Question 1

Which of the following are the least liquid assets?

Accepted Answer

A)  currencies 
B)  checkable deposits 
C)  small-time deposits 
D)  savings deposits 
A)  currencies 
B)  checkable deposits 
C)  small-time deposits 
D)  savings deposits

Question 2

A bank will become illiquid if

Accepted Answer

A)  it has short-term liabilities that exceed its short-term assets. 
B)  it is insolvent. 
C)  it is solvent and liquid. 
D)  there is a financial crisis like the one of 2008. 
A)  it has short-term liabilities that exceed its short-term assets. 
B)  it is insolvent. 
C)  it is solvent and liquid. 
D)  there is a financial crisis like the one of 2008.

Question 3

M1 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 4

Bank notes are issued by

Accepted Answer

A)  the leading financial institutions of the United States. 
B)  investment houses and banks. 
C)  the Federal Reserve only. 
D)  private banks and the Federal Reserve. 
A)  the leading financial institutions of the United States. 
B)  investment houses and banks. 
C)  the Federal Reserve only. 
D)  private banks and the Federal Reserve.

Question 5

The Federal Reserve is one of the least independent agencies in the U.S. government.

Accepted Answer

A) True 
 B)False

Question 6

For a given money multiplier, a decrease in the banking system's reserves will cause the money supply to

Accepted Answer

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

Question 7

The monetary base is larger than M2.

Accepted Answer

A) True 
 B)False

Question 8

An increase in the reserve ratio leaves banks with a need and desire to

Accepted Answer

A)  become more liquid. 
B)  make more loans. 
C)  purchase real estate. 
D)  borrow in the federal funds market. 
A)  become more liquid. 
B)  make more loans. 
C)  purchase real estate. 
D)  borrow in the federal funds market.

Question 9

M1 is equal to currency plus

Accepted Answer

A)  checkable deposits. 
B)  total reserves held at the Federal Reserve. 
C)  savings deposits. 
D)  small-time deposits. 
A)  checkable deposits. 
B)  total reserves held at the Federal Reserve. 
C)  savings deposits. 
D)  small-time deposits.

Question 10

The Fed loaned money to J. P. Morgan and AIG because it was concerned about

Accepted Answer

A)  moral hazard on the part of these banks. 
B)  systemic risk, should these banks fail. 
C)  the liquidity of these banks. 
D)  the market demands being placed on these banks. 
A)  moral hazard on the part of these banks. 
B)  systemic risk, should these banks fail. 
C)  the liquidity of these banks. 
D)  the market demands being placed on these banks.

Question 11

Who is Ben Bernanke?

Accepted Answer

A)  the Secretary of the U.S. Treasury 
B)  the Chairman of the President's Council of Economic Advisors 
C)  the Vice President of the United States 
D)  the Chairman of the Federal Reserve 
A)  the Secretary of the U.S. Treasury 
B)  the Chairman of the President's Council of Economic Advisors 
C)  the Vice President of the United States 
D)  the Chairman of the Federal Reserve

Question 12

The Federal Reserve acquires its exclusive powers through its ability to

Accepted Answer

A)  tax individuals and firms. 
B)  stop economic recessions. 
C)  issue money. 
D)  All of the answers are correct. 
A)  tax individuals and firms. 
B)  stop economic recessions. 
C)  issue money. 
D)  All of the answers are correct.

Question 13

To reduce the money supply in the economy, the Fed would

Accepted Answer

A)  increase the discount rate and/or raise the reserve ratio. 
B)  carry out open market purchases and/or raise the reserve ratio. 
C)  carry out open market sales and/or lower the discount rate. 
D)  carry out open market purchases and/or lower the discount rate. 
A)  increase the discount rate and/or raise the reserve ratio. 
B)  carry out open market purchases and/or raise the reserve ratio. 
C)  carry out open market sales and/or lower the discount rate. 
D)  carry out open market purchases and/or lower the discount rate.

Question 14

For a given level of reserves, a decrease in the money multiplier will cause the money supply to

Accepted Answer

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

Question 15

How many regional banks comprise the Federal Reserve System?

