Question 1

For a given level of reserves, a decrease in the reserve requirement ratio will

Accepted Answer

A) decrease legal reserves and decrease the money supply. 
B) increase legal reserves and decrease excess reserves. 
C) decrease legal reserves and decrease excess reserves. 
D) increase excess reserves and increase the money supply. 
A) decrease legal reserves and decrease the money supply. 
B) increase legal reserves and decrease excess reserves. 
C) decrease legal reserves and decrease excess reserves. 
D) increase excess reserves and increase the money supply.

Question 2

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 3

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 4

The Federal Reserve System
I.is the central bank for the United States.
II.is a United States government owned bank.
III.is a branch of the Treasury of the United States.

Accepted Answer

A) I only 
B) I and II only 
C) I and III only 
D) I, II, and III 
A) I only 
B) I and II only 
C) I and III only 
D) I, II, and III

Question 5

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.Once the full impact of the Fed's open market purchase and Sheila's deposit worked its way through the banking system, what is the maximum change on the money supply as a result of these two events?

Accepted Answer

A) Money supply falls by $100,000. 
B) Money supply falls by $1,000,000. 
C) Money supply rises by $10,000. 
D) Money supply rises by $1,000,000. 
A) Money supply falls by $100,000. 
B) Money supply falls by $1,000,000. 
C) Money supply rises by $10,000. 
D) Money supply rises by $1,000,000.

Question 6

The M1 money supply includes all currency in circulation, checkable deposits, and traveler's checks.

Accepted Answer

A) True 
 B)False

Question 7

If the reserve ratio is 10%, and banks do not hold excess reserves, when the Fed purchases $10 million of government bonds, bank reserves

Accepted Answer

A) increase by $10 million and the money supply could eventually increase by $10 million. 
B) decrease by $10 million and the money supply could eventually decrease by $100 million. 
C) increase by $10 million and the money supply could eventually increase by $100 million. 
D) decrease by $10 million and the money supply could eventually decrease by $10 million 
A) increase by $10 million and the money supply could eventually increase by $10 million. 
B) decrease by $10 million and the money supply could eventually decrease by $100 million. 
C) increase by $10 million and the money supply could eventually increase by $100 million. 
D) decrease by $10 million and the money supply could eventually decrease by $10 million

Question 8

Which of the following is an example of a bank's liabilities?

Accepted Answer

A) its reserves 
B) its loans 
C) checkable deposits 
D) its holdings of U.S.government bonds 
A) its reserves 
B) its loans 
C) checkable deposits 
D) its holdings of U.S.government bonds

Question 9

When the Federal Reserve conducts open market transactions, it

Accepted Answer

A) buys or sells corporate bonds in the bond market. 
B) issues government bonds to raise funds for the government. 
C) makes credit available to financial institutions in crises. 
D) buys or sells previously issued government bonds. 
A) buys or sells corporate bonds in the bond market. 
B) issues government bonds to raise funds for the government. 
C) makes credit available to financial institutions in crises. 
D) buys or sells previously issued government bonds.

Question 10

The Federal Reserve System was created in order to provide a constant money supply for the economy.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is not an example of a financial intermediary?

Accepted Answer

A) a pension fund 
B) an insurance company 
C) a commercial bank 
D) the New York Stock Exchange 
A) a pension fund 
B) an insurance company 
C) a commercial bank 
D) the New York Stock Exchange

Question 12

A financial intermediary is an institution that collects funds from lenders and distributes these funds to borrowers.

Accepted Answer

A) True 
 B)False

Question 13

Suppose the Fed sells $1,000 of government securities to Commercial Banks.Which pair of the T-accounts below shows this transaction?

