Question 1

The Board of Governors of the Federal Reserve System is

Accepted Answer

A)  elected by the member banks' presidents. 
B)  appointed by the Secretary of the Treasury. 
C)  appointed by the state governors in each Federal Reserve district. 
D)  appointed by the president of the United States and confirmed by the Senate. 
A)  elected by the member banks' presidents. 
B)  appointed by the Secretary of the Treasury. 
C)  appointed by the state governors in each Federal Reserve district. 
D)  appointed by the president of the United States and confirmed by the Senate.

Question 2

Use the following to answer questions .
Exhibit: Reserves, Loans, and Money
  
-(Exhibit: Reserves, Loans, and Money) 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 3

Inflation reduces the ability of money to function as a

Accepted Answer

A)  medium of exchange. 
B)  medium of value. 
C)  unit of account. 
D)  store of value. 
A)  medium of exchange. 
B)  medium of value. 
C)  unit of account. 
D)  store of value.

Question 4

Use the following to answer questions .
Exhibit: Fed Buys Bonds
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.
-(Exhibit: Fed Buys Bonds) 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 5

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 6

If the Fed buys U.S. government bonds from the public, it

Accepted Answer

A)  increases the volume of reserves in the banking system and the money supply tends to grow. 
B)  decreases the volume of reserves in the banking system and the money supply tends to grow. 
C)  increases the volume of reserves in the banking system and the money supply tends to fall. 
D)  decreases the volume of reserves in the banking system and the money supply tends to fall. 
A)  increases the volume of reserves in the banking system and the money supply tends to grow. 
B)  decreases the volume of reserves in the banking system and the money supply tends to grow. 
C)  increases the volume of reserves in the banking system and the money supply tends to fall. 
D)  decreases the volume of reserves in the banking system and the money supply tends to fall.

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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 9

The banking system is able to make new loans equal to

Accepted Answer

A)  total legal reserves of the system. 
B)  total excess reserves of the system. 
C)  total required reserves of the system. 
D)  a multiple of total excess reserves of the system. 
A)  total legal reserves of the system. 
B)  total excess reserves of the system. 
C)  total required reserves of the system. 
D)  a multiple of total excess reserves of the system.

Question 10

The deposit multiplier is the inverse of

Accepted Answer

A)  legal reserves. 
B)  excess reserves. 
C)  checkable deposits. 
D)  the required reserve ratio. 
A)  legal reserves. 
B)  excess reserves. 
C)  checkable deposits. 
D)  the required reserve ratio.

Question 11

The Fed's most important and most frequently used tool of monetary policy is

Accepted Answer

A)  moral suasion. 
B)  open-market operations. 
C)  changes in the discount rate. 
D)  changes in required reserve ratios. 
A)  moral suasion. 
B)  open-market operations. 
C)  changes in the discount rate. 
D)  changes in required reserve ratios.

Question 12

The Fed seldom uses the reserve requirement ratio to influence the money supply. What is the reason for this?

Accepted Answer

A)  It is difficult and costly for the Fed to monitor compliance. 
B)  Frequent manipulation of reserve requirements would require bankers to constantly adjust their lending policies to changing requirements, which could be destabilizing for financial markets. 
C)  The Fed would like to discourage banks from making loans indiscriminately and therefore sets just one standard. 
D)  Reserves in excess of a certain amount will not be covered by the Federal Depository Insurance Corporation. 
A)  It is difficult and costly for the Fed to monitor compliance. 
B)  Frequent manipulation of reserve requirements would require bankers to constantly adjust their lending policies to changing requirements, which could be destabilizing for financial markets. 
C)  The Fed would like to discourage banks from making loans indiscriminately and therefore sets just one standard. 
D)  Reserves in excess of a certain amount will not be covered by the Federal Depository Insurance Corporation.

Question 13

Use the following to answer questions .
Exhibit: Balance Sheet of the Alpha-Beta Bank
  
-(Exhibit: Balance Sheet of the Alpha-Beta Bank) 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 14

If the Fed raises its target for the federal fund rate, this indicates

Accepted Answer

A)  the Fed is pursuing an expansionary monetary policy. 
B)  the Fed is pursuing a contractionary monetary policy. 
C)  the Fed is attempting to lower unemployment. 
D)  the Fed is concerned that the growth in aggregate demand will exceed potential GDP. 
A)  the Fed is pursuing an expansionary monetary policy. 
B)  the Fed is pursuing a contractionary monetary policy. 
C)  the Fed is attempting to lower unemployment. 
D)  the Fed is concerned that the growth in aggregate demand will exceed potential GDP.