Accepted Answer

A)  4 
B)  10 
C)  12 
D)  16 
A)  4 
B)  10 
C)  12 
D)  16

Question 16

In the United States, the amount of cash per capita is about $3,000. This figure

Accepted Answer

A)  shows how much currency each American holds in their checking accounts. 
B)  misrepresents actual currency holdings in the United States because a lot of dollars are held outside the country. 
C)  accurately represents the size of the underground economy in the United States. 
D)  shows how much the world depends on the U.S. monetary system. 
A)  shows how much currency each American holds in their checking accounts. 
B)  misrepresents actual currency holdings in the United States because a lot of dollars are held outside the country. 
C)  accurately represents the size of the underground economy in the United States. 
D)  shows how much the world depends on the U.S. monetary system.

Question 17

Suppose in a given economy, we start at Point A as shown in the figure. If the Fed engages in an expansionary monetary policy, what would you expect to happen in the short run?

Accepted Answer

A)  Aggregate supply will decrease because of higher wages. 
B)  Aggregate demand will decrease because of lower interest rates. 
C)  Aggregate demand will increase because of lower interest rates. 
D)  The economy will move along the AD curve to a lower inflation rate. 
A)  Aggregate supply will decrease because of higher wages. 
B)  Aggregate demand will decrease because of lower interest rates. 
C)  Aggregate demand will increase because of lower interest rates. 
D)  The economy will move along the AD curve to a lower inflation rate.

Question 18

When the Fed wants to increase interest rates, it

Accepted Answer

A)  instructs banks across the nation that they must raise their rates. 
B)  sells bonds in the open market. 
C)  buys bonds in the open market. 
D)  adjusts the fractional reserve ratio. 
A)  instructs banks across the nation that they must raise their rates. 
B)  sells bonds in the open market. 
C)  buys bonds in the open market. 
D)  adjusts the fractional reserve ratio.

Question 19

The Federal Reserve provided a loan to finance J. P. Morgan's purchase of Bear Stearns because Bear Stearns was too

Accepted Answer

A)  big to let fail. 
B)  important to the check clearing process to let fail. 
C)  interconnected with other banks to let fail. 
D)  large of a holder of U.S. Treasury's deposits. 
A)  big to let fail. 
B)  important to the check clearing process to let fail. 
C)  interconnected with other banks to let fail. 
D)  large of a holder of U.S. Treasury's deposits.

Question 20

The financial crisis of 2008 illustrates that

Accepted Answer

A)  systemic risk is no longer a serious concern for the U.S. economy. 
B)  the Fed does not concern itself with the actions of investment banks. 
C)  the Fed has the power to control the President's responses to a financial and economic crisis and supervise fiscal policy. 
D)  the Fed has the power to step outside its normal functions and lend to investment banks when it perceives the risk of financial contagion. 
A)  systemic risk is no longer a serious concern for the U.S. economy. 
B)  the Fed does not concern itself with the actions of investment banks. 
C)  the Fed has the power to control the President's responses to a financial and economic crisis and supervise fiscal policy. 
D)  the Fed has the power to step outside its normal functions and lend to investment banks when it perceives the risk of financial contagion.

Exam 32: Inflation and the Quantity Theory of Money

Which of the following are the least liquid assets?

A bank will become illiquid if

M1 refers to

Bank notes are issued by

The Federal Reserve is one of the least independent agencies in the U.S. government.

For a given money multiplier, a decrease in the banking system's reserves will cause the money supply to

The monetary base is larger than M2.

An increase in the reserve ratio leaves banks with a need and desire to

M1 is equal to currency plus

The Fed loaned money to J. P. Morgan and AIG because it was concerned about

Who is Ben Bernanke?

The Federal Reserve acquires its exclusive powers through its ability to

To reduce the money supply in the economy, the Fed would

For a given level of reserves, a decrease in the money multiplier will cause the money supply to

How many regional banks comprise the Federal Reserve System?

In the United States, the amount of cash per capita is about $3,000. This figure

Suppose in a given economy, we start at Point A as shown in the figure. If the Fed engages in an expansionary monetary policy, what would you expect to happen in the short run?

When the Fed wants to increase interest rates, it

The Federal Reserve provided a loan to finance J. P. Morgan's purchase of Bear Stearns because Bear Stearns was too

The financial crisis of 2008 illustrates that

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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