Question 1

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 2

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 3

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 4

Table 9-4
Acme Bank: Partial Balance Sheet
(All figures in $ million)
  
-Refer to Table 9-4. Assume Acme Bank initially has no excess reserves. If Guevara withdraws $6,000 from her checking account at Acme Bank, which of the following will occur?

Accepted Answer

A)  Acme's excess reserves are reduced by $6,000. 
B)  Acme will have excess reserves of $2,000. 
C)  Acme will have a required reserve deficiency of $3,000. 
D)  Acme will have a required reserve deficiency of $5, 400. 
A)  Acme's excess reserves are reduced by $6,000. 
B)  Acme will have excess reserves of $2,000. 
C)  Acme will have a required reserve deficiency of $3,000. 
D)  Acme will have a required reserve deficiency of $5, 400.

Question 5

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 $E in Stage 4?

Accepted Answer

A)  $1,000 
B)  $1,800 
C)  $2,440 
D)  $2,952 
A)  $1,000 
B)  $1,800 
C)  $2,440 
D)  $2,952

Question 6

To reduce the political influence on the Board of Governors,

Accepted Answer

A)  the president of the United States appoints a new board every four years. 
B)  the reelection campaign for each member is less than one year. 
C)  each member is appointed for 7 years, with one term expiring every year. 
D)  each member is appointed for 14 years, with one term expiring every two years. 
A)  the president of the United States appoints a new board every four years. 
B)  the reelection campaign for each member is less than one year. 
C)  each member is appointed for 7 years, with one term expiring every year. 
D)  each member is appointed for 14 years, with one term expiring every two years.

Question 7

When the Fed buys government bonds in the open market the money supply will increase.

Accepted Answer

A) True 
 B)False

Question 8

Rank the following items in terms of most liquid to least liquid.

Accepted Answer

A)  checkable deposits, cash, an office building your father owns 
B)  cash, credit card, money market mutual funds, checkable deposits, 
C)  cash, checkable deposits, savings deposits, an office building your father owns 
D)  cash, Microsoft stock certificates you own, checkable deposits 
A)  checkable deposits, cash, an office building your father owns 
B)  cash, credit card, money market mutual funds, checkable deposits, 
C)  cash, checkable deposits, savings deposits, an office building your father owns 
D)  cash, Microsoft stock certificates you own, checkable deposits

Question 9

An activity performed by commercial banks that is not performed by insurance companies is

Accepted Answer

A)  functioning as financial intermediaries. 
B)  creating financial obligations against themselves. 
C)  accepting deposits and offering checking accounts. 
D)  allocating financial resources between borrowers and lenders. 
A)  functioning as financial intermediaries. 
B)  creating financial obligations against themselves. 
C)  accepting deposits and offering checking accounts. 
D)  allocating financial resources between borrowers and lenders.

Question 10

The maximum amount of increase in the money supply that can be caused by an increase in excess reserves is equal to the

Accepted Answer

A)  deposit multiplier $\times$ the required reserve ratio. 
B)  loan multiplier $\times$ the change in excess reserves. 
C)  deposit multiplier ÷ the change in excess reserves. 
D)  deposit multiplier $\times$ the change in excess reserves. 
A)  deposit multiplier $\times$ the required reserve ratio. 
B)  loan multiplier $\times$ the change in excess reserves. 
C)  deposit multiplier ÷ the change in excess reserves. 
D)  deposit multiplier $\times$ the change in excess reserves.

Question 11

Which of the following items serve as a store of value?
I. cash in your pocket
II. the balance in your checking account
III. an original Picasso painting
IV. a $1,000 corporate bond

Accepted Answer

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

Question 12

When the Fed buys U.S. Treasury bonds from a bank, it increases the supply of reserves by crediting the seller's account at the Fed.

Accepted Answer

A) True 
 B)False

Question 13

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 14

Which of the following items serve as a medium of exchange in the United States?
I. $100 cash
II. 50 euros
III. the balance in your checking account
IV. a $1,000 corporate stock that you own

Accepted Answer

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

Question 15

Table 9-4
Acme Bank: Partial Balance Sheet
(All figures in $ million)
  
-Refer to Table 9-4. If Acme Bank has no excess reserves, the required reserve ratio is

Accepted Answer

A)  26.67% 
B)  16% 
C)  10% 
D)  There is insufficient information to answer question. 
A)  26.67% 
B)  16% 
C)  10% 
D)  There is insufficient information to answer question.

Question 16

Credit cards are money since they facilitate the purchase of goods and services.

Accepted Answer

A) True 
 B)False

Question 17

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 18

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 19

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 required reserves?

Accepted Answer

A)  $25,000 
B)  $55,000 
C)  $80,000 
D)  $135,000 
A)  $25,000 
B)  $55,000 
C)  $80,000 
D)  $135,000

Question 20

Freema withdraws $1,000 from her checking account to purchase a $1,000 time-deposit.
As a result of her transaction,

Accepted Answer

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

Exam 24: The Aggregate Demandaggregate Supply Model

Lowering the discount rate is

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

One disadvantage of commodity money is that

Table 9-4 Acme Bank: Partial Balance Sheet (All figures in $ million) -Refer to Table 9-4. Assume Acme Bank initially has no excess reserves. If Guevara withdraws $6,000 from her checking account at Acme Bank, which of the following will occur?

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 $E in Stage 4?

To reduce the political influence on the Board of Governors,

When the Fed buys government bonds in the open market the money supply will increase.

Rank the following items in terms of most liquid to least liquid.

An activity performed by commercial banks that is not performed by insurance companies is

The maximum amount of increase in the money supply that can be caused by an increase in excess reserves is equal to the

Which of the following items serve as a store of value? I. cash in your pocket II. the balance in your checking account III. an original Picasso painting IV. a $1,000 corporate bond

When the Fed buys U.S. Treasury bonds from a bank, it increases the supply of reserves by crediting the seller's account at the Fed.

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

Which of the following items serve as a medium of exchange in the United States? I. $100 cash II. 50 euros III. the balance in your checking account IV. a $1,000 corporate stock that you own

Table 9-4 Acme Bank: Partial Balance Sheet (All figures in $ million) -Refer to Table 9-4. If Acme Bank has no excess reserves, the required reserve ratio is

Credit cards are money since they facilitate the purchase of goods and services.

Debit cards are

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

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 required reserves?

Freema withdraws $1,000 from her checking account to purchase a $1,000 time-deposit. As a result of her transaction,

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