Question 1

When banks hold more reserves than are required, such reserves are called

Accepted Answer

A)  total reserves. 
B)  required reserves. 
C)  excess reserves. 
D)  loan reserves. 
A)  total reserves. 
B)  required reserves. 
C)  excess reserves. 
D)  loan reserves.

Question 2

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.

Question 3

Which of the following is true regarding the interest rate earned on the reserves that bank's keep at the Fed?

Accepted Answer

A)  These reserves earn no interest. 
B)  It is relatively low. 
C)  It varies depending on the federal funds rate. 
D)  It is equal to the discount rate. 
A)  These reserves earn no interest. 
B)  It is relatively low. 
C)  It varies depending on the federal funds rate. 
D)  It is equal to the discount rate.

Question 4

The federal funds rate is the interest rate the Fed charges to banks when it lends reserves to them.

Accepted Answer

A) True 
 B)False

Question 5

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 6

Excess reserves plus total reserves equal required reserves.

Accepted Answer

A) True 
 B)False

Question 7

A primary function of a central bank is to

Accepted Answer

A)  regulate dividend payments by corporations. 
B)  act as a regulator of banks. 
C)  control the bond market. 
D)  publish statistics on banking and related financial matters. 
A)  regulate dividend payments by corporations. 
B)  act as a regulator of banks. 
C)  control the bond market. 
D)  publish statistics on banking and related financial matters.

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is an advantage of using money as a medium of exchange?

Accepted Answer

A)  It simplifies purchases because all prices are specified in money values. 
B)  There is no interest charged on using money for purchases. 
C)  It is easy to mass produce money. 
D)  It avoids having to rely on barter, the exchange of one good or service for another. 
A)  It simplifies purchases because all prices are specified in money values. 
B)  There is no interest charged on using money for purchases. 
C)  It is easy to mass produce money. 
D)  It avoids having to rely on barter, the exchange of one good or service for another.

Question 10

Which of the following is an interest rate that is set directly by the Fed?

Accepted Answer

A)  the prime lending rate 
B)  the required reserve rate 
C)  the discount rate 
D)  the federal funds rate 
A)  the prime lending rate 
B)  the required reserve rate 
C)  the discount rate 
D)  the federal funds rate

Question 11

Inmates at the federal penitentiary at Lompoc, California, accepted packages of mackerel in exchange for goods and services. Why were they willing to accept mackerel in exchange for goods and services?

Accepted Answer

A)  because mackerel is a good source of protein 
B)  because prison authorities deemed mackerel legal tender 
C)  because the inmates know that they could use the packages of mackerel to buy other goods and services 
D)  because the inmates do not wish to consume mackerel 
A)  because mackerel is a good source of protein 
B)  because prison authorities deemed mackerel legal tender 
C)  because the inmates know that they could use the packages of mackerel to buy other goods and services 
D)  because the inmates do not wish to consume mackerel

Question 12

Use the following to answer questions .
Exhibit: Components of the Money System
  
-(Exhibit: Components of the Money System) The difference between M1 and M2 amounts to

Accepted Answer

A)  $325 billion. 
B)  $350 billion. 
C)  $450 billion. 
D)  $1,275 billion. 
A)  $325 billion. 
B)  $350 billion. 
C)  $450 billion. 
D)  $1,275 billion.

Question 13

In Romania under Communist Party rule in the 1980s, Kent cigarettes served as a medium of exchange. Given this, which of the following statements is true?

Accepted Answer

A)  This illustrates the use of Kent cigarettes as fiat money. 
B)  Commodity money has no value apart from its use as money. 
C)  This illustrates the use of Kent cigarettes as commodity money. 
D)  Fiat money must be backed by gold; otherwise it is worthless. 
A)  This illustrates the use of Kent cigarettes as fiat money. 
B)  Commodity money has no value apart from its use as money. 
C)  This illustrates the use of Kent cigarettes as commodity money. 
D)  Fiat money must be backed by gold; otherwise it is worthless.

Question 14

Suppose the Fed conducts an open market sale of $50 million in government securities. If the required reserve ratio is 20%, what is the maximum change in the money supply? Assume that banks try not to hold excess reserves and there is no currency withdrawal from the banking system.

Accepted Answer

A)  maximum increase in money supply = $250 million 
B)  maximum decrease in money supply = $250 million 
C)  maximum increase in money supply = $50 million 
D)  maximum decrease in money supply = $50 million 
A)  maximum increase in money supply = $250 million 
B)  maximum decrease in money supply = $250 million 
C)  maximum increase in money supply = $50 million 
D)  maximum decrease in money supply = $50 million

Question 15

Use the following to answer questions .
Exhibit: Deposit Expansion Stages
  
-(Exhibit: Deposit Expansion Stages) What is the value of $A in stage 1?

