Question 1

Which definition of the money supply includes the most assets?

Accepted Answer

A)  currency 
B)  M1 
C)  M2 
D)  the monetary base 
A)  currency 
B)  M1 
C)  M2 
D)  the monetary base

Question 2

Monetary policy by the Fed is estimated to take _____ to have an impact on the economy.

Accepted Answer

A)  0 to 3 months 
B)  3 to 6 months 
C)  6 to 18 months 
D)  18 to 36 months 
A)  0 to 3 months 
B)  3 to 6 months 
C)  6 to 18 months 
D)  18 to 36 months

Question 3

What three measures of the money supply are discussed in this chapter and what does each measure include?

Accepted Answer

The three measures of the money supply a

Question 4

What are the three tools the Fed can use to change the money supply in the economy? Briefly explain how they can affect the money supply.

Accepted Answer

To increase (decrease) the money supply,

Question 5

An insolvent bank is one that:

Accepted Answer

A)  borrows in the market for federal funds. 
B)  borrows at the discount window. 
C)  has more liabilities than assets. 
D)  sells in the open market. 
A)  borrows in the market for federal funds. 
B)  borrows at the discount window. 
C)  has more liabilities than assets. 
D)  sells in the open market.

Question 6

We often think of the Fed as controlling the money supply. Explain how the Fed, in reality, controls only a small part of the money supply.

Accepted Answer

The Fed directly controls the monetary b

Question 7

Table: Money Supply Components $$\begin{array} { l l } 
\hline \text { Reserves held by banks at the Fed } & \$ 120 \text { billion } \
\text { Currency } & \$ 800 \text { billion } \
\text { Checkable deposits } & \$ 650 \text { billion } \
\text { Savings deposits } & \$ 375 \text { billion } \
\text { Small-time deposits } & \$ 957 \text { billion } \
\text { Money market mutual funds } & \$ 486 \text { billion } \
\hline
\end{array}$$ Refer to the table. According to the data in the table, the total amount of M1 equals:

Accepted Answer

A)  $920 billion. 
B)  $1,450 billion. 
C)  $3,268 billion. 
D)  $3,388 billion. 
A)  $920 billion. 
B)  $1,450 billion. 
C)  $3,268 billion. 
D)  $3,388 billion.

Question 8

If the value of a bank's liabilities is greater than its assets, there is a:

Accepted Answer

A)  solvency crisis. 
B)  liquidity crisis. 
C)  liability crisis. 
D)  profitability crisis. 
A)  solvency crisis. 
B)  liquidity crisis. 
C)  liability crisis. 
D)  profitability crisis.

Question 9

Which statement is correct?

Accepted Answer

A)  M1 is always larger than M2. 
B)  M2 is always larger than M1. 
C)  M1 is larger than M2 during recessions, while M2 is larger than M1 during expansions. 
D)  M2 is larger than M1 during recessions, while M1 is larger than M2 during expansions. 
A)  M1 is always larger than M2. 
B)  M2 is always larger than M1. 
C)  M1 is larger than M2 during recessions, while M2 is larger than M1 during expansions. 
D)  M2 is larger than M1 during recessions, while M1 is larger than M2 during expansions.

Question 10

The Federal Funds rate is the interest rate charged on a(n):

Accepted Answer

A)  low interest loan from the Federal Reserve to a bank. 
B)  loan from the Federal Reserve to a bank. 
C)  long-term loan from one bank to another. 
D)  overnight loan from one bank to another. 
A)  low interest loan from the Federal Reserve to a bank. 
B)  loan from the Federal Reserve to a bank. 
C)  long-term loan from one bank to another. 
D)  overnight loan from one bank to another.

Question 11

What is the purpose of the Fed's structure?

Accepted Answer

A)  to give the President of the United States as many tools as possible to regulate the economy 
B)  to make sure all states are given equal access to monetary policy decisions 
C)  to keep the private sector out of the monetary policy-making arena 
D)  to keep the power of the Fed dispersed 
A)  to give the President of the United States as many tools as possible to regulate the economy 
B)  to make sure all states are given equal access to monetary policy decisions 
C)  to keep the private sector out of the monetary policy-making arena 
D)  to keep the power of the Fed dispersed

Question 12

When the Fed conducts open market purchases, it:

Accepted Answer

A)  buys government securities. 
B)  sells government securities. 
C)  buys shares of corporations. 
D)  sells shares of corporations. 
A)  buys government securities. 
B)  sells government securities. 
C)  buys shares of corporations. 
D)  sells shares of corporations.

Question 13

Which asset would you classify as being most liquid?

Accepted Answer

A)  small-time deposits 
B)  small-cut diamonds 
C)  an oil painting by Claude Monet 
D)  money market mutual funds 
A)  small-time deposits 
B)  small-cut diamonds 
C)  an oil painting by Claude Monet 
D)  money market mutual funds

Question 14

If the average reserve ratio in the banking system is 25% and the Fed increases bank reserves by $20,000, then the change in the money supply will be equal to $100,000.

Accepted Answer

A) True 
 B)False

Question 15

Use the following to answer questions: Table: Statistics for a Small Economy $$\begin{array} { l c } 
\hline \text { Item } & \text { Value in dollars (\$) } \
\hline \text { Cash held by public } & 7 \text { million } \
\text { Small-time deposits } & 30 \text { million } \
\text { Money market mutual funds } & 18 \text { million } \
\text { Checkable deposits } & 36 \text { million } \
\text { Currency \& total reserves at the Fed } & 12 \text { million } \
\text { Large-time deposits } & 20 \text { million } \
\text { Demand deposits } & 14 \text { million } \
\hline
\end{array}$$
-(Table: Statistics for a Small Economy) Refer to the table. The table shows some statistics for a small economy. Using only the information provided, the monetary base amounts to:

Accepted Answer

A)  $149 million. 
B)  $71 million. 
C)  $19 million. 
D)  $12 million. 
A)  $149 million. 
B)  $71 million. 
C)  $19 million. 
D)  $12 million.

