Question 1

An increase in the banking system's willingness to lend will cause the money multiplier to

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain unchanged. 
D)  become difficult to predict. 
A)  increase. 
B)  decrease. 
C)  remain unchanged. 
D)  become difficult to predict.

Question 2

What is the reserve requirement?

Accepted Answer

A)  the legal minimal percentage of deposits required to be held in reserve by banks 
B)  the percentage of reserves that is held only on amounts over $43.9 million 
C)  the amount of reserves that the Fed wants to inject at a given time 
D)  None of the answers is correct. 
A)  the legal minimal percentage of deposits required to be held in reserve by banks 
B)  the percentage of reserves that is held only on amounts over $43.9 million 
C)  the amount of reserves that the Fed wants to inject at a given time 
D)  None of the answers is correct.

Question 3

Reference: Ref 15-1 (Table: Statistics for a Small Economy) The table shows some statistics for a small economy. Using only the information provided, M1 in this country amounts to

Accepted Answer

A)  $69 million. 
B)  $57 million. 
C)  $43 million. 
D)  $50 million. 
A)  $69 million. 
B)  $57 million. 
C)  $43 million. 
D)  $50 million.

Question 4

If the total liabilities of Bank A are less than its total assets but its short-term liabilities are greater than its short-term assets, Bank A is

Accepted Answer

A)  both liquid and solvent. 
B)  both illiquid and insolvent. 
C)  liquid but insolvent. 
D)  illiquid but solvent. 
A)  both liquid and solvent. 
B)  both illiquid and insolvent. 
C)  liquid but insolvent. 
D)  illiquid but solvent.

Question 5

Holding reserves is costly for banks because

Accepted Answer

A)  it forces banks to pay for ATMs. 
B)  it leads to the risk of bank robberies. 
C)  it leads to fewer profits. 
D)  the Fed charges banks interest on required reserves. 
A)  it forces banks to pay for ATMs. 
B)  it leads to the risk of bank robberies. 
C)  it leads to fewer profits. 
D)  the Fed charges banks interest on required reserves.

Question 6

The main difference between M1 and M2 is that

Accepted Answer

A)  M1 includes some less liquid assets in addition to the assets in M2. 
B)  M1 includes more liquid assets in addition to the assets in M2. 
C)  M2 includes some less liquid assets in addition to the assets in M1. 
D)  M2 includes more liquid assets in addition to the assets in M1. 
A)  M1 includes some less liquid assets in addition to the assets in M2. 
B)  M1 includes more liquid assets in addition to the assets in M2. 
C)  M2 includes some less liquid assets in addition to the assets in M1. 
D)  M2 includes more liquid assets in addition to the assets in M1.

Question 7

The Federal Reserve is the

Accepted Answer

A)  government's bank. 
B)  regulator of bank safety. 
C)  central bank for the United States. 
D)  Each of these answers is correct. 
A)  government's bank. 
B)  regulator of bank safety. 
C)  central bank for the United States. 
D)  Each of these answers is correct.

Question 8

Figure: Monetary Policy and Aggregate Demand   Reference: Ref 15-4 (Figure: Monetary Policy and Aggregate Demand) Using the figure, begin at Point a in this economy. Now suppose that due to a recessionary atmosphere, the Fed decides to increase spending growth by 2 percent. What would you expect would happen in the short run and why?

Accepted Answer

AD would shift to the right be

Question 9

The amount by which the money supply expands with each additional dollar in reserves is the

Accepted Answer

A)  reserve ratio. 
B)  discount rate. 
C)  fractional reserve. 
D)  money multiplier. 
A)  reserve ratio. 
B)  discount rate. 
C)  fractional reserve. 
D)  money multiplier.

Question 10

The Federal Reserve I. clears all checks. II. makes monetary policy. III. supervises the banking sector.

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 11

The discount 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 12

Which of the following assets would you classify as being most liquid?

Accepted Answer

A)  demand deposits 
B)  small-time deposits 
C)  a home 
D)  gold bullion 
A)  demand deposits 
B)  small-time deposits 
C)  a home 
D)  gold bullion

Question 13

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.

Question 14

When the U.S. Treasury borrows, the borrowing is managed by the

Accepted Answer

A)  Treasury itself. 
B)  Senate Banking Committee. 
C)  Comptroller of the Currency. 
D)  Federal Reserve. 
A)  Treasury itself. 
B)  Senate Banking Committee. 
C)  Comptroller of the Currency. 
D)  Federal Reserve.

Question 15

Describe the structure of the Federal Reserve System and its relationship to the federal government.

Accepted Answer

The Federal Reserve System is the Centra

Question 16

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 17

Large private banks keep their own accounts at the Federal Reserve.

Accepted Answer

A) True 
 B)False

Question 18

The reserve ratio is the ratio of bank reserves to

Accepted Answer

A)  currency demand. 
B)  bank loans. 
C)  bank deposits. 
D)  the monetary base. 
A)  currency demand. 
B)  bank loans. 
C)  bank deposits. 
D)  the monetary base.

Question 19

In a fractional reserve banking system, banks hold only a fraction of their

Accepted Answer

A)  loans as reserves. 
B)  deposits as reserves. 
C)  currency as reserves. 
D)  monetary base. 
A)  loans as reserves. 
B)  deposits as reserves. 
C)  currency as reserves. 
D)  monetary base.

Question 20

The U.S. money supplies, M1 and M2, include I. currency in circulation. II. checkable deposits. III. bond mutual funds.

Accepted Answer

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

Exam 32: Inflation and the Quantity Theory of Money

An increase in the banking system's willingness to lend will cause the money multiplier to

What is the reserve requirement?

Reference: Ref 15-1 (Table: Statistics for a Small Economy) The table shows some statistics for a small economy. Using only the information provided, M1 in this country amounts to

If the total liabilities of Bank A are less than its total assets but its short-term liabilities are greater than its short-term assets, Bank A is

Holding reserves is costly for banks because

The main difference between M1 and M2 is that

The Federal Reserve is the

The amount by which the money supply expands with each additional dollar in reserves is the

The Federal Reserve I. clears all checks. II. makes monetary policy. III. supervises the banking sector.

The discount rate is the interest rate charged on a(n)

Which of the following assets would you classify as being most liquid?

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

When the U.S. Treasury borrows, the borrowing is managed by the

Describe the structure of the Federal Reserve System and its relationship to the federal government.

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

Large private banks keep their own accounts at the Federal Reserve.

The reserve ratio is the ratio of bank reserves to

In a fractional reserve banking system, banks hold only a fraction of their

The U.S. money supplies, M1 and M2, include I. currency in circulation. II. checkable deposits. III. bond mutual funds.

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

Filters