Accepted Answer

A)  $100 
B)  $200 
C)  $600 
D)  $800 
A)  $100 
B)  $200 
C)  $600 
D)  $800

Question 16

If the banking system has $2,000 in excess reserves, then it can expand deposits at most by $10,000 if the required reserve ratio is 10%.

Accepted Answer

A) True 
 B)False

Question 17

Discuss the three functions of money and give several examples in your own life when money performs these functions.

Accepted Answer

The three functions of money are as a me

Question 18

Use the following to answer questions .
Exhibit: Deposit Expansion Stages
  
-(Exhibit: Deposit Expansion Stages) 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 19

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 20

Which of the following would lead to a change in the money measure, M1?

Accepted Answer

A)  a customer purchases music downloads with a debit card 
B)  a customer withdraws funds from her checking account to purchase a 6-month time deposit 
C)  depositing a paycheck drawn against Bank of America into your checking account in Wells Fargo Bank 
D)  interest payments by the Treasury on its debt 
A)  a customer purchases music downloads with a debit card 
B)  a customer withdraws funds from her checking account to purchase a 6-month time deposit 
C)  depositing a paycheck drawn against Bank of America into your checking account in Wells Fargo Bank 
D)  interest payments by the Treasury on its debt

When banks hold more reserves than are required, such reserves are called

The federal funds rate is determined

Which of the following is true regarding the interest rate earned on the reserves that bank's keep at the Fed?

The federal funds rate is the interest rate the Fed charges to banks when it lends reserves to them.

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

Excess reserves plus total reserves equal required reserves.

A primary function of a central bank is to

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

Which of the following is an advantage of using money as a medium of exchange?

Which of the following is an interest rate that is set directly by the Fed?

Inmates at the federal penitentiary at Lompoc, California, accepted packages of mackerel in exchange for goods and services. Why were they willing to accept mackerel in exchange for goods and services?

Use the following to answer questions . Exhibit: Components of the Money System -(Exhibit: Components of the Money System) The difference between M1 and M2 amounts to

In Romania under Communist Party rule in the 1980s, Kent cigarettes served as a medium of exchange. Given this, which of the following statements is true?

Suppose the Fed conducts an open market sale of $50 million in government securities. If the required reserve ratio is 20%, what is the maximum change in the money supply? Assume that banks try not to hold excess reserves and there is no currency withdrawal from the banking system.

Use the following to answer questions . Exhibit: Deposit Expansion Stages -(Exhibit: Deposit Expansion Stages) What is the value of $A in stage 1?

If the banking system has $2,000 in excess reserves, then it can expand deposits at most by $10,000 if the required reserve ratio is 10%.

Discuss the three functions of money and give several examples in your own life when money performs these functions.

Use the following to answer questions . Exhibit: Deposit Expansion Stages -(Exhibit: Deposit Expansion Stages) What is the value of $H (the total loans)?

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

Which of the following would lead to a change in the money measure, M1?

Economics: the Study of Choice

Demand and Supply

Applications of Supply and Demand

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

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Exam 9: The Nature and Creation of Money

When banks hold more reserves than are required, such reserves are called

The federal funds rate is determined

Which of the following is true regarding the interest rate earned on the reserves that bank's keep at the Fed?

The federal funds rate is the interest rate the Fed charges to banks when it lends reserves to them.

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

Excess reserves plus total reserves equal required reserves.

A primary function of a central bank is to

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

Which of the following is an advantage of using money as a medium of exchange?

Which of the following is an interest rate that is set directly by the Fed?

Inmates at the federal penitentiary at Lompoc, California, accepted packages of mackerel in exchange for goods and services. Why were they willing to accept mackerel in exchange for goods and services?

Use the following to answer questions . Exhibit: Components of the Money System -(Exhibit: Components of the Money System) The difference between M1 and M2 amounts to

In Romania under Communist Party rule in the 1980s, Kent cigarettes served as a medium of exchange. Given this, which of the following statements is true?

Suppose the Fed conducts an open market sale of $50 million in government securities. If the required reserve ratio is 20%, what is the maximum change in the money supply? Assume that banks try not to hold excess reserves and there is no currency withdrawal from the banking system.

Use the following to answer questions . Exhibit: Deposit Expansion Stages -(Exhibit: Deposit Expansion Stages) What is the value of $A in stage 1?

If the banking system has $2,000 in excess reserves, then it can expand deposits at most by $10,000 if the required reserve ratio is 10%.

Discuss the three functions of money and give several examples in your own life when money performs these functions.

Use the following to answer questions . Exhibit: Deposit Expansion Stages -(Exhibit: Deposit Expansion Stages) What is the value of $H (the total loans)?

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

Which of the following would lead to a change in the money measure, M1?

Economics: the Study of Choice

Demand and Supply

Applications of Supply and Demand

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

Filters