Question 1

Gresham's Law

Accepted Answer

A) deals with the theory of regulatory forces in the economy. 
B) is the tendency for good money to drive bad money out of circulation. 
C) is the tendency for bad money to drive good money out of circulation. 
D) was passed in 1913, as part of the Federal Reserve Act. 
A) deals with the theory of regulatory forces in the economy. 
B) is the tendency for good money to drive bad money out of circulation. 
C) is the tendency for bad money to drive good money out of circulation. 
D) was passed in 1913, as part of the Federal Reserve Act.

Question 2

Decreasing the reserve requirement ratio is

Accepted Answer

A) a contractionary policy because it lowers the amount of total reserves in the banking system. 
B) a contractionary policy because it lowers the amount of excess reserves in the banking system. 
C) an expansionary policy because it raises the amount of excess reserves in the banking system. 
D) an expansionary policy because it raises the amount of required reserves in the banking system. 
A) a contractionary policy because it lowers the amount of total reserves in the banking system. 
B) a contractionary policy because it lowers the amount of excess reserves in the banking system. 
C) an expansionary policy because it raises the amount of excess reserves in the banking system. 
D) an expansionary policy because it raises the amount of required reserves in the banking system.

Question 3

Money is any item that is widely used and freely accepted as payment for goods and services.

Accepted Answer

A) True 
 B)False

Question 4

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 5

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

Accepted Answer

A) True 
 B)False

Question 6

Which of the following describes the store of value function of money?

Accepted Answer

A) noting that Audible.com sells downloadable audio books for $10 per book 
B) making a monthly payment toward your car loan 
C) paying $30 for a haircut 
D) putting away $50 each month into your savings account 
A) noting that Audible.com sells downloadable audio books for $10 per book 
B) making a monthly payment toward your car loan 
C) paying $30 for a haircut 
D) putting away $50 each month into your savings account

Question 7

Increasing the reserve requirement ratio is

Accepted Answer

A) a contractionary policy because it lowers the amount of total reserves in the banking system. 
B) a contractionary policy because it lowers the amount of excess reserves in the banking system. 
C) an expansionary policy because it raises the amount of excess reserves in the banking system. 
D) an expansionary policy because it raises the amount of required reserves in the banking system. 
A) a contractionary policy because it lowers the amount of total reserves in the banking system. 
B) a contractionary policy because it lowers the amount of excess reserves in the banking system. 
C) an expansionary policy because it raises the amount of excess reserves in the banking system. 
D) an expansionary policy because it raises the amount of required reserves in the banking system.

Question 8

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.
-Refer to Scenario 1.Which of the following happens when Sheila Jones deposits the proceeds from the sale of her bond to the Fed into her checking account at the Perez Bank?

Accepted Answer

A) Perez Bank's checkable deposits increases by $100,000 and its reserves increases by $90,000. 
B) Perez Bank's checkable deposits and reserves increase by $100,000 each. 
C) Perez Bank's checkable deposits increases by $90,000 and its reserves increases by $100,000. 
D) Perez Bank's checkable deposits and reserves increase by $90,000 each. 
A) Perez Bank's checkable deposits increases by $100,000 and its reserves increases by $90,000. 
B) Perez Bank's checkable deposits and reserves increase by $100,000 each. 
C) Perez Bank's checkable deposits increases by $90,000 and its reserves increases by $100,000. 
D) Perez Bank's checkable deposits and reserves increase by $90,000 each.

Question 9

The value of the simple money multiplier tends to be greater when individuals hold less cash.

Accepted Answer

A) True 
 B)False

Question 10

Any item that serves as a medium of exchange is called

Accepted Answer

A) gold. 
B) capital. 
C) silver. 
D) money. 
A) gold. 
B) capital. 
C) silver. 
D) money.

Question 11

Gresham's Law is the tendency for low-quality money to drive high-quality money out of circulation.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following illustrates the store-of-value 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 30,000 German marks 
C) agreeing to repay a bank $400 a month for the next 48 months for a loan to buy a new Volkswagen 
D) keeping $20,000 in cash in your mattress instead of buying a new Volkswagen 
A) writing a check to buy a new Volkswagen 
B) noting that the price of a $20,000 Volkswagen is 30,000 German marks 
C) agreeing to repay a bank $400 a month for the next 48 months for a loan to buy a new Volkswagen 
D) keeping $20,000 in cash in your mattress instead of buying a new Volkswagen

Question 13

Which of the following is an example of the public's liabilities?

Accepted Answer

A) cash held by the public 
B) their mortgage loans 
C) checkable deposits 
D) their holdings of U.S.government bonds 
A) cash held by the public 
B) their mortgage loans 
C) checkable deposits 
D) their holdings of U.S.government bonds

Question 14

Assume that banks do not hold excess reserves, all deposits remain in the banking system and that the required reserve ratio is 20%.If one bank obtains excess reserves of $10,000, then the maximum increase in money supply is

Accepted Answer

A) $10,000. 
B) $20,000. 
C) $40,000. 
D) $50,000. 
A) $10,000. 
B) $20,000. 
C) $40,000. 
D) $50,000.

