Question 1

Raising the discount rate is:

Accepted Answer

A) an expansionary policy because it raises the ratio of excess to total reserves in the banking system. 
B) a contractionary policy on the part of the member banks of the Fed because it raises the firms' costs of borrowing from them. 
C) a contractionary policy on the part of the Fed because it raises the commercial banks' cost of borrowing from it. 
D) an expansionary policy on the part of the member banks of the Fed because it raises their profits relative to those of the nonmember banks. 
E) an expansionary policy on the part of the Fed because increasing the interest rates that the banks are allowed to charge will increase their willingness to make loans. 
A) an expansionary policy because it raises the ratio of excess to total reserves in the banking system. 
B) a contractionary policy on the part of the member banks of the Fed because it raises the firms' costs of borrowing from them. 
C) a contractionary policy on the part of the Fed because it raises the commercial banks' cost of borrowing from it. 
D) an expansionary policy on the part of the member banks of the Fed because it raises their profits relative to those of the nonmember banks. 
E) an expansionary policy on the part of the Fed because increasing the interest rates that the banks are allowed to charge will increase their willingness to make loans. C

Question 2

Suppose the required reserve ratio is 0.2,and the Fed buys $5,000 of U.S.government securities from Bank A,which lends $4,000 and keeps $1,000 in its vault as cash.In this round of the money-creation process,the M1 money supply has increased by:

Accepted Answer

A) $1,000. 
B) $4,000. 
C) $5,000. 
D) $10,000. 
E) $3,000. 
A) $1,000. 
B) $4,000. 
C) $5,000. 
D) $10,000. 
E) $3,000. B

Question 3

A fall in the discount rate will usually encourage banks to borrow from the Fed and therefore reduce the money supply.

Accepted Answer

A) True 
 B)False  False

Question 4

Lowering the discount rate:

Accepted Answer

A) encourages banks to borrow from the Fed,and they can more easily accommodate their customers' needs for loans. 
B) encourages business customers to borrow directly from the Fed. 
C) reduces the amount of reserves banks are required to keep. 
D) automatically reduces excess reserves. 
E) encourages banks to sell U.S.government securities and increase their cash reserves. 
A) encourages banks to borrow from the Fed,and they can more easily accommodate their customers' needs for loans. 
B) encourages business customers to borrow directly from the Fed. 
C) reduces the amount of reserves banks are required to keep. 
D) automatically reduces excess reserves. 
E) encourages banks to sell U.S.government securities and increase their cash reserves.

Question 5

The banking system creates money in the sense that it:

Accepted Answer

A) prints money. 
B) creates excess reserves from loans. 
C) creates loans from excess reserves. 
D) creates required reserves from loans. 
E) creates loans from required reserves. 
A) prints money. 
B) creates excess reserves from loans. 
C) creates loans from excess reserves. 
D) creates required reserves from loans. 
E) creates loans from required reserves.

Question 6

If the Fed purchases government securities in the open market,_____.

Accepted Answer

A) the money supply will decrease 
B) the money supply will increase only if the seller of those securities is a commercial bank 
C) the money demand will increase immediately 
D) the money demand will decrease immediately 
E) the money supply will increase through the commercial banking system regardless of who the seller is 
A) the money supply will decrease 
B) the money supply will increase only if the seller of those securities is a commercial bank 
C) the money demand will increase immediately 
D) the money demand will decrease immediately 
E) the money supply will increase through the commercial banking system regardless of who the seller is

Question 7

Assume that there are no excess reserves in the banking system when the reserve requirement is 20%.The purchase of $10,000 in U.S.government securities by the Fed from Academy National Bank has the potential to ultimately increase the money supply by:

Accepted Answer

A) $2,000. 
B) $8,000. 
C) $10,000. 
D) $20,000. 
E) $50,000. 
A) $2,000. 
B) $8,000. 
C) $10,000. 
D) $20,000. 
E) $50,000.

Question 8

Which of the following is the largest component of the assets of the Federal Reserve?

Accepted Answer

A) U.S.Treasury deposits 
B) U.S.government securities 
C) Foreign exchange 
D) Time deposits 
E) Checkable deposits 
A) U.S.Treasury deposits 
B) U.S.government securities 
C) Foreign exchange 
D) Time deposits 
E) Checkable deposits

Question 9

Banks create money when they make loans.

Accepted Answer

A) True 
 B)False

Question 10

When the Fed buys U.S.government securities from a member bank,that bank's excess reserves,required reserves,and total reserves all increase.

Accepted Answer

A) True 
 B)False

Question 11

Suppose you borrow $1,000 to purchase a car.Which of the following correctly represents the changes in your personal balance sheet after the bank lends the money,but before you spend it?

