Question 1

The Term Auction Facility was set up in response to the financial crisis of 2007-2008.

Accepted Answer

A) True 
 B)False  True

Question 2

Why does so much U.S. currency circulate in other countries?

Accepted Answer

A)  Several countries use the U.S. dollar as their official currency. 
B)  The U.S. dollar is frequently used in drug trafficking. 
C)  Dollars hold their value in unstable countries. 
D)  Each of these answers is correct. 
A)  Several countries use the U.S. dollar as their official currency. 
B)  The U.S. dollar is frequently used in drug trafficking. 
C)  Dollars hold their value in unstable countries. 
D)  Each of these answers is correct. D

Question 3

Which of the following is most liquid?

Accepted Answer

A)  a mortgage loan 
B)  checkable deposits in a bank 
C)  a new truck 
D)  a diamond 
A)  a mortgage loan 
B)  checkable deposits in a bank 
C)  a new truck 
D)  a diamond B

Question 4

What kind of checks and balances exist on the Federal Reserve System in the United States?

Accepted Answer

No single administration appoints all th

Question 5

M2 refers to

Accepted Answer

A)  currency. 
B)  currency plus total reserves held at the Fed. 
C)  currency plus checkable deposits. 
D)  currency, checkable deposits, savings deposits, money market mutual funds, and small-time deposits. 
A)  currency. 
B)  currency plus total reserves held at the Fed. 
C)  currency plus checkable deposits. 
D)  currency, checkable deposits, savings deposits, money market mutual funds, and small-time deposits.

Question 6

An increase in the growth rate of the money supply raises both real growth and inflation in the long run.

Accepted Answer

A) True 
 B)False

Question 7

When banks borrow directly from the Fed, the interest rate on those loans is the

Accepted Answer

A)  prime rate. 
B)  discount rate. 
C)  Federal Funds rate. 
D)  required reserve rate. 
A)  prime rate. 
B)  discount rate. 
C)  Federal Funds rate. 
D)  required reserve rate.

Question 8

Reference: Ref 15-1 (Table: Statistics for a Small Economy) 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 9

Which of the following is TRUE of the structure of the Fed? I. All seven members of the Board of Governors are appointed by the President. II. The Fed is an agency of the federal government. III. The Secretary of the Treasury chairs the Federal Open Market Committee.

Accepted Answer

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

Question 10

Banks can borrow money from what sources? I. other banks II. the Fed's discount window II. ATMs

Accepted Answer

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

Question 11

When a person withdraws money from a savings account, M2 decreases but M1 increases.

Accepted Answer

A) True 
 B)False

Question 12

The money multiplier equals

Accepted Answer

A)  the amount of money supply divided by the amount of reserves. 
B)  one divided by the difference between the reserve ratio and the required reserve ratio. 
C)  one divided by the reserve ratio. 
D)  one divided by the discount rate. 
A)  the amount of money supply divided by the amount of reserves. 
B)  one divided by the difference between the reserve ratio and the required reserve ratio. 
C)  one divided by the reserve ratio. 
D)  one divided by the discount rate.

Question 13

Money market mutual funds are more liquid than savings deposits.

Accepted Answer

A) True 
 B)False

Question 14

How are credit cards related to the money supply?

Accepted Answer

Credit cards themselves are not money be

Question 15

Suppose the reserve ratio is 20 percent for all banks. If the Fed increases bank reserves by $200, then the money supply will

Accepted Answer

A)  decrease by $400. 
B)  increase by $400. 
C)  decrease by $1,000. 
D)  increase by $1,000. 
A)  decrease by $400. 
B)  increase by $400. 
C)  decrease by $1,000. 
D)  increase by $1,000.

Question 16

If the Fed sells $200 million in government bonds, the total money supply will

Accepted Answer

A)  decrease by more than $200 million. 
B)  decrease by less than $200 million but more than $0 million. 
C)  decrease by exactly $200 million. 
D)  not change. 
A)  decrease by more than $200 million. 
B)  decrease by less than $200 million but more than $0 million. 
C)  decrease by exactly $200 million. 
D)  not change.

Question 17

Checkable deposits are deposits on which the owner may write checks.

Accepted Answer

A) True 
 B)False

Question 18

The world's largest bank customer is

Accepted Answer

A)  the Federal Reserve. 
B)  the U.S. Treasury. 
C)  the FDIC. 
D)  the SEC. 
A)  the Federal Reserve. 
B)  the U.S. Treasury. 
C)  the FDIC. 
D)  the SEC.

Question 19

When the Federal Reserve buys bonds, the supply curve for bonds

Accepted Answer

A)  does not shift. 
B)  shifts outward. 
C)  shifts inward. 
D)  sometimes shifts inward and sometimes shifts outward. 
A)  does not shift. 
B)  shifts outward. 
C)  shifts inward. 
D)  sometimes shifts inward and sometimes shifts outward.

Question 20

The Federal Reserve is the

Accepted Answer

A)  federal government's bank. 
B)  U.S. central bank. 
C)  banker's bank in the United States 
D)  Each of these answers is correct. 
A)  federal government's bank. 
B)  U.S. central bank. 
C)  banker's bank in the United States 
D)  Each of these answers is correct.

Exam 32: Inflation and the Quantity Theory of Money

The Term Auction Facility was set up in response to the financial crisis of 2007-2008.

Why does so much U.S. currency circulate in other countries?

Which of the following is most liquid?

What kind of checks and balances exist on the Federal Reserve System in the United States?

M2 refers to

An increase in the growth rate of the money supply raises both real growth and inflation in the long run.

When banks borrow directly from the Fed, the interest rate on those loans is the

Reference: Ref 15-1 (Table: Statistics for a Small Economy) The table shows some statistics for a small economy. Using only the information provided, the monetary base amounts to

Which of the following is TRUE of the structure of the Fed? I. All seven members of the Board of Governors are appointed by the President. II. The Fed is an agency of the federal government. III. The Secretary of the Treasury chairs the Federal Open Market Committee.

Banks can borrow money from what sources? I. other banks II. the Fed's discount window II. ATMs

When a person withdraws money from a savings account, M2 decreases but M1 increases.

The money multiplier equals

Money market mutual funds are more liquid than savings deposits.

How are credit cards related to the money supply?

Suppose the reserve ratio is 20 percent for all banks. If the Fed increases bank reserves by $200, then the money supply will

If the Fed sells $200 million in government bonds, the total money supply will

Checkable deposits are deposits on which the owner may write checks.

The world's largest bank customer is

When the Federal Reserve buys bonds, the supply curve for bonds

The Federal Reserve is the

The Big Ideas in Economics

The Power of Trade and Comparative Advantage

Business Fluctuations: Aggregate Demand and Supply

Equilibrium: How Supply and Demand Determine Prices

Elasticity and Its Applications

Taxes and Subsidies

The Price System: Signals, Speculation, and Prediction

Price Ceilings and Floors

International Trade

Externalities: When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Price Discrimination and Pricing Strategy

Oligopoly and Game Theory

Competing for Monopoly: the Economics of Network Goods

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Asymmetric Information: Moral Hazard and Adverse Selection

Consumer Choice

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

Supply and Demand

Unemployment and Labor Force Participation

Transmission and Amplification Mechanisms

The Federal Reserve System and Open Market Operations

Monetary Policy

The Federal Budget: Taxes and Spending

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