Question 15

The Federal Reserve System is made up of twelve regional banks owned by

Accepted Answer

A) commercial banks in the respective districts that have chosen to be members of the Fed. 
B) Wall Street investors. 
C) the Board of Governors appointed by the President. 
D) the U.S.Treasury. 
A) commercial banks in the respective districts that have chosen to be members of the Fed. 
B) Wall Street investors. 
C) the Board of Governors appointed by the President. 
D) the U.S.Treasury.

Question 16

Suppose the required reserve ratio is 10%.Mr.Normal uses his ATM card to withdraw $1,000 from this checking account in California National Bank.This action has

Accepted Answer

A) increased the M1 measure of money supply by $1,000. 
B) reduced the bank's required reserves by $1,000. 
C) increased the M2 measure of money supply by $1,000. 
D) not changed the MI or M2 measures of money supply. 
A) increased the M1 measure of money supply by $1,000. 
B) reduced the bank's required reserves by $1,000. 
C) increased the M2 measure of money supply by $1,000. 
D) not changed the MI or M2 measures of money supply.

Question 17

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 18

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 19

Why might monetary policy authorities be concerned that since the early 1970s, non-bank financial intermediaries account for a growing share of the economy's financial assets?

Accepted Answer

A) Monetary policy authorities fear that this situation might erode the value of the U.S.dollar in foreign exchange markets. 
B) Monetary policy authorities are concerned that this situation might promote income inequality since high income individuals are more likely to use the services of non-bank financial intermediaries, compared to low-income individuals. 
C) Monetary policy authorities fear that this situation might lessen their ability to control money supply because non-bank financial intermediaries are not as heavily regulated as banks. 
D) It will be more difficult for monetary policy authorities to monitor those assets that are most closely related to the level of economic activity. 
A) Monetary policy authorities fear that this situation might erode the value of the U.S.dollar in foreign exchange markets. 
B) Monetary policy authorities are concerned that this situation might promote income inequality since high income individuals are more likely to use the services of non-bank financial intermediaries, compared to low-income individuals. 
C) Monetary policy authorities fear that this situation might lessen their ability to control money supply because non-bank financial intermediaries are not as heavily regulated as banks. 
D) It will be more difficult for monetary policy authorities to monitor those assets that are most closely related to the level of economic activity.

Question 20

When the Fed sells government bonds it ____ reserves and ______ the money supply.

Accepted Answer

A) increases; increases 
B) decreases; increases 
C) decreases; decreases 
D) increases; decreases 
A) increases; increases 
B) decreases; increases 
C) decreases; decreases 
D) increases; decreases

Exam 24: The Nature and Creation of Money

Gresham's Law

Decreasing the reserve requirement ratio is

Money is any item that is widely used and freely accepted as payment for goods and services.

The Board of Governors of the Federal Reserve System is

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

Which of the following describes the store of value function of money?

Increasing the reserve requirement ratio is

The value of the simple money multiplier tends to be greater when individuals hold less cash.

Any item that serves as a medium of exchange is called

Gresham's Law is the tendency for low-quality money to drive high-quality money out of circulation.

Which of the following illustrates the store-of-value function of money?

Which of the following is an example of the public's liabilities?

Assume that banks do not hold excess reserves, all deposits remain in the banking system and that the required reserve ratio is 20%.If one bank obtains excess reserves of $10,000, then the maximum increase in money supply is

The Federal Reserve System is made up of twelve regional banks owned by

Suppose the required reserve ratio is 10%.Mr.Normal uses his ATM card to withdraw $1,000 from this checking account in California National Bank.This action has

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

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.

Why might monetary policy authorities be concerned that since the early 1970s, non-bank financial intermediaries account for a growing share of the economy's financial assets?

When the Fed sells government bonds it ____ reserves and ______ the money supply.

Economics: the Study of Choice

Confronting Scarcity: Choices in Production

Demand and Supply

Applications of Demand and Supply

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Monopoly

The World of Imperfect Competition

Wages and Employment in Perfect Competition

Interest Rates and the Markets for Capital and Natural Resources

Imperfectly Competitive Markets for Factors of Production

Public Finance and Public Choice

Inflation and Unemployment

International Trade

The Economics of the Environment

Inequality, Poverty, and Discrimination

Macroeconomics: the Big Picture

Measuring Total Income and Output

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

Macro Inflation and Unemployment

Macro a Brief History of Macroeconomic Thought and Policy

Economic Development

Socialist Economies in Transition

Filters

When the Fed sells government bonds it reserves and __ the money supply.