Accepted Answer

A) Assets: loan,+$1,000;Liabilities and net worth: checking deposit,+$1,000 
B) Assets: loan,-$1,000,checking deposit,+$1,000;Liabilities and net worth: no change 
C) Assets: loan,+$1,000,checking deposit,-$1,000;Liabilities and net worth: no change 
D) Assets: checking deposit,+$1,000;Liabilities and net worth: loan,+$1,000 
E) Assets: checking deposit,+$1,000;Liabilities and net worth: loan,-$1,000 
A) Assets: loan,+$1,000;Liabilities and net worth: checking deposit,+$1,000 
B) Assets: loan,-$1,000,checking deposit,+$1,000;Liabilities and net worth: no change 
C) Assets: loan,+$1,000,checking deposit,-$1,000;Liabilities and net worth: no change 
D) Assets: checking deposit,+$1,000;Liabilities and net worth: loan,+$1,000 
E) Assets: checking deposit,+$1,000;Liabilities and net worth: loan,-$1,000

Question 12

Suppose the reserve requirement is 15 percent.Which of the following is true?

Accepted Answer

A) The simple money multiplier is 15. 
B) The simple money multiplier is 1/15. 
C) The simple money multiplier is 30,000. 
D) The simple money multiplier is 1/30,000. 
E) The simple money multiplier is 1/0.15. 
A) The simple money multiplier is 15. 
B) The simple money multiplier is 1/15. 
C) The simple money multiplier is 30,000. 
D) The simple money multiplier is 1/30,000. 
E) The simple money multiplier is 1/0.15.

Question 13

The extent of money expansion will be:

Accepted Answer

A) greater if banks hold on to excess reserves. 
B) greater if private individuals hold on to cash. 
C) greater if banks hold on to excess reserves but less if private individuals hold on to cash. 
D) less if banks hold on to excess reserves but greater if private individuals hold on to cash. 
E) less if banks hold on to excess reserves or private individuals hold on to cash. 
A) greater if banks hold on to excess reserves. 
B) greater if private individuals hold on to cash. 
C) greater if banks hold on to excess reserves but less if private individuals hold on to cash. 
D) less if banks hold on to excess reserves but greater if private individuals hold on to cash. 
E) less if banks hold on to excess reserves or private individuals hold on to cash.

Question 14

​The narrow definition of the money supply includes only currency held by the nonbanking public.

Accepted Answer

A) True 
 B)False

Question 15

Credit cards are included in M2.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is a liability for a bank?

Accepted Answer

A) U.S.government securities owned by the bank 
B) Deposits with the Fed 
C) Checkable deposits 
D) Consumer and business loans 
E) Building and furniture owned by the bank 
A) U.S.government securities owned by the bank 
B) Deposits with the Fed 
C) Checkable deposits 
D) Consumer and business loans 
E) Building and furniture owned by the bank

Question 17

To increase the money supply,the Fed might:

Accepted Answer

A) increase the reserve requirement and the discount rate. 
B) decrease the reserve requirement and the discount rate. 
C) increase the reserve requirement and decrease the discount rate. 
D) sell government securities and increase the discount rate. 
E) sell bonds on the open market and increase the reserve requirement. 
A) increase the reserve requirement and the discount rate. 
B) decrease the reserve requirement and the discount rate. 
C) increase the reserve requirement and decrease the discount rate. 
D) sell government securities and increase the discount rate. 
E) sell bonds on the open market and increase the reserve requirement.

Question 18

If a bank sells a $1,000 security to the Fed and the required reserve ratio is 20 percent:

Accepted Answer

A) the bank has $1,000 in additional excess reserves,of which it can lend $800. 
B) the bank has $1,000 in additional excess reserves,all of which it can lend out. 
C) the bank has lost an asset and must reduce its loans. 
D) the bank has lost a liability. 
E) there is no change in excess reserves,since net assets do not change. 
A) the bank has $1,000 in additional excess reserves,of which it can lend $800. 
B) the bank has $1,000 in additional excess reserves,all of which it can lend out. 
C) the bank has lost an asset and must reduce its loans. 
D) the bank has lost a liability. 
E) there is no change in excess reserves,since net assets do not change.

Question 19

When the Fed buys U.S.government securities from a bank,that bank's excess reserves and required reserves increase but total reserves decrease.

Accepted Answer

A) True 
 B)False

Question 20

The table below shows the balance sheet of Leftbank.Which of the following transactions has just taken place at Leftbank?
Table 14.3
?
LEFTBANK
?
$\begin{array}{|l|r|r|}
\hline \text { Assets } & & \text { Liabilities and Net Worth } \
\hline \text { Deposits with the Fed } & -\$ 10,000 & \
\hline \text { U.S. Government securities } & \$ 10,000 &\\hline
\end{array}$

Accepted Answer

A) The bank received a shipment of cash from the Fed. 
B) A customer deposited $10,000 cash in his account. 
C) The bank sold a security to the Fed. 
D) The Fed sold a security to the bank. 
E) The bank borrowed $10,000 from the Fed. 
A) The bank received a shipment of cash from the Fed. 
B) A customer deposited $10,000 cash in his account. 
C) The bank sold a security to the Fed. 
D) The Fed sold a security to the bank. 
E) The bank borrowed $10,000 from the Fed.