Question 16

The money multiplier (MM) is the:

Accepted Answer

A)  amount that the money supply expands with each dollar increase in reserves. 
B)  overnight lending rate from one major bank to another. 
C)  ratio of deposits to reserves. 
D)  ratio of reserves to deposits. 
A)  amount that the money supply expands with each dollar increase in reserves. 
B)  overnight lending rate from one major bank to another. 
C)  ratio of deposits to reserves. 
D)  ratio of reserves to deposits.

Question 17

When the Fed set up its Term Auction Facility in 2007-2008, its goal was to:

Accepted Answer

A)  inject a certain quantity of reserves into banks. 
B)  set the discount rate to a certain percentage. 
C)  tighten control on legal requirements on banks. 
D)  decrease bank reserves. 
A)  inject a certain quantity of reserves into banks. 
B)  set the discount rate to a certain percentage. 
C)  tighten control on legal requirements on banks. 
D)  decrease bank reserves.

Question 18

The Federal Reserve:

Accepted Answer

A)  clears all checks. 
B)  regulates the banking system. 
C)  prints all currency. 
D)  makes loans to individuals. 
A)  clears all checks. 
B)  regulates the banking system. 
C)  prints all currency. 
D)  makes loans to individuals.

Question 19

During the financial crisis of 2008, the Federal Reserve worked closely with the U.S. Treasury.

Accepted Answer

A) True 
 B)False

Question 20

For each depositor name on an account, the FDIC guarantees up to:

Accepted Answer

A)  $2,500. 
B)  $25,000. 
C)  $250,000. 
D)  $2,500,000. 
A)  $2,500. 
B)  $25,000. 
C)  $250,000. 
D)  $2,500,000.

Which definition of the money supply includes the most assets?

Monetary policy by the Fed is estimated to take _____ to have an impact on the economy.

What three measures of the money supply are discussed in this chapter and what does each measure include?

What are the three tools the Fed can use to change the money supply in the economy? Briefly explain how they can affect the money supply.

An insolvent bank is one that:

We often think of the Fed as controlling the money supply. Explain how the Fed, in reality, controls only a small part of the money supply.

If the value of a bank's liabilities is greater than its assets, there is a:

Which statement is correct?

The Federal Funds rate is the interest rate charged on a(n):

What is the purpose of the Fed's structure?

When the Fed conducts open market purchases, it:

Which asset would you classify as being most liquid?

If the average reserve ratio in the banking system is 25% and the Fed increases bank reserves by $20,000, then the change in the money supply will be equal to $100,000.

The money multiplier (MM) is the:

When the Fed set up its Term Auction Facility in 2007-2008, its goal was to:

The Federal Reserve:

During the financial crisis of 2008, the Federal Reserve worked closely with the U.S. Treasury.

For each depositor name on an account, the FDIC guarantees up to:

The Big Ideas

The Power of Trade and Comparative Advantage

Supply and Demand

Equilibrium: How Supply and Demand Determine Prices

Price Ceilings and Floors

GDP and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth, Capital Accumulation and the Economics of Ideas: Catching up Vs the Cutting Edge

Saving, Investment, and the Financial System

Stock Markets and Personal Finance

Unemployment and Labor Force Participation

Inflation and the Quantity Theory of Money

Business Fluctuations: Aggregate Demand and Supply

Transmission and Amplification Mechanisms

Monetary Policy

The Federal Budget: Taxes and Spending

Fiscal Policy

International Trade

International Finance

Political Economy and Public Choice

Filters

Exam 15: The Federal Reserve System and Open Market Operations

Which definition of the money supply includes the most assets?

Monetary policy by the Fed is estimated to take _____ to have an impact on the economy.

What three measures of the money supply are discussed in this chapter and what does each measure include?

What are the three tools the Fed can use to change the money supply in the economy? Briefly explain how they can affect the money supply.

An insolvent bank is one that:

We often think of the Fed as controlling the money supply. Explain how the Fed, in reality, controls only a small part of the money supply.

If the value of a bank's liabilities is greater than its assets, there is a:

Which statement is correct?

The Federal Funds rate is the interest rate charged on a(n):

What is the purpose of the Fed's structure?

When the Fed conducts open market purchases, it:

Which asset would you classify as being most liquid?

If the average reserve ratio in the banking system is 25% and the Fed increases bank reserves by $20,000, then the change in the money supply will be equal to $100,000.

The money multiplier (MM) is the:

When the Fed set up its Term Auction Facility in 2007-2008, its goal was to:

The Federal Reserve:

During the financial crisis of 2008, the Federal Reserve worked closely with the U.S. Treasury.

For each depositor name on an account, the FDIC guarantees up to:

The Big Ideas

The Power of Trade and Comparative Advantage

Supply and Demand

Equilibrium: How Supply and Demand Determine Prices

Price Ceilings and Floors

GDP and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth, Capital Accumulation and the Economics of Ideas: Catching up Vs the Cutting Edge

Saving, Investment, and the Financial System

Stock Markets and Personal Finance

Unemployment and Labor Force Participation

Inflation and the Quantity Theory of Money

Business Fluctuations: Aggregate Demand and Supply

Transmission and Amplification Mechanisms

Monetary Policy

The Federal Budget: Taxes and Spending

Fiscal Policy

International Trade

International Finance

Political Economy and Public Choice

Filters