Question 15

Explain the differences between the two money measures, M1 and M2. Why are checks, debit cards, and credit cards not considered to be money?

Accepted Answer

M1 and M2 are two different measures of

Question 16

Suppose a bank has $50,000 in deposits and $6,000 in reserves. The required reserve ratio is 10%. Which of the following occurs if the required reserve ratio is increased to 12%?

Accepted Answer

A)  The bank's total reserves will fall. 
B)  The bank will now be fully loaned up. 
C)  The bank will have insufficient required reserves. 
D)  The bank's profit will fall. 
A)  The bank's total reserves will fall. 
B)  The bank will now be fully loaned up. 
C)  The bank will have insufficient required reserves. 
D)  The bank's profit will fall.

Question 17

In the federal penitentiary at Lompoc, California, inmates used packages of mackerel to buy items such as haircuts at the prison barber shop and laundry services. What function do these packages of mackerel serve?

Accepted Answer

A)  They functioned as money. 
B)  They served as a corruption deterrent. 
C)  They enabled prison officers to monitor illegal money flows. 
D)  They forced prisoners to engage in barter. 
A)  They functioned as money. 
B)  They served as a corruption deterrent. 
C)  They enabled prison officers to monitor illegal money flows. 
D)  They forced prisoners to engage in barter.

Question 18

An institution that collects funds from lenders and distributes these funds to borrowers is called

Accepted Answer

A)  a financial intermediary. 
B)  the Federal Reserve System. 
C)  a mercantile exchange. 
D)  a currency market. 
A)  a financial intermediary. 
B)  the Federal Reserve System. 
C)  a mercantile exchange. 
D)  a currency market.

Question 19

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 20

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

The Board of Governors of the Federal Reserve System is

Inflation reduces the ability of money to function as a

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?

If the Fed buys U.S. government bonds from the public, it

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

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

The banking system is able to make new loans equal to

The deposit multiplier is the inverse of

The Fed's most important and most frequently used tool of monetary policy is

The Fed seldom uses the reserve requirement ratio to influence the money supply. What is the reason for this?

Use the following to answer questions . Exhibit: Balance Sheet of the Alpha-Beta Bank -(Exhibit: Balance Sheet of the Alpha-Beta Bank) If the required reserve ratio is 10% and the market interest rate is 6%, then the opportunity cost of holding excess reserves is

If the Fed raises its target for the federal fund rate, this indicates

Explain the differences between the two money measures, M1 and M2. Why are checks, debit cards, and credit cards not considered to be money?

Suppose a bank has $50,000 in deposits and $6,000 in reserves. The required reserve ratio is 10%. Which of the following occurs if the required reserve ratio is increased to 12%?

In the federal penitentiary at Lompoc, California, inmates used packages of mackerel to buy items such as haircuts at the prison barber shop and laundry services. What function do these packages of mackerel serve?

An institution that collects funds from lenders and distributes these funds to borrowers is called

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

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

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

Exam 9: The Nature and Creation of Money

The Board of Governors of the Federal Reserve System is

Inflation reduces the ability of money to function as a

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?

If the Fed buys U.S. government bonds from the public, it

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

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

The banking system is able to make new loans equal to

The deposit multiplier is the inverse of

The Fed's most important and most frequently used tool of monetary policy is

The Fed seldom uses the reserve requirement ratio to influence the money supply. What is the reason for this?

Use the following to answer questions . Exhibit: Balance Sheet of the Alpha-Beta Bank -(Exhibit: Balance Sheet of the Alpha-Beta Bank) If the required reserve ratio is 10% and the market interest rate is 6%, then the opportunity cost of holding excess reserves is

If the Fed raises its target for the federal fund rate, this indicates

Explain the differences between the two money measures, M1 and M2. Why are checks, debit cards, and credit cards not considered to be money?

Suppose a bank has $50,000 in deposits and $6,000 in reserves. The required reserve ratio is 10%. Which of the following occurs if the required reserve ratio is increased to 12%?

In the federal penitentiary at Lompoc, California, inmates used packages of mackerel to buy items such as haircuts at the prison barber shop and laundry services. What function do these packages of mackerel serve?

An institution that collects funds from lenders and distributes these funds to borrowers is called

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

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

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