Money supply rises by $10,000. 
D)  Money supply rises by $1,000,000. 
A)  Money supply falls by $100,000. 
B)  Money supply falls by $1,000,000. 
C)  Money supply rises by $10,000. 
D)  Money supply rises by $1,000,000.

Question 19

Assume that the required reserve ratio is 20%. What is the maximum increase in money supply for the banking system as a whole following a $10,000 increase in excess reserves?

Accepted Answer

A)  $5,000 
B)  $10,000 
C)  $40,000 
D)  $50,000 
A)  $5,000 
B)  $10,000 
C)  $40,000 
D)  $50,000

Question 20

The federal funds rate is determined

Accepted Answer

A)  by the Board of Governors. 
B)  by the supply and demand for bank reserves. 
C)  directly by households' and firms' demands for funds. 
D)  by the federal government. 
A)  by the Board of Governors. 
B)  by the supply and demand for bank reserves. 
C)  directly by households' and firms' demands for funds. 
D)  by the federal government.

Exam 24: The Aggregate Demandaggregate Supply Model

Table 9-2 -Refer to Table 9-2. In Year 1, the supply of money measured by M1 was

When the Federal Reserve conducts open market transactions, it

Gresham's Law is the tendency for low-quality money to drive high-quality money out of circulation.

A bank is "loaned up" when

Suppose the required reserve ratio is 10%. If a bank has total reserves of $80,000 and checkable deposits of $550,000, what is the amount of the bank's excess reserves?

Which of the following is true regarding the reserve requirements?

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% and the market interest rate is 6%, then the opportunity cost of holding excess reserves 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 value of the deposit multiplier?

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

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

Table 9-1 -Refer to Table 9-1. The money supply measured by M1 is

The unit-of-account function of money means that money is used

When her $1,000 time deposit expires, Suneeta decides not to renew the time deposit and opts to cash out. As a result of her transaction

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 required reserves?

Assume that the required reserve ratio is 20%. What is the maximum increase in money supply for the banking system as a whole following a $10,000 increase in excess reserves?

The federal funds rate is determined

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