Accepted Answer

A) $$\begin{array} { | c c | l c l |} 
\hline  { \text { Federal Reserve } } && { \text { Commercial Banks } } \
\hline \text { Assets } & \text { Liabilities } & \text { Assets } &  { \text { Liabilities } } \
\text { Reserves }&-1,000 & \text { Reserves }&-1,000 \
\text { Securities }&-1,000 & \text { Securities }&+1,000 \
\hline
\end{array}$$ 
B) $$\begin{array} { | c c | l c c | } 
\hline{ \text { Federal Reserve } } &&{ \text { Commencial Banks } } \
\hline \text { Assets } & \text { Liabilities } & \text { Assets } & & \text { Liabilities } \
\hline \text { Securities } + 1,000 & \text { Commercial Banks' } & \text { Reserves } & - 1,000 & \text { Securities } + 1,000 \
& \text { Reserves } + 1,000 & & & \
\hline
\end{array}$$ 
C) $$\begin{array} { | c c | l c | } 
\hline  { \text { Federal Reserve } } &&{ \text { Commercial Banks } } \
\hline \text { Assets } & \text { Liabilities } & \text { Assets } & \text { Liabilities } \
\hline \text { Securities } - 1,000 & \text { Commercial Banks' } & \text { Government } & \text { Checkable } \
& \text { Reserves } - 1,000 & \text { Securities } + 1,000 & \text { Deposits } + 1,000 \
\hline
\end{array}$$ 
D) $$\begin{array} { | c c | l c c | } 
\hline { \text { Federal Reserve } } &&{ \text { Commercial Banks } } \
\hline \text { Assets } & \text { Liabilities } & \text { Assets } & \text { Liabilities } \
\hline \text { Securities } - 1,000 & \text { Commercial Banks' } & \text { Reserves } & - 1,000 & \
 &\text { Reserves } - 1,000 & \text { Securities } &+ 1,000  \
\hline
\end{array}$$ 
A) $$\begin{array} { | c c | l c l |} 
\hline  { \text { Federal Reserve } } && { \text { Commercial Banks } } \
\hline \text { Assets } & \text { Liabilities } & \text { Assets } &  { \text { Liabilities } } \
\text { Reserves }&-1,000 & \text { Reserves }&-1,000 \
\text { Securities }&-1,000 & \text { Securities }&+1,000 \
\hline
\end{array}$$ 
B) $$\begin{array} { | c c | l c c | } 
\hline{ \text { Federal Reserve } } &&{ \text { Commencial Banks } } \
\hline \text { Assets } & \text { Liabilities } & \text { Assets } & & \text { Liabilities } \
\hline \text { Securities } + 1,000 & \text { Commercial Banks' } & \text { Reserves } & - 1,000 & \text { Securities } + 1,000 \
& \text { Reserves } + 1,000 & & & \
\hline
\end{array}$$ 
C) $$\begin{array} { | c c | l c | } 
\hline  { \text { Federal Reserve } } &&{ \text { Commercial Banks } } \
\hline \text { Assets } & \text { Liabilities } & \text { Assets } & \text { Liabilities } \
\hline \text { Securities } - 1,000 & \text { Commercial Banks' } & \text { Government } & \text { Checkable } \
& \text { Reserves } - 1,000 & \text { Securities } + 1,000 & \text { Deposits } + 1,000 \
\hline
\end{array}$$ 
D) $$\begin{array} { | c c | l c c | } 
\hline { \text { Federal Reserve } } &&{ \text { Commercial Banks } } \
\hline \text { Assets } & \text { Liabilities } & \text { Assets } & \text { Liabilities } \
\hline \text { Securities } - 1,000 & \text { Commercial Banks' } & \text { Reserves } & - 1,000 & \
 &\text { Reserves } - 1,000 & \text { Securities } &+ 1,000  \
\hline
\end{array}$$

Question 14

What is the value of the deposit multiplier in a 100-percent reserve banking system?

Accepted Answer

A) 0. 
B) 1 
C) a value between 0 and 1 
D) a value greater than 1 
A) 0. 
B) 1 
C) a value between 0 and 1 
D) a value greater than 1

Question 15

Inmates at the federal penitentiary at Lompoc, California, accepted packages of mackerel in exchange for goods and services.What function do these packages of mackerel perform?

Accepted Answer

A) They function as a store of value. 
B) They function as a medium of exchange. 
C) They function as a unit of account. 
D) They function as a factor of production. 
A) They function as a store of value. 
B) They function as a medium of exchange. 
C) They function as a unit of account. 
D) They function as a factor of production.

Question 16

Excess reserves plus total reserves equal required reserves.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements is false about M1 and M2?

Accepted Answer

A) M2 is a broader measure of the money supply than M1. 
B) M2 contains assets that are less liquid than those in M1. 
C) All the assets included in M1 are also included in M2. 
D) All the assets included in M2 are also included in M1. 
A) M2 is a broader measure of the money supply than M1. 
B) M2 contains assets that are less liquid than those in M1. 
C) All the assets included in M1 are also included in M2. 
D) All the assets included in M2 are also included in M1.

Question 18

You spend $20 to buy a used textbook at the college bookstore.What function does money perform here?

Accepted Answer

A) medium of exchange 
B) store of value 
C) unit of account 
D) standard of deferred payment 
A) medium of exchange 
B) store of value 
C) unit of account 
D) standard of deferred payment

Question 19

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 20

Which of the following equations is correct?

Accepted Answer

A) assets = liabilities − net worth 
B) assets = liabilities + net worth 
C) liabilities = assets + net worth 
D) net worth = liabilities + assets 
A) assets = liabilities − net worth 
B) assets = liabilities + net worth 
C) liabilities = assets + net worth 
D) net worth = liabilities + assets

Exam 24: The Nature and Creation of Money

For a given level of reserves, a decrease in the reserve requirement ratio will

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?

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?

The Federal Reserve System I.is the central bank for the United States. II.is a United States government owned bank. III.is a branch of the Treasury of the United States.

The M1 money supply includes all currency in circulation, checkable deposits, and traveler's checks.

If the reserve ratio is 10%, and banks do not hold excess reserves, when the Fed purchases $10 million of government bonds, bank reserves

Which of the following is an example of a bank's liabilities?

When the Federal Reserve conducts open market transactions, it

The Federal Reserve System was created in order to provide a constant money supply for the economy.

Which of the following is not an example of a financial intermediary?

A financial intermediary is an institution that collects funds from lenders and distributes these funds to borrowers.

Suppose the Fed sells $1,000 of government securities to Commercial Banks.Which pair of the T-accounts below shows this transaction?

What is the value of the deposit multiplier in a 100-percent reserve banking system?

Inmates at the federal penitentiary at Lompoc, California, accepted packages of mackerel in exchange for goods and services.What function do these packages of mackerel perform?

Excess reserves plus total reserves equal required reserves.

Which of the following statements is false about M1 and M2?

You spend $20 to buy a used textbook at the college bookstore.What function does money perform here?

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

Which of the following equations is correct?

Economics: the Study of Choice

Confronting Scarcity: Choices in Production

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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

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Inequality, Poverty, and Discrimination

Macroeconomics: the Big Picture

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Financial Markets and the Economy

Monetary Policy and the Fed

Government and Fiscal Policy

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Macro a Brief History of Macroeconomic Thought and Policy

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