Raising the discount rate is:

Suppose the required reserve ratio is 0.2,and the Fed buys $5,000 of U.S.government securities from Bank A,which lends $4,000 and keeps $1,000 in its vault as cash.In this round of the money-creation process,the M1 money supply has increased by:

A fall in the discount rate will usually encourage banks to borrow from the Fed and therefore reduce the money supply.

Lowering the discount rate:

The banking system creates money in the sense that it:

If the Fed purchases government securities in the open market,_____.

Assume that there are no excess reserves in the banking system when the reserve requirement is 20%.The purchase of $10,000 in U.S.government securities by the Fed from Academy National Bank has the potential to ultimately increase the money supply by:

Which of the following is the largest component of the assets of the Federal Reserve?

Banks create money when they make loans.

When the Fed buys U.S.government securities from a member bank,that bank's excess reserves,required reserves,and total reserves all increase.

Suppose you borrow $1,000 to purchase a car.Which of the following correctly represents the changes in your personal balance sheet after the bank lends the money,but before you spend it?

Suppose the reserve requirement is 15 percent.Which of the following is true?

The extent of money expansion will be:

The narrow definition of the money supply includes only currency held by the nonbanking public.

Credit cards are included in M2.

Which of the following is a liability for a bank?

To increase the money supply,the Fed might:

If a bank sells a $1,000 security to the Fed and the required reserve ratio is 20 percent:

When the Fed buys U.S.government securities from a bank,that bank's excess reserves and required reserves increase but total reserves decrease.

The table below shows the balance sheet of Leftbank.Which of the following transactions has just taken place at Leftbank? Table 14.3 ? LEFTBANK ? Assets Liabilities and Net Worth Deposits with the Fed -\ 10,000 U.S. Government securities \ 10,000

The Art and Science of Economic Analysis

Some Tools of Economic Analysis

Economic Decision Makers

Demand, Supply, and Markets

Introduction to Macroeconomics

Tracking the U S Economy

Unemployment and Inflation

Us Productivity and Growth

Aggregate Demand

Aggregate Supply

Fiscal Policy

Federal Budgets and Public Policy

Money and the Financial System

Monetary Theory and Policy

The Policy Debate: Active or Passive

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Economic Development

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Exam 14: Banking and the Money Supply

Raising the discount rate is:

Suppose the required reserve ratio is 0.2,and the Fed buys $5,000 of U.S.government securities from Bank A,which lends $4,000 and keeps $1,000 in its vault as cash.In this round of the money-creation process,the M1 money supply has increased by:

A fall in the discount rate will usually encourage banks to borrow from the Fed and therefore reduce the money supply.

Lowering the discount rate:

The banking system creates money in the sense that it:

If the Fed purchases government securities in the open market,_____.

Assume that there are no excess reserves in the banking system when the reserve requirement is 20%.The purchase of $10,000 in U.S.government securities by the Fed from Academy National Bank has the potential to ultimately increase the money supply by:

Which of the following is the largest component of the assets of the Federal Reserve?

Banks create money when they make loans.

When the Fed buys U.S.government securities from a member bank,that bank's excess reserves,required reserves,and total reserves all increase.

Suppose you borrow $1,000 to purchase a car.Which of the following correctly represents the changes in your personal balance sheet after the bank lends the money,but before you spend it?

Suppose the reserve requirement is 15 percent.Which of the following is true?

The extent of money expansion will be:

​The narrow definition of the money supply includes only currency held by the nonbanking public.

Credit cards are included in M2.

Which of the following is a liability for a bank?

To increase the money supply,the Fed might:

If a bank sells a $1,000 security to the Fed and the required reserve ratio is 20 percent:

When the Fed buys U.S.government securities from a bank,that bank's excess reserves and required reserves increase but total reserves decrease.

The table below shows the balance sheet of Leftbank.Which of the following transactions has just taken place at Leftbank? Table 14.3 ? LEFTBANK ? Assets Liabilities and Net Worth Deposits with the Fed -\ 10,000 U.S. Government securities \ 10,000

The Art and Science of Economic Analysis

Some Tools of Economic Analysis

Economic Decision Makers

Demand, Supply, and Markets

Introduction to Macroeconomics

Tracking the U S Economy

Unemployment and Inflation

Us Productivity and Growth

Aggregate Demand

Aggregate Supply

Fiscal Policy

Federal Budgets and Public Policy

Money and the Financial System

Monetary Theory and Policy

The Policy Debate: Active or Passive

International Trade

International Finance

Economic Development

Filters

The narrow definition of the money supply includes only currency held by the nonbanking public.